Court approves appointment of examiner in Lehman bankruptcy case

By Rebecca Melvin

New York, Jan. 14 - A motion seeking appointment of an examiner in the Lehman Brothers Holdings Inc. bankruptcy cases was granted by the U.S. Bankruptcy Court for the Southern District of New York Wednesday.

The examiner will have permission to hire professionals, particularly financial professionals, as needed to better gather and interpret information related to Lehman, its affiliates and creditors and various transfers and transactions.

Before the final order is entered, it will be circulated among interested parties to ensure there is consensus on the form of order.

The examiner motion was originally brought by the Walt Disney Co. in October to investigate whether Lehman Brothers Commercial Corp. has administrative claims against Lehman Brothers Holdings as a result of the holdco's cash sweeps of commercial's cash balances, if any, after Sept. 15, when the holding company filed for Chapter 11 bankruptcy.

Bank of America and the Harbinger Funds filed joinders to the Disney motion as they too want permission to probe the movement of certain property.

The U.S. Trustee and Barclays Capital objected to the examiner motion.

Bank of America wanted an examiner to focus specifically on the movement of property to the holding company and its subsidiaries by third parties as collateral for derivatives trades.

Disney, which claims it is owed $92 million by the holding and commercial company entities, is seeking to probe certain foreign currency transactions and a guaranty agreement.

Walt Disney counsel Martin Bienenstock of Dewey & LeBoeuf LLP told the court the scope of the examiner is not Disney specific and that Disney was heartened by statements by Lehman counsel that if the examiner comes back to the court to expand its mandate, the debtor will support that.

"We are opposed to stealth consolidation among the various debtor cases, which is a danger in jointly administered cases. And the danger is that things get done that are not in the interest of particular estates," Bienenstock said in defending his client's motion.

"There are issues that Marsal labeled as very controversial on inter-claim issues," he said.

Addressing the court's concern about costs associated with the investigations requested, Bienenstock said that Lehman's case, due to the fact that the creditors committee was appointed prior to the bankruptcy filings of some affiliates, has the fewest professionals per claim dollar of almost any other case.

"We don't want to reduce our distribution, of course. But it's one thing to be efficient, and it's another to create rules that will limit the scope of the examination," Bienenstock said.

Coordinated efforts required

The examiner and others should be willing to piggy back on the work product of both Alvarez & Marsal, Lehman's restructuring adviser, and the creditors committee, as a means of saving money and not duplicating work, bankruptcy judge James Peck suggested and the parties agreed.

Peck also said that he wanted as a condition to the examiner appointment order, meetings to take place among the various stakeholders to synchronize what is likely to be multiple investigations.

Counsel for the U.S. Trustee told the court that it has already begun to solicit recommendations and interview for an examiner.

On the issue of financial advisers, counsel said, several prospective examiners said they would need their own financial advisers to vet on a spot basis or on other areas of concern.

One candidate said that he wouldn't take the assignment without being able to hire his own financial advisers, the U.S. Trustee counsel said.

For Barclays' part, counsel said, "We were concerned about being examined to death. But where this has gelled around is what we had hoped for."

But when counsel for Barclays seemed to be seeking limits on examination, judge Peck pushed back, saying that Barclays has no rights under the sale order to prevent the examiner from determining that what was done hurriedly was done correctly.

Peck was referring to the quickly drawn up and heard sales order of Sept. 19.

Peck at the outset outlined what he envisioned as the proper course of the examiner's work, and how it fostered a so-called master plan.

The examiner order would "provide for coordination without limitation," he said. "The goal of the examiner motion is not merely to fulfill a statutory duty, but to advance the overall interests of the case as a whole," Peck said.

He said financial professionals would be needed at the very beginning and without which the examiner would be subject to the disability of not knowing the right questions to ask or the interpretive prism through which to evaluate the information being provided.

He was also concerned about costs. "I'm deeply concerned about costs in the case. There's a tremendous amount of money in the bank, but at the burn rate described, over time, available cash will be expended. This is not a blank check for professionals," Peck said.

New York-based Lehman Brothers Holdings is the fourth largest investment bank in the United States. The company filed for bankruptcy on Sept. 15. Its Chapter 11 case number is 08-13555.

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