Wednesday, 19 September 2018

UPDATE 2-UK Supreme Court awards £5bn to Lehman Europe claimants

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Claimants against Lehman Brothers’ main European arm will receive at least £5bn in interest payments on top of previously awarded claims after the UK’s most senior court ruled they should receive the statutory interest that has built up over the last eight years.

PwC, the administrator of Lehman Brothers International (Europe), has already paid out 100% of creditors’ original £11.5bn in claims but had sought direction from the courts on which creditors should receive extra money that has built up since those claims were met.

Junior creditors of the entity, which was put into administration when its US parent filed for bankruptcy protection in the US under Chapter 11 in September 2008, had said they should receive the additional monies rather than it going to pay interest and compensation to general claimants.

This group, which includes Elliott Management and King Street, holds LBIE’s US$2.225bn (face value) of subordinated notes.

In a unanimous judgement handed down on Wednesday morning the Supreme Court decided that the general claimants should receive statutory interest at the rate of 8% before the junior creditors receive any monies. That amounts to around £5bn.

However, the judges led by the court’s president Lord Neuberger decided by four to one to dismiss creditors’ claim to be compensated for losses incurred from swapping their US dollar claims into sterling.

The claims, originally in US dollars, had to be converted to sterling on the date of LBIE’s administration in September 2008 to be “proved” under English law. Since then sterling has weakened significantly, particularly after the UK voted to leave the European Union last June.

The FX compensation had been estimated at as much as £2bn. That, together with the £5bn of statutory interest, would have eaten up much of the £7.5bn surplus accrued by LBIE on top of the £11.5bn already awarded.

Instead, the decision on FX means that there should be sufficient money left over to meet most or all of the claims made by the more junior creditors, including Elliott and King Street.

There are still a number of other outstanding issues on more detailed points to be decided in lower courts. These uncertainties could delay any eventual payouts, possibly until 2021, unless the parties settle beforehand.

In its latest update on the administration, published last month, PwC was not optimistic that an agreement could be reached.

“We have perceived that there has been little appetite on the part of the respondents to settle the surplus entitlements matter consensually. We will explore this again after the judgment has been handed down,” the update said.

Neither PwC nor Elliott Management immediately responded to requests for comment.

The case was heard last October but judgement had been delayed in part because all 11 judges at the Supreme Court had been involved in the ruling that triggering Article 50 of the Lisbon Treaty (to start the two-year Brexit process) required parliamentary approval.


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