Lehman Europe announces shareholding, relationship issues conclusions

By Caroline Salls

Pittsburgh, Feb. 21 - Lehman Brothers International (Europe) (LBIE) and other U.K. affiliates announced a statement of conclusions from the High Court of Justice, Chancery Court, Companies Division in connection with a joint application seeking a ruling on various issues concerning their shareholding and other relationships.

According to a news release, a hearing on the application was held in November. The conclusions were read in court on Friday.

The full judgment, including the judge's reasons, will not be handed down until a later date, the release said.

Subordination issues

The court's conclusions on issues not connected with the status of LBIE as an unlimited company included the following:

• The claims of LB Holdings Intermediate 2 Ltd. (LBHI2) under its subordinated loan agreements with LBIE are subordinated not only to provable debts but also to statutory interest and un-provable liabilities;

• LBIE creditors whose contractual or other claims are denominated in a foreign currency are entitled to claims against LBIE for any currency losses suffered as a result of a decline in the value of sterling against the currency of the claim between the start of LBIE's administration and the date of distribution payments.

The court said these currency conversion claims rank as un-provable liabilities, payable only after the payment in full of all proven debts and statutory interest on those debts;

• If the administration of LBIE is immediately followed by a liquidation, any interest for the administration period that has not been paid before the start of the liquidation will not be provable as a debt in the liquidation nor will it be payable as statutory interest; and

• Those creditors of LBIE with debts that carry interest by reason of contract, judgment or other reasons unconnected with the administration or liquidation will be entitled to claim in a liquidation that immediately follows the administration for interest accrued during the period of the administration. This will be allowed as an un-provable claim against LBIE, payable after the payment in full of all proved debts and statutory interest on those debts.

Unlimited status conclusions

Meanwhile, conclusions on issues arising from the status of LBIE as an unlimited company include:

• The obligation of members to contribute under section 74(1) of the Insolvency Act 1986 extends not only to provide for proven debts but also for statutory interest on those debts and un-provable liabilities;

• The rule that a contributory of a company in liquidation cannot recover anything until the contributory has fully discharged its obligations as a contributory applies only in a liquidation. It does not apply in an administration, including the administration of LBIE;

• LBIE, acting by its administrators, will be entitled to lodge a proof of claim in a distributing administration or a liquidation of either Lehman Brothers Ltd. or LBHI2 in connection with those companies' contingent liabilities under section 74(1) of the Insolvency Act 1986 that may arise if LBIE were to go into liquidation;

• In a distributing administration or liquidation of Lehman Brothers Ltd. or LBHI2, the claims of those companies as creditors of LBIE would be the subject of mandatory setoff against the claims of LBIE in connection with those companies' contingent liabilities as contributories; and

In the administration of LBIE, the contingent liabilities of Lehman Brothers Ltd. and LBHI2 as contributories will be the subject of mandatory setoff against the admitted proofs of debt of those companies as creditors of LBIE.

New York-based Lehman Brothers Holdings Inc. was the fourth-largest investment bank in the United States. The company emerged from bankruptcy on March 6, 2012.

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