The insolvency proceedings of the Lehman Brothers' group of companies worldwide ("Group") are among the most complicated ones we have seen. A significant factor contributing to the complexity is that many Group entities hold segregated assets (principally securities and funds) for their clients, which may be individuals or entities within or outside the Group.
On 25 August 2010, the Honourable Mr Justice Barma of the Hong Kong High Court granted an application made by the respective Liquidators (Messrs. Middleton, Brough and Cowley of KPMG) of five of the Group's entities in Hong Kong seeking permission to impose a "bar date" for third parties to claim the client assets held by or to the order of these five entities. This application is an important step in the Liquidators' plans to distribute the client assets, by defining the universe of claimants.
The learned Judge was satisfied that, to the extent the five entities hold client assets, they do so on trust. The jurisdictional basis for imposing a "bar date" is to be found in section 29 of the Trustee Ordinance (Cap 29) ("TO"). In summary, this section allows a trustee to obtain protection when distributing assets held on trust, by means of prior notice inviting potential beneficiaries to make claims by a specified time, after which the trustee may distribute the trust assets to claimants "having regard only to the claims, whether formal or not, of which [the trustee] then [the time of distribution] had notice".
There is authority suggesting that this notice should be advertised in places where the beneficiaries are likely located. At the hearing, the learned Judge endorsed the Liquidators' proposals both to send the notice to individual third parties who may have claims, and to advertise the notice on the Internet and in local and overseas newspapers.
Section 29 of the TO requires the notice period to be not less than two months. Given the additional complexities presented by the Group's liquidation, the learned Judge agreed with the Liquidators that a reference time of three months is preferable. The Liquidators will adjudicate all claims received from third parties so as to be able to distribute the client assets to the parties entitled to them. Persons who do not make claims by the bar date may lose their entitlement, if any, to share in any distribution of these assets.
Most cases in which section 29 of the TO (or its equivalent in other common law jurisdictions) has been invoked concern the administration of the estates of deceased persons. Many of these cases date back to early in the 20th century or earlier. The present application shows how this section can be used in the context of the winding-up of a massive financial institution in the 21st century.
Mayer Brown acted for the Liquidators in this application with Richard Tollan (who heads our contentious insolvency team) appearing himself before the learned Judge.