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The judgment in LB Holdings Intermediate 2 Ltd (in administration) contains a clear direction on the extent to which the courts will bless a transaction in an insolvency context, according to Euan Clarke, a partner in Linklater’s dispute resolution group in London. It also provides guidance on when it would be appropriate for insolvency practitioners to seek directions from the court with respect to a transaction.
LB Holdings Intermediate 2 Ltd (in administration)  EWHC 2032 (Ch), All ER (D) 44 (Aug)
In this rare and exceptional case, a proposal by joint administrators to appoint a director to a company already in administration (Lehman Brothers Europe Ltd), in order to distribute surplus funds to its sole member (Lehman Brothers Holdings plc), as opposed to a creditor, was held to be legally permissible, as well as pragmatic and beneficial.
What is the background to the case and what are the issues arising within it that are pertinent to insolvency practitioners?
The widely known administrations of various UK entities within the Lehman Brothers group (the group) have been ongoing since late 2008. Following a highly successful process of collecting and realising assets by its joint administrators, the group’s principal trading company in Europe, Lehman Brothers International (Europe) (LBIE), now holds a substantial surplus, estimated at between £7bn and £8bn.
Various high profile applications to the court, known as the ‘Waterfall’ applications, have been made for the purposes of determining issues between various stakeholders as to their respective entitlements in relation to that surplus, as well as related issues. These applications have already given rise to various High Court decisions (see Re Lehman Brothers International (Europe) (In Administration)  EWHC 2417 (Ch),  EWHC 2131 (Ch),  EWHC 2270 (Ch),  EWHC 2269 (Ch), and  EWHC 704 (Ch)), as well as appellate authority, both at the Court of Appeal and Supreme Court levels (see Re Lehman Brothers International (Europe) (In Administration)  EWCA Civ 485, and  UKSC 38).
The present decision
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