No charity at home for Lehman crash victims
Lehman's is the biggest liquidation in US history. And it has been paying out to its creditors, who lost money when it crashed in September 2008 in New York.
In stark contrast, the local councils, charities and churches left in the lurch by Lehman Australia's toxic credit instruments are yet to see one red cent. This is despite five years of courtroom battles and $80 million in fees to lawyers and liquidators.
The US v Australia tally: $US43,000,000,000 to $A0.00. If it was the bankers who cleaned up before the crisis, it is surely liquidators and assorted hangers-on who are making the killing in their wake.
PPB, the firm of liquidators appointed by Lehman Australia to conduct this insolvency job, has just issued its latest "scheme of arrangement" documents.
PPB fought the councils, charities and churches all the way to the High Court in a bid to avoid liquidation, a faster and better option, and instate a complicated "deed of company arrangement (DOCA)". It refused to recognise the claims of councils, charities and churches (and other recipients of collateralised debt obligations) in the Lehman estate. There was no such issue in recognising the claims of the related-party creditors.
And even though the liquidators lost to the councils, charities and churches in the courts, and back-flipped on their plans for a DOCA, they are yet to adjudicate those "proofs of debt" nor dole out a single dollar to anybody but themselves, their lawyers Ashurst and Clayton Utz and other fee-hunters. These latest scheme documents - the third attempt at an arrangement - which go to a vote on October 17, merely provide for settlement of Lehman Australia's claims against its insurers and a consequent legal release for those insurers. They are still not "adjudicating on proofs of debt" (something PPB has not been doing for five years, and which would lead to a distribution to creditors).
To provide a notion of what a circus this insolvency game has become in Australia, consider this: PPB did not inherit a troubled construction company here. It did not inherit a "real" business with staff and building projects to run.
Essentially, it inherited a cash estate. The Lehman bankers quickly drifted away when it all came unstuck in September 2008 and the liquidator was left sitting on a pile of cash: $18 million in CDOs, $17 million in foreign bonds and $120 million in Australian bonds and two insurance claims.
How hard could it be to realise those assets and return some money to beleaguered creditors?
In the US, where the Lehman estate has already paid out $US2 billion in fees to lawyers and so forth - eclipsing the previous record of Enron Corp's bankruptcy at $US757 million - Lehman creditors are expecting to see a return of 18¢ in the dollar by 2016. That is from an estate valued at $US65 billion. Lehman listed $US613 billion in liabilities when it went under on September 15, 2008. When it pays a scheduled $US14 billion to creditors on October 3, total distributions will amount to $US43 billion since Lehman Inc's Chapter 11 bankruptcy plan was approved.
Meanwhile, Down Under, the scheme documents show cash of $163 million, related party debtors of about $85 million and about $10 million in remaining stock. Trade creditors are claiming about $8 million, Lehman's related party creditors are claiming $120 million. Then there are the scheme creditors (the councils, charities and churches etc which were sold the toxic products by Lehman ) with $494.6 million to $441.2 million.
Documents also show $46 million-odd in recoveries from Lehman's US insurers and from QBE. The recovery was achieved via a mediation. PPB didn't even have to sue for that - despite its tens of millions in lawyers' fees.
The only other recovery of significance apart from that was some money from the Dante notes litigation. But that was primarily a result of another law firm, JWS, which acted on behalf of creditors. JWS won that litigation, which led to the subsequent settlement.
This liquidation has been such an atrocity that there ought to be an investigation into it. The liquidators are not (after five years) in a position to proffer any estimate of the likely timing when distributions will be made under the scheme, other than to say it could be as early as 2014 or as late as 2016.
The liquidators estimate further fees to finalise the estate of $10 million to $13 million.
Frequently Asked Questions about this Article…
Lehman Brothers' collapse in September 2008 became the biggest US liquidation in history. In the US, Lehman Inc.'s Chapter 11 process has paid out billions in distributions (about US$43 billion to date) and creditors were expecting roughly 18 cents in the dollar by 2016. By contrast, Lehman Australia’s creditors — including councils, charities and churches — had received no distributions five years after the collapse, despite lengthy court battles and large legal and liquidation fees.
PPB is the firm of liquidators appointed to wind up Lehman Australia. PPB pursued a complicated deed of company arrangement (DOCA) to avoid immediate liquidation, fought recognition of certain creditors’ claims (notably councils, charities and churches) all the way to the High Court, later abandoned the DOCA plan, and issued a third set of scheme of arrangement documents that were due for vote on October 17. PPB has not adjudicated proofs of debt for those scheme creditors.
Councils, charities and churches were sold toxic credit products (such as collateralised debt obligations) by Lehman Australia. These organisations are classed as scheme creditors in the Australian process and collectively have large claims (the article cites scheme creditors with claims in the range of about $441.2 million to $494.6 million) but, at the time of the article, had not received any distributions.
A proof of debt is the formal claim a creditor submits to a liquidator to be recognised for payment. According to the article, PPB has not been adjudicating proofs of debt for five years, and without adjudication of those proofs there can be no orderly distribution of funds to creditors.
A DOCA is an alternative insolvency arrangement that can restructure claims and potentially deliver faster outcomes than a full liquidation. PPB attempted to implement a DOCA for Lehman Australia but in doing so refused to recognise the claims of some creditors (notably councils, charities and churches). The refusal prompted court battles, and after losing in the courts PPB abandoned the DOCA approach.
The scheme documents disclose assets including about $18 million in CDOs, $17 million in foreign bonds, $120 million in Australian bonds, two insurance claims, roughly $163 million in cash, about $85 million in related-party debtors and about $10 million in remaining stock. The documents also show roughly $46 million recovered from Lehman’s US insurers and QBE following mediation, plus some recoveries from the Dante notes litigation pursued by another law firm.
The article reports about $80 million in fees to lawyers and liquidators in Australia over five years related to courtroom battles and the insolvency process. In the US Lehman-related fees have been far higher (about US$2 billion). The liquidators estimated another $10 million to $13 million in fees may be required to finalise the Lehman Australia estate.
The latest (third) scheme of arrangement documents focus on settling Lehman Australia’s claims against its insurers and obtaining legal releases for those insurers. The scheme documents do not adjudicate proofs of debt for scheme creditors (which would be required to trigger distributions). Creditors were scheduled to vote on that scheme on October 17.
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