Local councils that invested millions with Lehman Brothers stand to get up to half their money back under a proposal that would deliver clients of the failed investment bank nearly $210 million.
Creditors of Lehman have been engaged in a legal row over complex debt securities sold by the investment bank in Australia before its collapse in 2008. After the Federal Court last year found Lehman breached its fiduciary duty to investors in selling the products, liquidators and litigation funder IMF (Australia) have agreed on a proposal to divide what is left of Lehman's local assets.
Under the proposal, Lehman clients, including councils, charities and churches, would share an estimated settlement of about $210 million, equal to 39.9¢ to 49.2¢ in the dollar, IMF said. The proposal still needs to be approved by creditors, including some related parties to Lehman, and the Federal Court.
IMF (Australia) executive director John Walker said the deal was "pretty close" to the best councils could expect from Lehman Australia and he expected them to back the deal. But he suggested related-party creditors in the Lehman group might raise concerns over the proposal, after previously offering councils a much smaller amount. "My guess is that it won't be client creditors that will be an issue, it may be related-party creditors," he said.
Councils involved in the case have included Wingecarribee and Parkes in NSW, and Western Australia's City of Swan.
The toxic assets at the heart of the dispute were synthetic collateralised debt obligations, which Federal Court judge Steven Rares last year described as "highly complex financial instruments, underpinned by equally complex, and at points arcane, legal documentation to give them effect".
For the latest proposal to become effective, it must be approved by 75 per cent of each class of creditor by value.
Mr Walker said Lehman Brothers Asia still had capacity to pay 100¢ in the dollar and he argued Lehman Asia was knowingly involved in selling the assets to councils.