Ruling on Lehman's motion to hold Shinsei Bank in contempt delayed; judge requests information on Japanese law

By Alice Popovici

New York, Aug. 26 - A decision on Lehman Brothers Holdings, Inc.'s motion to hold Shinsei Bank in contempt for allegedly violating the automatic stay imposed by Lehman's bankruptcy filing was delayed indefinitely Wednesday by the U.S. Bankruptcy Court for the Southern District of New York, pending an explanation of Japanese legal proceedings.

Lehman's attorneys argued that Shinsei, one of its largest unsecured creditors and co-chair of the Asia subcommittee of its official committee of unsecured creditors, has recently proposed an alternative plan of liquidation in Sunrise Finance Co. Ltd.'s insolvency proceeding that they said is designed to block Lehman and Hong Kong affiliate Lehman Brothers Asia Holdings Ltd.'s recovery from Sunrise.

"[The plan] is a means by which distributions which would otherwise be made to Lehman in respect to its allowable claims would be allocated to other creditors," company attorney Richard Krasnow, a partner at Weil, Gotshal & Manges, told the court.

He said Shinsei Bank is taking "offensive" action in attempting to "equitably subordinate" Lehman, and "it is precisely what goes to the core of automatic stay."

J. Ronald Trost, of counsel at Vinson & Elkins and representing Shinsei Bank, told the court he does not accept the distinction that Shinsei Bank is taking an "offensive" approach.

"I think Lehman's approach, LBHI's approach, is untenable," Trost said. "I could say, but I'm not going to -it's disingenuous."

Trost told the court his knowledge of the Japanese legal system is limited but, from his understanding, the two competing plans are brought before a "supervisor" who decides which plan goes before creditors for a vote.

"The supervisor serves as the traffic cop in terms of their plan process," he said.

Judge James Peck said he does not know enough about Japan's legal system to determine if the action that has taken place constitutes a violation of automatic stay.

"What I don't know from the stack of papers that I have," Peck said, "is, procedurally, what happens next."

He asked both sides to submit declarations that explain the Japanese legal proceedings. No hearing date has yet been scheduled.

New York-based Lehman Brothers Holdings Inc. was the fourth-largest investment bank in the United States. The company filed for bankruptcy on Sept. 15, 2008. Its Chapter 11 case number is 08-13555.

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