The FSA has published the statement that it has provided to the court appointed examiner of Lehman Brothers Holding Inc, which is referred to in his wider report on the collapse of Lehman Brothers published on 11 March 2010.

View FSA statement to the US bankruptcy court examiner on the collapse of Lehman Brothers Holdings Inc, 12 March 2010

On 12 March 2010, the FSA published the statement that it had provided to the court appointed examiner of Lehman Brothers Holding Inc, which is referred to in his wider report on the collapse of Lehman Brothers.

View FSA statement to the US bankruptcy court examiner on the collapse of Lehman Brothers Holdings Inc, 12 March 2010

A new wrinkle in the Lehman Brothers bankruptcy cases emerged recently when a U.S. bankruptcy judge issued an opinion directly at odds with the decisions previously rendered by certain English courts regarding priority of payment provisions (the “Priority Provisions”) with respect to collateral under the “Dante Program.”

The Dante Program

On January 25, 2010, the U.S. Bankruptcy Judge Peck struck down a provision that used the bankruptcy of Lehman Brothers Holdings, Inc. (“LBHI”) to trigger subordination of a Lehman subsidiary’s swap claim against a securitization vehicle in the United Kingdom.1

For nearly a year, the Scottish Lion Insurance Company, Limited ( “Scottish Lion”), an insurance company that wrote coverage in the London insurance market, has been litigating with its creditors (policyholders), including many U.S. creditors, to permit it to enter into what is known under U.K. law as a solvent scheme of arrangement. A Scottish appellate court recently ruled in favor of Scottish Lion on a preliminary question of whether such a scheme could be sanctioned under U.K. law despite opposition from a minority of U.S.

On January 22nd, the FDIC and the Bank of England announced their agreement to a memorandum of understanding, expanding their cooperation when they act as resolution authorities in resolving troubled deposit-taking financial institutions with activities in the United States and United Kingdom. FDIC Press Release.

The US Bankruptcy Court has issued a declaratory judgment that the relevant clause flipping priority from the swap counterparty to the noteholders constituted an ipso facto provision and was therefore unenforceable – a judgment that produces a different result under US law to that established by the Court of Appeal in the Perpetual Trustee case from November 2009.

Structured finance transactions frequently subordinate a swap counterparty’s rights to termination payments upon termination of a swap by reason of counterparty default. Such a provision has recently been upheld by an English court. As the case concerns the insolvency of Lehman Brothers however, the US courts must also make a decision on the same provision.  

Historically, the United Kingdom has not had a specialised bankruptcy regime for dealing with the failures of financial institutions. Rather, these were handled under the same rules that applied to ordinary corporations.

The US Court has approved a bankruptcy settlement under which a US-listed parent company is liable for the buy-out deficits in its UK subsidiary's pension schemes. Key to the court's considerations was the issue of Financial Support Directions (FSDs) by the UK Pensions Regulator against the US parent company.

The court decided that: