Lehman clients may not recover money
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.
Frequently Asked Questions about this Article…
The proposal aims to return about $210 million to former Australian clients of failed Lehman Brothers, offering some clients—such as councils, churches and charities—the chance to recover up to half their money. The plan must be approved by creditors at a creditors' meeting and by the Federal Court before payments can proceed.
Affected clients include local councils, churches, charities and other former clients of Lehman Brothers Australia (previously called Grange Securities). Under the proposal these groups were hoping to recover as much as half of the money they lost.
The proposal was jeopardised after Lehman’s lawyers made an 11th‑hour bid to seize control of the vote determining the plan’s fate, and the US Lehman holding company purchased rights that let related parties vote the plan down, potentially delaying or suspending the proposal.
The creditors' vote was expected at a Lehman Brothers Australia creditors' meeting in Sydney, scheduled for Wednesday, where creditors would decide whether to approve the repayment proposal.
According to the article, lawyers for the US holding company made a late move to influence the process and the holding company purchased voting rights from related parties, enabling those parties to vote against the proposal and, as Jones Day partner Philip Hoser said, effectively control the fate of the scheme.
Yes—the proposal needs approval not only from creditors (including some related parties) but also from the Federal Court. The article also notes concerns that Lehman’s lawyers were putting pressure on liquidators, which could affect timing and the vote.
The Federal Court found that the Australian arm, previously called Grange Securities, breached its fiduciary duty by advising councils and charities to purchase synthetic collateralised debt obligations.
Affected investors and community organisations should expect uncertainty until the creditors' vote and any required Federal Court approvals are finalised. The article makes clear the vote could be delayed or suspended if the holding company’s moves succeed, so those expecting recoveries of up to half their losses should watch the creditors' meeting outcome and any court decisions closely.
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