Lehman bankruptcy hits stumbling block
A dispute is brewing behind the scenes of the Lehman Brothers bankruptcy, pitting British attorneys against American attorneys, and, if unresolved, potentially stalling the legal proceedings for years.
A dispute is brewing behind the scenes of the Lehman Brothers bankruptcy, pitting British attorneys against American attorneys, and, if unresolved, potentially stalling the legal proceedings for years.
Boiled down, the feud is about whether Lehman entities worldwide will work together to unwind the billions of dollars in financial obligations and pay back creditors, or whether the offices will take an “every man for himself” posture.
Earlier this month, many of the administrators managing each of Lehman’s worldwide entities agreed upon—and signed—a protocol for information sharing, one that the administrators of Lehman Brothers Holdings, the parent company, say will ensure efficient dismantling of the vast investment bank.
Lehman Brothers Holdings declared bankruptcy in September, listing liabilities of $613 billion, the largest corporate bankruptcy to date. The bankruptcy filing immediately interrupted the flow of information, assets and cash between the bank’s global offices, sometimes in mid-transaction. Lehman had about 1 million open derivatives contracts, for example, that still need to be unwound.
Each office came under the bankruptcy procedures of its host country. One of the gargantuan tasks in the Lehman Brothers Holding bankruptcy is to coordinate filings and actions of each of these entities, and the global protocol proposed earlier this month was intended to ease the flow of information.
Among the signatories of the protocol were Lehman entities in Australia, Germany, Holland, Hong Kong, Japan, Singapore and Switzerland. The London office, the headquarters of an entity called Lehman Brothers International Europe, or LBIE, refused to sign.
Lawyers at Linklaters, the U.K. law firm representing Lehman Brothers International, wrote in an April report to creditors, that, “at this time, the administrators do not consider it to be in the best interests of [our client] and its creditors to be party to or bound by such a broad arrangement…which could potentially place a very significant burden on LBIE.”
Since the London entity served as a clearinghouse for most of the bank’s European operations, its participation in the protocol is key, says the U.S.-based law firm for Lehman Brothers Holdings, Weil Gotshal & Manges. Richard Krasnow, a partner in Weil’s bankruptcy group, called the London entity’s refusal to participate a “showstopper” during his argument in federal bankruptcy court earlier this month.
Southern District Bankruptcy Judge James Peck, presiding over the case, scolded the British lawyers in court, saying, “The position that’s being taken by [LBIE] appears to be getting in the way of a global initiative.”
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