Baker & McKenzie Advises Unsecured Creditors of Lehman Brothers in Court of Appeal Case
Deal Announcement
'3 August 2010
London, 3 August 2010 - Baker & McKenzie has advised Hong Leong Bank Berhad (HLBB), the Representative Respondent for the unsecured creditors of Lehman Brothers International (Europe) ("LBIE"), on its successful argument in the Court of Appeal that hedge funds should not be allowed to claim money from LBIE's general estate. This ruling is important as it maximises the funds available to repay LBIE's unsecured clients and other creditors.
The Court of Appeal ruling (delivered on 2 August) set the scope of protections for clients of investment banks that become insolvent. Certain hedge fund and other clients of LBIE were unprotected when the bank collapsed in September 2008. This was in spite of regulatory protections that should have applied to them in relation to the segregation of their funds. The Court has now ruled that these unprotected clients can share in the sums that LBIE had segregated for other clients. Therefore, hedge funds such as CRC Credit Fund Ltd. and Lehman affiliates can claim a share of an estimated $2.1 billion which was segregated prior to Lehman Brothers' administration. This judgment overturns a decision from December 2009 which stated that only clients who had money ringfenced for them could share in the money pool.
HLBB won its argument that CRC and the Lehman affiliates shouldn't claim money from the general estate. The Baker & McKenzie team was led by Financial Services Partner Arun Srivastava and Associate Mark Simpson.
The Court of Appeal's decision is now likely to slow down the Administration proceedings and result in some delay in the Administrators being able to return funds to clients and creditors.
Arun Srivastava commented: "This is a landmark case on the insolvency of a major investment bank. We are pleased to have successfully defended the position of the unsecured creditors of LBIE. The Court of Appeal's decision relates to the distribution of the cash held by LBIE. The key issues on the appeal concerned the composition of the pool of trust funds and how those funds would be distributed amongst the trust clients. Clients who now have a claim are the trust clients for whom funds had not been segregated. A further issue concerned whether money owed by LBIE to clients constituted client money. The Court upheld the Judge's decision that money owed to but not yet appropriated for clients did not constitute trust money. The Court's decision is likely to delay the distribution of the funds held by LBIE. It will be necessary to identify the funds to be included in the pool for distribution and to ascertain the claims to those funds from the various segregated clients."
Nick Peacock QC and Catherine Addy of Maitland Chambers were Counsel for HLBB.