NEW York-based Lehman Brothers is set to join the escalating court case brought by disgruntled creditors trying to overturn a deal entered into by Lehman Brothers' Australian administrators.
Yesterday, the Federal Court was told that Lehman Brothers would be joined as a defendant in the case brought by three local councils that want to overturn the deed of company arrangement (DOCA) that was approved by creditors in June.
The councils believe they will be better off if the company is placed into liquidation and have gone to the Federal Court to ask that it be overturned.
The councils bought structured products from Lehman Brothers, some of which have collapsed in value.
The major creditor of the company is Lehman Brothers Asia Holdings, owed more than $100 million.
One of the key legal questions to be determined by the court is whether a DOCA can include clauses that prevent a creditor from suing third parties -- in this case the overseas Lehman entities.
These "releases" against further court action are being hotly contested.
The issue was so contentious that it might proceed directly to a full bench of the Federal Court comprising three judges to rule on the issue, the court heard yesterday.
The corporate regulator recently got involved in the case and yesterday Lehman Brothers' barrister, Tom Bathurst QC, told the Federal Court the company believed the releases were valid and were an important part of why it agreed to vote in favour of the DOCA.
If the court decided that the creditors should be entitled to sue the third parties, then Lehman Brothers would seek that the deed be overturned, Mr Bathurst told the court.
The Australian Securities & Investments Commission wants the releases question heard separately and backs the councils' interpretation that the Corporations Act is not intended to prevent creditors from taking further legal action against third parties. Also at issue are insurance policies that could provide additional payouts.
The matter will return to court on Tuesday week.
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