Lehman’s ‘unknown unknowns’, and the secrets that came to light

This article was first published on the Financial Times website on 10 September 2018.

When the administrators and lawyers walked into the Bank Street offices of Lehman Brothers on a sunny Sunday afternoon ten years ago, little did they know the complexity of the task which awaited them.

For all their vast experience, legal knowledge and financial acumen, this was a major challenge.

Consider the common commercial loan collection situation: a business debt collateralized by relatively permanent collateral (real property or durable non-mobile equipment such as a printing press) and transient collateral (inventory, accounts receivable and cash).[1] Frequently, there is also potentially recoverable unsecured debt because the collateral is insufficient to pay the entire debt and (a) the collateral does not include all the borrower’s

The Great Recession of 2008 may seem a distant memory. September 15, 2018 is the 10th anniversary of the Lehman Brothers bankruptcy, the largest bankruptcy in U.S. history, and often seen as the point at which a garden-variety recession turned into the Great Recession, with catastrophic results severely impacting the livelihood of millions.

The Fed and the FDIC, in an August 30 joint press release, announced that they are extending the filing deadline for Prudential Financial Inc. and four major foreign banking organizations to submit their resolution plans. Prudential Financial, a designated nonbank SIFI pursuant to Dodd-Frank, will now have until December 31, 2019, to submit its living will, a year later than previously required (and following previous extensions).

On August 16, seven Democrat senators proposed a bill (S.3351, named the “Medical Debt Relief Act of 2018”) to amend the Fair Credit Reporting Act and Fair Debt Collection Practices Act to cover certain provisions related to the collection of medical-related debt. The proposed act would institute a 180-day waiting period under the FCRA before medical debt could be reported on a person’s credit report. Further, medical debt that has been settled or paid off would be required to be removed from a person’s credit report within 45 days of payment or settlement.

Section 363(k) of the Bankruptcy Code grants secured creditors the right to credit bid up to the full amount of their claim as a form of currency to bid to purchase assets securing their claim from a debtor in connection with a stand-alone sale of assets under section 363(b). In a recent opinion from the Bankruptcy Court for the District of Delaware, In re Aerogroup International, Inc., Judge Kevin J.

The United States District Court for the District of Massachusetts recently dismissed a borrower’s complaint against a lender, finding that the lender did not wrongfully foreclose on the borrower or engage in predatory lending. SeeHealy v. U.S. Bank, N.A. for LSF9 Master Participation Tr., 2018 WL 3733934 (D. Mass. Aug. 3, 2018). In the case, the borrower executed a loan agreement secured by a mortgage on his house in 2004. In 2013, he defaulted on the loan, and the note and mortgage were assigned to the defendant lender thereafter.

To Lease or Not to Lease

In a June 20, 2018 opinion, Judge Carey of the United States Bankruptcy Court for the District of Delaware sustained an objection to a proof of claim that had been traded during the bankruptcy case and filed by the claim purchaser. The opinion highlights the importance of being vigilant in conducting diligence before acquiring a claim against a bankruptcy debtor, especially regarding the ability of the original creditor to assign the claim without the debtor’s consent.

On July 27, the U.S.