Joint administrators say Lehmans waterfall judgment likely to be appealed

Joint administrators say Lehmans waterfall judgment likely to be appealed

The 11th report of the joint administrators of Lehman Brothers International (Europe) (LBIE) gives an update on progress so far, including a reaction to the Lehmans waterfall judgment plus details of possible further litigation and the size of the next dividend.

Original news
On 11 April 2014, the joint administrators of LBIE issued their eleventh progress report for the period of 15 September 2013 to 14 March 2014 (the 11th report).

What does the report say about the Lehmans waterfall judgment?
The joint administrators of LBIE conclude that while certain matters arising from the fact that a surplus of funds is likely were addressed in the Waterfall Application, it has become clear that further directions will be needed from the court to resolve issues regarding the full extent of the rights of creditors to post-administration interest and non-provable currency conversion claims—unless a compromise can be agreed between the major creditors (and also supported by a requisite majority creditor vote).

The administrators will continue to discuss the compromise with creditors but, at the same time, preparation is being made to seek permission to appeal certain aspects of the Waterfall Application judgment (see page 5 of the 11th report).

Is there other proposed litigation?
The administrators say that preparation is also being made to commence separate proceedings on a number of related matters concerning post-administration interest and currency conversion claims that are not addressed by the Waterfall Application proceedings, such as:

• the interpretation of the definition of default rate in the ISDA master agreement in order to determine the entitlement of creditors to recover a compound rate of interest in excess of the rate prescribed by the Insolvency Rules 1986, SI 1986/1925 r 2.88(6)
• the effect of post-administration interest on the calculation and adjustment of currency conversion claims, and
• the impact of the release and discharge clauses included in post-administration documentation, such as the claims resolution agreement and claims determination deeds, on post-administration interest and currency conversion claims

What about the next dividend?
A fourth interim unsecured dividend (at a rate of 7.8p/£1) was announced on 28 February 2014, with a cut-off date for proving of 28 March 2014. This brings the cumulative rate to 100p/£1. Payment will be made on or around 30 April 2014.

The updated indicative financial outcome range for unsecured creditors now shows a surplus in both the low and high case scenarios for the first time (see page 7 of the 11th report).

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About the author:
Kathy specialises in restructuring and cross-border insolvency. She qualified as a solicitor in 1995 and has since worked for Weil Gotshal & Manges and Freshfields. Kathy has worked on some of the largest restructuring cases in the last decade, including Worldcom, Parmalat, Enron and Eurotunnel.