Repayment in full—ranking debt after Lehmans (Re Lehman Brothers International (Europe) (in administration))

Repayment in full—ranking debt after Lehmans (Re Lehman Brothers International (Europe) (in administration))

Following the collapse of Lehman Brothers in 2008, what happens when it turns out that their main trading company in Europe is able to repay its external creditors in full? Barry Isaacs QC at South Square Chambers explains the key legal issues and arguments before the Court of Appeal.

Original news

Re Lehman Brothers International (Europe) (in administration) [2015] EWCA Civ 485, [2015] All ER (D) 139 (May)

What was the background to the appeal?

The case arose from the collapse of Lehman Brothers in September 2008, when Lehman Brothers’ main trading company in Europe (LBIE) and one of its shareholders entered administration. Its other shareholder entered administration in January 2009. The issues addressed arose in large part because it had emerged that LBIE is able to repay all its external creditors in full.

What were the legal issues that the Court of Appeal had to decide?

The Court of Appeal addressed a large number of questions, of which the following were the most significant:

  • does the subordinated debt rank for payment in priority to or after statutory interest and non-provable debts?
  • if a creditor who is owed money in a foreign currency receives less than the sterling equivalent at the date of payment, does it have a non-provable claim in LBIE’s administration or liquidation in respect of that loss (a ‘currency conversion claim’)?
  • does the right to statutory interest which has accrued during LBIE’s administration (‘post-administration interest’) survive if LBIE goes into liquidation?
  • do the ‘debts and liabilities’ in section 74 of the Insolvency Act 1986 (IA 1986) mean only the provable debts of the company, or do they include statutory interest and non-provable liabilities? Is LBIE entitled to prove, while in administration, for the liability of its contributories under IA 1986, s 74, or is it only entitled to prove if it is liquidation?

Why did these issues

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About the author:

Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.

Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.