Lehman Brothers International Europe propose scheme alternative

By Caroline Salls

Pittsburgh, Oct. 5 - Lehman Brothers International Europe's joint administrators are developing alternative proposals that would help with the return of client assets to avoid the delay that could come with their appeal of a High Court of Justice in London ruling that the court does not have jurisdiction to sanction the company's scheme of arrangement, according to a news release.

As previously reported, the administrators said they will continue to make bilateral returns to creditors along with the appeal process.

According to Monday's release, a hearing on the appeal is scheduled for Oct. 26, and the court is expected to issue a ruling in November.

The administrators said their other proposals will include many of the scheme provisions, "although the scheme is the most fully encompassing and preferred solution for the return of creditor assets."

Contractual solution

One solution being developed by the administrators would give creditors the option to voluntarily elect to benefit from the terms of a standardized settlement arrangement with substantially the same provisions as the draft scheme, including a bar date.

The administrators said this contractual solution would not require court sanction.

As part of the contractual solution, the administrators said they intend to seek court directions to assist them in protecting and administering client assets and to reduce the impact of any action by non-signatory parties who try to disrupt the process.

The administrators said this would be particularly necessary in cases where a shortfall in available securities has to be allocated to non-signatories.

Currently, the administrators estimate that of the $8.9 billion of securities assets currently under their control, a shortfall of less than $300 million is expected.

As a result, the administrators said they expect to be able to distribute a very significant proportion of the assets under their control without the need to allocate shortfalls to clients.

Proposed timeline

If all of the claimants agree to the contractual solution, the administrators said they expect to begin distributions of stock lines where there is no shortfall in the first quarter of 2010. They would then begin distribution of stock lines where there are shortfalls as soon as issues surrounding shortfall allocations are resolved with non-signatories.

The terms of the contractual solution are expected to be sent to prime brokerage counterparties during the week of Nov. 23.

In addition to the terms of the contractual solution, the administrators said they expect to apply to the court for help in administering client assets.

These applications will include setting a proposed Jan. 31 bar date for claim submissions, setting a bar date for Lehman affiliates to assert collateral over assets belonging to Lehman Brothers International Europe's clients, the approval of arrangements for the allocation of trust property to non-signatories, including the sharing of shortfalls, and the approval of cost deductions for non-signatories.

If the administrators' appeal is successful, they would review both the timetable to reintroduce the scheme and the proposals for the contractual solution in December in light of the court's decision.

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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