The High Court in London gave judgment on Friday, 3 July 2020 on the relative ranking of over $10 billion of subordinated liabilities in the administrations of two entities in the Lehman Brothers group.

A majority of today’s large Chapter 11 cases are structured as quick Section 363 sales of all the debtor’s assets followed by confirmation of a plan of liquidation, dismissal of the case, or a conversion to a Chapter 7. The purchaser in the sale is often one of the debtor’s prepetition secured or undersecured lenders, which may also act as the debtor-inpossession (DIP) lender and purchase the debtor’s assets through a credit bid, with no cash consideration.

The Court of Appeal in London today gave judgment on Parts A and B of the Lehman Waterfall II Appeal, as part of the ongoing dispute as to the distribution of the estimated £8 billion surplus of assets in the main Lehman operating company in Europe, Lehman Brothers International (Europe) (LBIE).

The Supreme Court in London today gave judgment in the Waterfall I appeal, a dispute as to the distribution of the estimated £8 billion surplus of assets in the main Lehman operating company in Europe, Lehman Brothers International (Europe) (LBIE).

LBIE entered administration on 15 September 2008 and has now paid its unsecured creditors dividends of 100p in the £. The Waterfall I Supreme Court appeal addressed some of the key issues as to who should receive the surplus, which we discuss below.

“So-called” Currency Conversion Claims

An important decision was issued last week by the Bankruptcy Court for the District of Delaware in favor of Squire Patton Boggs’ client CCA Bahamas, Inc. (“CCA Bahamas”). The decision provides guidance on when U.S. bankruptcy courts should dismiss cases filed by foreign debtors. See In re Northshore Mainland Services, Inc., et al., Case No. 15-11402 (KJC).

Chapter 15 of the Bankruptcy Code provides a mechanism for a foreign debtor or representative in non-U.S. insolvency proceedings to protect such debtor’s U.S. assets from U.S. creditors’ collection actions or to stay any litigation commenced in the U.S. The ultimate goal in a chapter 15 proceeding is to preserve the value of the assets of the foreign debtor for the benefit of all its creditors globally.

In Europe each year there are an estimated 200,000 corporate insolvencies. More than half of the companies set up do not survive their first five years of trading and more than 1.7 million jobs are lost every year as a result. One in five of those companies will have international operations that cross national borders.

The European Union (EU) has sought to introduce an element of harmonization across its Member States, to facilitate the effective operation of cross-border insolvencies.

The Eastern District of Pennsylvania held that secured creditors do not have a right to credit bid their claim when the sale of a debtor’s assets is conducted under a plan of reorganization.