Thursday 20 September 2012

Lehman creditors encouraged to share the pain

Lehman Borthers Australia
liquidator Marcus Ayres.
Photo courtesy PPB Advisory
YOU know you’re handling a complex liquidation when the best option for satisfying creditors’ claims is one that delivers equality of unhappiness for all.

Lehman Brothers Australia (LBA) is such a liquidation. Since their appointment in 2009 PPB Advisory’s Marcus Ayres and Steve Parbery have dealt with complex financial instruments backed by tainted mortgage pools; multi-jurisdictional legal wrangles; hardball insurance syndicates and class actions mounted by plaintiffs scarred when the aforementioned derivatives exploded.

On Wednesday the liquidators faced LBA creditors assembled at the Bligh Street offices of Clayton Utz
to discuss their latest report.

The liquidators wanted creditors to hear what more needs to be done before the claims funds can begin to flow and to hear feedback on their scheme proposals. Unfortunately, creditors stayed away in droves.

“ …only about 30 odd creditors tuned up which was surprising given we highlighted in the report that we’d like creditors to attend,” Marcus Ayres told SiN after the meeting.

“One of the constituents said it is a really complicated matter and to be honest it goes over people’s heads and so they don’t get into it,” he said.

The impression Ayres did get from the creditors attending was that the liquidators’ preferred option – the so-called Broad Scheme Proposal - has general creditor support.

“There’s one issue I need to resolve with the US debtors,” Ayres said. “I would hope to land that issue before we press on with the scheme.”

The US debtors are Lehman Brothers Holdings Inc and Lehman Brothers Special Financing. Ayres said he while didn’t think it would be “fatal” to press on with the Broad Scheme Proposal without resolving the outstanding issues, it would be best if he could.

“We were in the US last week, we’re very close on some core issues and when I say close I mean 0.16% percent away on value on one of these disputes.”

He said he and Parbery would accept the offers on the table from both of the US debtors as they stand. “But it’s not just about us. It’s about getting everyone else on board,” he said.

See details of the scheme proposals in the latest LBA creditors report 

The LBA meeting was held just two days before the Federal Court’s Justice Rares is due to rule on a $250 million class action launched against the Lehman estate by local councils, churches and charities.

Ayres said he called the meeting for the 19th because he couldn’t wait any longer given the spate of progress and the need to inform creditors.

“In my view it was unfair to creditors to let them hang, he said.

“We needed to have this meeting after I had my New York meetings,” he said.

“There was an insurance settlement and we needed to divulge the level of that settlement,” he said.

The liquidators are prevented from disclosing the size of the so-called Insurer B settlement to anyone other than LBA creditors at this time. In their report they said the Insurer B settlement "will result in a substantial return to the state."

The settlement is conditional on the liquidators providing the insurers with releases from claims by LBA's 350 contingent creditors.

Ayres also justified calling the meeting on the 19th because John Sheahan, his senior counsel on the Federal Court class action, is currently tied up with the Storm Financial class action and therefore would be unavailable to consult on the Rares judgement.

If all goes to plan and creditors agree to concede a portion of their entitlement to ensure the widest possible recovery, the Broad Scheme Proposal should be submitted to the courts for approval in February 2013.

An explanatory memorandum will be delivered to creditors shortly thereafter. After three years Ayres is convinced collective discontent is the best outcome.

“People have reasonable claims in terms of quantum and we have to adjudicate on that but there is a lot of money on the table that is up for grabs and we would like to see a sensible outcome in terms of distributing that money,” he said.

“The challenge is trying to get an acceptable solution that will keep everybody suitably unhappy but accepting that that is the way it should go.”



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