Lehman lawyers move to block repayments
The vote is expected to take place at the Lehman Brothers Australia creditors' meeting in Sydney on Wednesday. But a vote could be delayed and a proposal indefinitely suspended if lawyers for the investment bank are successful in pressuring liquidators.
Local councils, churches and charities are among the former clients of Lehman, which collapsed in 2008 at the beginning of the global financial crisis (GFC).
The groups were hoping to recover up to half their money under the proposal, which needs to be approved by creditors, including some related parties to Lehman, and the Federal Court.
But on Friday night, the investment bank's holding company bought the rights of the related parties, enabling them to vote down the proposal.
Philip Hoser, a partner at Jones Day, representing the US Lehman Brothers Holding Company, said his clients had reservations about the proposal and were now considering how to vote.
"The holding company now in effect controls the fate of the scheme," Mr Hoser said.
IMF Australia executive director John Walker, who represents the non-profit organisations, said the move was a blatant attempt by the US holding company to control the process. The proposal follows a decision in the Federal Court that found the Australian arm of the investment bank - previously called Grange Securities - had breached its fiduciary duty by advising local councils and charities to buy synthetic collateralised debt obligations, the instruments now known for their role in the GFC.
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The proposal would return about $210 million to former Australian clients of failed investment bank Lehman Brothers. It aims to give some clients — including councils, churches and charities — a recovery of up to around half their losses, but it must be approved by creditors and the Federal Court.
Affected clients include local councils, churches and charities that invested with Lehman Brothers Australia (previously called Grange Securities) and lost money when Lehman collapsed in 2008.
Lawyers for the US Lehman Brothers holding company made a late bid to seize control over the creditors’ vote. The holding company bought the voting rights of some related parties, which could allow them to vote down the proposal or delay the process.
The vote at the Lehman Brothers Australia creditors’ meeting in Sydney could be delayed — and the repayment proposal indefinitely suspended — if the holding company’s lawyers successfully pressure the liquidators or otherwise exercise the acquired voting rights.
According to Lehman’s legal representative, by purchasing the rights of related parties the US holding company can influence or determine how those parties vote at the creditors’ meeting, effectively controlling whether the repayment proposal is approved or blocked.
The Federal Court found that Lehman Brothers Australia (previously Grange Securities) breached its fiduciary duty by advising local councils and charities to buy synthetic collateralised debt obligations — the type of instruments now known for their role in the global financial crisis.
Under the proposal, non-profit organisations and other creditors were hoping to recover up to about half of their original investments, though the exact outcome depends on creditor approval and the Federal Court.
John Walker, executive director of IMF Australia representing the non-profit organisations, described the holding company’s purchase of voting rights as a blatant attempt to control the recovery process and influence the creditors’ vote.
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