Lehman clients may not recover money

A proposal to return $210 million to Australian clients of failed Wall Street investment bank Lehman Brothers was in jeopardy last night after the bank's lawyers made an 11th-hour bid to seize control over a vote determining its fate.

The vote is expected to take place at the Lehman Brothers Australia creditors' meeting in Sydney on Wednesday. But there were fears that a vote could be delayed and a proposal indefinitely suspended if lawyers for the investment bank were successful in putting pressure on liquidators.

Local councils, churches and charities are among the former clients of the failed bank, whose collapse in 2008 marked the beginning of the global financial crisis. They were hoping to recover up to half their money under the proposal, which needs to be approved by creditors, including some related parties to Lehman, and the Federal Court.

But on Friday night, the investment bank's holding company purchased the rights of the related parties, enabling them to vote it down and throw years of negotiations into disarray.

Philip Hoser, a partner at Jones Day representing the US Lehman Brothers holding company, said his clients had reservations about the proposal and were considering how to vote.

"The holding company now in effect controls the fate of the scheme," he said.

IMF Australia's executive director John Walker, who represents the non-profit organisations, said the move was a blatant attempt by the US holding company to control the process. "We're simply wanting a vote," he said.

The proposal follows a decision in the Federal Court that found the Australian arm of the bank - previously called Grange Securities - had breached its fiduciary duty by advising the councils and charities to purchase synthetic collateralised debt obligations.