on Aug 17 2014
Six years after the Lehman Brothers collapse, unsecured creditors of the investment bank’s brokerage are finally getting paid.
The trustee unwinding the brokerage, Lehman Brothers Inc, said former employees, pension funds, banks and investment firms with unsecured claims against the brokerage would get an initial payout of $US4.6 billion
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on 24 July 2013
Lehman Brothers Pension Scheme Trustees' successful appeal to the Supreme Court
The Trustees of the Lehman Brothers Pension Scheme (the Scheme) have succeeded in their appeal to the Supreme Court. Judgment was handed down today.
The case concerned the ability of the Trustees and the Pensions Regulator to require administrators of insolvent companies in the Lehman Brothers Group to comply with a financial support direction (FSD) or contribution notices (CNs) issued by the Pensions Regulator.
In September 2010, the Pensions Regulator's Determinations Panel decided that an FSD should be issued against 6 Lehman Brothers companies, 4 of which are UK companies in insolvent administration. The Scheme has a substantial funding deficit which is unlikely to be met by the main Scheme employer, which was a service company. The FSD would require these companies to provide financial support for the Scheme. If financial support is not then provided, the Pensions Regulator may issue CNs requiring the companies to pay cash contributions to the Scheme.
The administrators of the Lehman Brothers companies argued that they would not need to satisfy liabilities arising from an FSD or CN, because any FSD would be issued after the date these companies entered insolvency, 14 September 2008. These liabilities would not be "provable" claims in those administrations.
The Trustees argued from the outset that liabilities under FSDs (including the liability to pay a contribution under a CN) were provable debts under UK insolvency law, and so may be enforced against the insolvent companies as unsecured debts. The Trustees further argued that if the liabilities were not enforceable as provable debts then they must be satisfied as expenses of the administration of the companies. The High Court and the Court of Appeal held that the liabilities were administration expenses.
The Supreme Court has now upheld the Trustees' position that the FSD liabilities are provable debts.
Peter Gamester, chairman of the Trustees said:
"The Trustees are delighted by this decision, which comes nearly five years after the Lehman Brothers group entered insolvency. It is an important step forward in the Trustees' efforts to obtain financial support for the pension scheme from group companies to help pay pensions for Scheme members.
We are extremely pleased that the Court has confirmed that these important provisions of pensions legislation can be used for the benefit of pension scheme members whose employers have entered insolvency. We would like to express our appreciation for the efforts of all those who have been involved in achieving this outcome."
Before the Supreme Court, the administrators of some of the Lehman Brothers companies had also accepted that the FSD liabilities might be treated as provable debts. However, the administrators for some of the Lehman Brothers companies continued to argue that these liabilities need not be satisfied at all, unless the company had sufficient assets to discharge all its other obligations and return to solvency. This argument was referred to by judges during the proceedings as liabilities falling into a "black hole". This black hole argument has been unanimously rejected by the Supreme Court.
Travers Smith LLP acted for the Trustees of the Scheme and the Board of the Pension Protection Fund (PPF) in relation to this matter. The Travers Smith team was led by Pensions partners Peter Esam and Susie Daykin, supported by Litigation senior counsel, Mark Hall and senior Pensions associate, Anna Gray.
The Trustees and PPF instructed Gabriel Moss QC, Nick Stallworthy QC and David Allison in the Supreme Court.
Other parties to the proceedings are listed below, with their solicitors and counsel.
There were parallel proceedings covering similar points relating to the Nortel Pension Scheme. The parties to those proceedings and their legal teams are also shown below.
Parties to the proceedings and relevant solicitors and counsel:
Trustees of the Lehman Brothers Pension Scheme/PPF represented by Gabriel Moss QC, Nicolas Stallworthy QC and David Allison (Instructed by Travers Smith LLP)
Lehmans Companies represented by Robert Dicker QC, Paul Newman QC, Daniel Bayfield (Instructed by Linklaters LLP)
Lehman Companies (No.2) represented by Mark Phillips QC, Stephen Robins, James Walmsley (Instructed by Linklaters LLP)
Lehman Brothers Holdings Inc. represented by Barry Isaacs QC (Instructed by Weil Gotshal & Manges)
Pensions Regulator represented by Racquel Agnello QC, Jonathan Hilliard, Thomas Robinson (Instructed by the Pensions Regulator)
Nortel Companies represented by William Trower QC, Tom Smith, Andrew Mold (Instructed by Herbert Smith Freehills LLP)
Trustees of Nortel Pension Scheme/PPF represented by Richard Sheldon QC, Felicity Toube QC, Michael Tennet QC (Instructed by Hogan Lovells International LLP)
