Lehman Brothers' creditors to receive additional £5bn

1 June 2017

Creditors of Lehman Brothers International Europe (LBIE) will receive £5bn in additional payouts following a Supreme Court ruling on the terms of thefirm's insolvency arrangement.

LBIE has been engaged in a number of legal battles regarding the terms of administration, which the firm entered back in 2008.

The firm's European operations were sufficiently capitalised by investors and senior executives before it entered insolvency due to a lack of liquidity. This has enabled administrators PwC to settle creditor claims with a value totalling approximately £36bn to date.

What did the Supreme Court rule on Lehman Brothers' administration terms?

General claimants – primarily hedge funds – are set to receive additional statutory interest at a rate of 8%, according to the Supreme Court ruling.

This amounts to approximately £5bn, which will be settled from LBIE's remaining surplus of £7.5bn.

Junior creditors had argued that they should receive monies accrued since creditors' original claims (totalling £11.5bn) were settled. However, the unanimous judgement stated this amount would be paid to general claimants before junior creditors receive any monies.

At the same time, judges rejected a separate currency conversion claim with a value of £2bn by a ratio of four to one.

The creditors' original claims were made in US dollars, but had to be converted into sterling when the company went into administration in order to be 'proved' under UK law.

Since 2008, the value of the pound has fallen significantly, most notably following the EU referendum decision in summer 2016.

Creditors believed they were entitled to compensation for losses incurred as a result of their claims being converted from dollars to pounds. However, this was not upheld by the Supreme Court's decision.

A number of other legal issues are currently being debated in the lower courts, meaning agreed payouts may not be made until as late as 2021.

What did PwC have to say about the Lehman Brothers ruling?

Tony Lomas, PwC's Chairman of UK Business Recovery Services, commented: "There have been delays caused by a variety of legal proceedings involving creditor groups and shareholders asserting different entitlements."

"The first of these proceedings has come to an end today with the Supreme Court handing down its judgement on a set of matters known as ‘Waterfall I’."

“We are continuously focused on resolving these issues to allow us to distribute the £7.5bn surplus, so we welcome the Waterfall I Supreme Court judgement.” (City A.M.)

The amounts being discussed as part of the Lehman Brothers case would be eye-watering to many business owners. However, that they have been able to settle all claims to date (and, look set to continue), goes to show the value of keeping your affairs in order and bringing in a top-class administrator.

Worried about the prospect of your business going into administration? Get the expert advice you need by calling on the experts at Company Rescue.

Categories: Administration, What is administration