The Administrators of Lehman Brothers International Europe ("LBIE") have been given leave by the English High Court to formulate and propose an arrangement under statute for dealing with claims for the return of client money and other assets (a "scheme of arrangement"). The aim is to put in place a procedure to speed up the process of dealing with such claims and to avoid protracted disputes. The proposed terms of the scheme of arrangement, and in particular the extent to which a party's substantive rights may be affected, have not yet been set out, but will be the subject of consultation. It is expected that there will be a bar date for submitting proprietary claims. The proposed scheme will be limited to dealing with claims relating to trust property and client money. The proposed scheme will not deal with general unsecured claims and is not being proposed with a view to making a distribution to unsecured creditors or to bringing the administration to a close.
The court order
On 16 March 2009 the English High Court ordered that:
(a) the Administrators of LBIE may propose a scheme of arrangement between LBIE and its creditors in relation to Trust Property; and
(b) to the extent that the Administrators do not recover their reasonable remuneration, costs and expenses incurred in dealing with the Trust Property out of such Trust Property, they may be paid and indemnified out of the assets of LBIE.
Trust Property means, for this purpose, all property of, or held in the name of, or otherwise to the order of, LBIE which is subject to trust or proprietary claims, whether comprising monies under the Financial Services Authority's Client Money Rules or other monies or assets.
What is a scheme of arrangement?
A scheme of arrangement is a statutory compromise or arrangement under English law between a company and its creditors, or any class of them. Those affected by the proposed arrangement will be invited to attend one or more meetings to consider and vote on the proposal. Creditors with common interests in the scheme will be split into classes for voting purposes. There are two court applications involved, the first to ask the court to convene the meeting or meetings of creditors, and the second, to sanction the scheme. A scheme of arrangement becomes legally binding on a company and all of those creditors affected by it (even if they did not vote at the scheme meeting, voted against the scheme or did not receive notice of the meeting at which the vote was taken) if certain conditions are satisfied, key among them being that:
(a) a majority in number representing not less than 75% in value of the creditors (or each class of creditors) vote in favour of the scheme; and
(b) the English Court subsequently sanctions the scheme of arrangement.
What are the Administrators of LBIE proposing?
It is proposed that the scheme will impose a final claims submission date or "bar date" for claims relating to Trust Property. Whilst the scheme is likely to put in place a procedure for dealing expeditiously with proprietary claims, it is not clear at this stage to what extent, if at all, parties' rights in relation to trust property will be substantively affected or altered by the proposed scheme. There are legal complexities with this approach which will have to be overcome in any event.
It is understood that under consideration are proposals that would:
- modify existing contractual arrangements;
- provide for the mandatory termination of contracts by a long-stop date; and
- include mechanisms for valuation of claims and positions.
The Administrators propose to continue exploring the potential terms of a scheme of arrangement in consultation with the working group they have set up for that purpose, comprising representatives of the Administrators, their advisors and the creditors' committee members. The Administrators have held open meetings with industry bodies such as the Alternative Investment Management Association and the Managed Funds Association to discuss what they are proposing. The London Investment Banking Association was also represented at the hearing of the Administrators' application.
Should the Administrators determine that a fair scheme with a reasonable prospect of being acceptable to the affected creditors can be devised, they hope to be in a position to circulate scheme documentation early this summer, with a view to holding initial scheme meetings to be convened by the court in the autumn of this year.
What should parties seeking the return of assets or client money from LBIE be doing?
While the Administrators are in the process of scoping the proposed scheme, those potentially affected may wish to engage in the consultation process, either through industry bodies of which they are a member or directly. Our Lehman Response Team in London will be happy to pursue enquiries on clients' behalf. Once the scheme document becomes available, it will be important for clients to review the scheme document in detail and identify whether they are likely to fall within its terms. Clients will then need to decide how they wish to respond, including by voting and/or making representations in court, and comply with what is likely to be a compressed timetable.
For further information please contact:
Tel: +44 20 3130 3669
Tel: +44 20 3130 3856
Tel: +44 20 3130 3818
Tel: +44 20 3130 3876