Local councils that lost millions of dollars after buying toxic investments through Lehman Brothers have finally reached a settlement with liquidators of the failed investment bank.
More than five years after the global financial crisis, dozens of councils, churches and charities that had joined a class action agreed on Monday to a settlement that paves the way for millions of dollars to be returned to creditors.
The councils had been embroiled in negotiations with the investment bank's liquidators since 2008, after they bought highly complex financial products from Lehman and its predecessor in Australia, Grange Securities.
The products plunged in value when global credit markets went into meltdown during the GFC. But on Monday the liquidator for Lehman, PPB, reached a settlement in the class action led by Wingecarribee Shire Council in NSW, under which "client creditors" are expected to get back about 50¢ in the dollar. This is in addition to $250 million returned to some investors who had bought the complex products, PPB said.
John Walker, executive director of Bentham IMF - previously IMF (Australia) - said the deal put the councils "within sight of financial relief"'. "It has been a marathon battle and they should be commended for their patience and tenacity in pursuing a just outcome," Mr Walker said.
PPB liquidator Marcus Ayres said creditors should start to receive payments from the first quarter of next year.
Aside from the roughly 70 claimants in the class action, the process will also involve returning capital to 250 other small investors with similar claims. About $100 million will also be distributed to related parties from across the Lehman empire.
"Once the necessary court approvals have been obtained, we are well placed to distribute over $300 million to creditors early next year," Mr Ayres said.
"This will bring total recoveries to more than $550 million - an excellent outcome for local creditors caught in what has been the largest corporate collapse in history."