Lehman lawyers move to block repayments

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

A proposal to return $210 million to Australian clients of failed Wall Street investment bank Lehman Brothers was in jeopardy on Tuesday night after the bank's lawyers made a late 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 a vote could be delayed and a proposal indefinitely suspended if lawyers for the investment bank are successful in pressuring liquidators.

Local councils, churches and charities are among the former clients of Lehman, which collapsed in 2008 at the beginning of the global financial crisis (GFC).

The groups 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 bought the rights of the related parties, enabling them to vote down the proposal.

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

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

IMF Australia 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. The proposal follows a decision in the Federal Court that found the Australian arm of the investment bank - previously called Grange Securities - had breached its fiduciary duty by advising local councils and charities to buy synthetic collateralised debt obligations, the instruments now known for their role in the GFC.

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