Lehman Group of Companies

After being in administration for nearly 15 years, seven of eight companies within the Lehman group of companies have sought further extensions to their administration, while two have also or instead sought orders fixing the time of their Administrators’ discharge from liability.

The companies within the group entered administration in late 2008 / early 2009. AC Grant, DJ Kelly, EJ Macnamara and GE Bruce of PwC are currently the Administrators.

On 1 November 2022, the Administrators made an application to the UK High Court seeking an extension for a further three years to 30 November 2025 for six of the eight comapnies, and until 31 May 2023 for one of the companies, LB UK RE Holdings Limited (“LBUKRE“). The Administrators also sought a discharge in respect of LBUKRE on 31 May 2023 and in respect of Storm Funding Limited (“Storm“) on the expiry of the current extension period on 30 November 2022.

The Court began its analysis with Lehman Brothers International (Europe) (“LBIE“), the principal trading company of the Lehman group within Europe, which has made considerable surplus distributions and is the principal entity envisaged to be returned to the control of directors.

The Court noted that there are various issues still requiring completion before the administration of LBIE can be brought to an end.

These include, amongst other things, the pursuit of a claim against AG Financial Products Inc. (“AGFP“) in the Supreme Court of the State of New York in relation to a dispute over the correct termination value of a series of credit default swaps governed by a 1992 ISDA Master Agreement. AGFP has counterclaimed $20.7 million. If LBIE is successful, it will obtain a judgment of up to c. $485 million plus interest, resulting in substantial further recoveries for LBIE. If AGFP is successful, it will be a creditor of LBIE and its claim will fall to be treated in accordance with the English insolvency framework and LBIE’s scheme of arrangement.

The Administrators of LBIE are also continuing to collect various assets, including a tax refund in the US, receivables owing by certain parties and other miscellaneous assets.

As a result, the Court concluded that the proposed extension for LBIE was appropriate in the circumstances.

With respect to the other five companies for which an extension until 31 May 2023 was sought, the Court noted that the companies have not yet realised all their assets, and it is likely to take some time before they do so, primarily because four of five are directly or indirectly entitled to the realisations in LBIE’s estate and must therefore await the outcome of the AGFP action in the US. This, combined with the complexity of the interconnected inter-group cash flows, led the Court to conclude that the extensions for the other five companies should also be granted.

In respect of LBUKRE, for which an extension until 31 May 2023 was sought, the evidence was that the administration was substantially complete, with the only remaining tasks being to agree the final tax position of LBUKRE with HMRC, pay any outstanding tax, and distribute the remaining assets of LBUKRE to its sole remaining creditor (one of the other entities). LBUKRE will then be dissolved without further order of the Court. The Administrators expect that these tasks can be completed by 31 May 2023, and the Court made the order accordingly.

Finally, the Court considered the discharge applications sought for LBURKE and Storm for orders fixing the time at which the Administrators shall be discharged from liability. The Administrators proposed that the discharge take effect 28 days after the final progress report for the relevant company is sent to creditors.

The Court made the order sought in respect of Storm, finding that the administration is due to terminate on 30 November 2022, no extension is sought, and Storm will be dissolved without further order of the Court. This means that the ending of Storm’s administration and the cessation of its Administrators is practically certain and imminent, which falls within the general run of applications made for the time of discharge to be fixed.

However, the Court adjourned the application in respect of LBURKE. Although the Court agreed that the administration is substantially complete, it found that there may be unexpected delays in finalising arrangements with HMRC.

Solicitors from Linklaters have been assisting the Administrators.

The Administrators’ latest Progress Report can be found HERE, and the High Court’s decision can be found HERE.