The pragmatic approach to insolvency - Re Lehman Brothers Europe Ltd (in administration)

The pragmatic approach to insolvency - Re Lehman Brothers Europe Ltd (in administration)

Joe Bannister, John Tillman and Margaret Kemp of Hogan Lovells examine the Lehman Brothers Europe Limited (LBEL) case and suggest the decision illustrates the courts are willing to adopt a pragmatic approach in assisting insolvency practitioners who need to act quickly in circumstances where their proposed actions are not expressly addressed in the Insolvency Act 1986 (IA 1986).

Original news

Re Lehman Brothers Europe Ltd (in administration) [2017] All ER (D) 44 (Aug), [2017] EWHC 2031 (Ch)

In this important case, a proposal by joint administrators to appoint a director to a company already in administration (LBEL), in order to distribute surplus funds to its sole member (Lehman Brothers Holdings plc (LBH)), as opposed to a creditor, was held to be legally permissible, as well as pragmatic and beneficial.

What approach did the administrators take towards distributions to members?

The three main players in this decision are LBEL, its parent company, LBH, and an affiliated company, Lehman Brothers Limited (LBL), all in administration.

Having paid dividends to LBEL’s unsecured creditors of 100 pence in the pound, the administrators of LBEL (the administrators) held a considerable surplus. However, they were unable to distribute that surplus, partly because of an unresolved claim that LBL had made against LBEL’s estate. A settlement of the Waterfall III proceedings had been proposed. As part of that settlement LBL would withdraw its claim against LBEL and LBEL’s proof of debt submitted in LBL’s estate would be admitted in an agreed amount. That settlement would allow the administrators to proceed with the distribution of the surplus. Equally, the distribution of LBEL’s surplus was a key feature of the proposed settlement.

The administrators wanted to distribute the surplus (including any amount received from LBL) to make the following payments, as set out in para [20] of the judgment:

  • to pay statutory interest to LBEL’s unsecured creditors
  • to make a reserve for the administrators’ costs and any additional matters in the administration, including tax, and
  • to distribute to LBEL’s sole shareholder, LBH, the remaining

Subscription Form

Already a subscriber? Login
RELX (UK) Limited, trading as LexisNexis, and our LexisNexis Legal & Professional group companies will contact you to confirm your email address. You can manage your communication preferences via our Preference Centre. You can learn more about how we handle your personal data and your rights by reviewing our  Privacy Policy.

Related Articles:
Latest Articles:

Access this article and thousands of others like it free by subscribing to our blog.

Read full article

Already a subscriber? Login