Linklaters has advised PricewaterhouseCoopers LLP, administrators to Lehman Brothers International (Europe) (“LBIE”), on the application that the joint administrators made yesterday to the High Court in connection with a Scheme of Arrangement (“Scheme”) with respect to certain client assets held by LBIE. The Scheme is intended to expedite significantly the return of trust assets controlled by LBIE to its clients, therefore avoiding a lengthy, onerous and unpredictable process that could otherwise take years to bring to finality.
The Scheme requires approval of the High Court and LBIE Creditors and, should both approvals be met, the Scheme should become effective by the end of October 2009, create a bar date of 31 December 2009 and the return of Trust assets should be moving forward by the first quarter of 2010.
A High Court hearing relating to the application of the Scheme of Arrangement will be heard in public on the 29 and 30 July 2009 at the Royal Courts of Justice in London and will seek confirmation that the Court has jurisdiction to subject creditors with trust property claims to a scheme of arrangement.
On 15 September 2008 LBIE held approximately $23bn in client assets. Since then, the administrators have returned client assets held by negotiating individual bilateral agreements with affected creditors. While this has been successful in certain cases, it has been a lengthy process, onerous on clients and it has been unable to bring finality to dealings between LBIE and its clients. Over coming weeks the administrators will also make a further application to the High Court for meetings of creditors to be convened. At those meetings the creditors will have the opportunity to vote on the scheme of arrangement.
David Ereira, banking partner at Linklaters who has led the team working on the development of the Scheme, commented:
"A Scheme of Arrangement is a tried and tested tool for reaching a fair compromise amongst creditors. This Scheme is innovative and wide ranging, and an example of how it can be adapted to new situations. It demonstrates the flexibility and commerciality which can be used in an English insolvency in order to resolve creditor issues.
"Through the Scheme, creditors can look forward with confidence to a systematic and orderly process for dealing with the return of their assets. Great care has been taken to balance the interests of all parties in a reasonable and fair way. This Scheme offers, by a considerable margin, the best alternative to achieving the most efficient resolution of the trust property issues arising from the Lehman insolvency.
“It is an important Scheme not just because it marks a point of significant progress in the resolution of the Lehman administration but also it has wider implications. It shows how English law can be used to deal in an innovative and creative way with completely new issues both in scale and complexity.
“It also addresses directly how some of the concerns recently raised in the markets and reflected in HM Treasury’s discussion paper on effective resolution arrangements for investment banks can be resolved and it shows how speed and certainty can be achieved in the UK markets in a fair, balanced, orderly and predictable way in even the most complex situations.”
Steven Pearson, joint administrator of LBIE and partner at PricewaterhouseCoopers LLP, said:
“We are very pleased to be able to announce a fully formulated solution to the client asset issue within nine months of LBIE’s administration. The proposed Scheme is a highly innovative mechanism which will enable the return of trust assets in the quickest and most efficient way. It is the result of a collaborative development process working closely with a representative group of LBIE's clients over recent months.
“Fundamentally, the scheme proposes a compromise on all sides to cut through the multiplicity of complex issues to deliver a fair solution. It has the unanimous support of the LBIE creditors’ committee, which contains representatives of both trust clients and general estate unsecured creditors.”
The Scheme project started at the turn of the year and has taken approximately six months to develop.
The Linklaters team working on the Scheme drew upon the expertise of people across the firm who have been involved in the administration. In addition to the firm’s banking and restructuring & insolvency experts, it included the debt structured products team (who undertook the detailed review of Lehman’s contracts); the financial regulation group (who have been advising on all the market facing and regulatory aspects of the insolvency); the corporate practice (who have been advising on the detailed operation of the Scheme); and the dispute resolution team.
Partners included David Ereira, Michael Voisin, Stephen Fletcher, Pauline Ashall, Mark Kingstone and Nick Porter. Associates included Marcus Au Yeung, Jon Branch, Harpal Dhillon, Fionnghuala Griggs, Patricia Ho, Fiona Houston, Jacqueline Ingram, Clare Merrifield, James O'Connell, Susan Roscoe and Aisling Zarraga.
For further information, please contact:
Sarah Peters on (44-20) 7456 2153 or sarah.peters@linklaters.com
Toby Craig on (44-20) 7456 4550 or toby.craig@linklaters.com
