The Administrators of Lehman Brothers International (Europe) (in administration) (“LBIE”), acting as LBIE’s agent and without personal liability, have advised that they will be filing an omnibus claim on behalf of LBIE and LBIE’s customers against Lehman Brothers Inc. (“LBI”) in its liquidation proceedings under the Securities Investor Protection Act of 1970 (“SIPA”).  

The United States Supreme Court unanimously[1] held that secured creditors have a statutory right to credit bid their debt at an asset sale conducted under a so-called "cramdown" plan. RadLAX Gateway Hotels, LLC et al., v. Amalgamated Bank (In re River Road Hotel Partners, LLC),__S.Ct.__ No. 11-166, 2012 WL 1912197 (U.S. May 29, 2012).

In his Pre-Budget Report delivered on 24 November 2008, UK Chancellor of the Exchequer Alistair Darling announced the Government’s intention to introduce special insolvency procedures for investment firms holding client assets or client money.  

The procedures will be introduced by secondary legislation under the Banking Bill (which was introduced into Parliament in October 2008) following a government sponsored review by an expert liaison group.  

The review, to be concluded by summer 2009, will consider, inter alia:  

In a decision that represents a triumph for bondholders, and should provide comfort to market participants, the Supreme Court of France (the “Supreme Court”) has recognized the trust structure and the parallel debt mechanism as part of security packages put in place for secured international financings granted to a French company.

The United States Bankruptcy Court for the Southern District of New York overseeing the Lehman Brothers (“LBI“) case under the Securities Investor Protection Act (“SIPA“) entered an order on Nov. 7, 2008 (the “Claims Bar Date Order“) establishing the following deadlines for the filing of claims against LBI:

The U.S. Court of Appeals for the Seventh Circuit affirmed a bankruptcy court’s dismissal of a single asset real estate case on Jan. 19, 2012, reasoning that the debtor’s proposed substitute collateral “was not the indubitable equivalent of the [undersecured lender’s] mortgage.”In re River East Plaza, LLC, 2012 WL 169760, *2 (7th Cir. Jan. 19, 2012) (Posner, J.). In the court’s words, the debtor “wanted [the lender] out of there and decided to seek confirmation of a [reorganization] plan . . .

Lehman Brothers Holdings Inc. and its affiliated debtors (collectively, the “Debtors”) filed a motion in the bankruptcy court on Nov. 13, 2008, asking the court to approve procedures for (i) assuming (affirming) and assigning derivative contracts entered into before the Debtors commenced their bankruptcy cases, including resolving cure amounts; and (ii) entering into settlement agreements that may establish termination payments and the return of collateral under terminated derivative contracts.

Debtors’ Derivative Contracts

On Dec. 21, 2011, the U.S. Bankruptcy Court for the District of New Jersey approved a liquidation plan for collateralized-debt obligation issuer (“CDO”) Zais Investment Grade Limited VII (“ZING VII”). The plan incorporates a settlement between senior noteholders who had initiated the bankruptcy case by filing an involuntary petition against the CDO, and junior noteholders who were appealing the Bankruptcy Court’s April 26, 2011 order granting the involuntary petition.

The Ninth Circuit’s Bankruptcy Appellate Panel (the “BAP”) held on July 18, 2008, that the Bankruptcy Code (“Code”) did not authorize a bankruptcy court’s approving the sale of a debtor’s property free and clear of a junior lien outside the reorganization plan context. In re PW, LLC __ B.R. __, 2008 WL 2840659 (B.A.P. 9th Cir. July 18, 2008). It directed the bankruptcy court to ascertain on remand whether state law permitted a court to compel the junior lienholder to release its lien in exchange for payment of less than the face value of its claim. Id., at *13-*16.

The U.S. Bankruptcy Court for the District of New Jersey recently held that a Cayman Islands collateralized-debt obligation issuer (“CDO”) could be a debtor under Chapter 11 of the U.S. Bankruptcy Code (the “Bankruptcy Code”) and declined to dismiss an involuntary case commenced against the CDO by certain noteholders on the grounds that the notes held by such noteholders were “non-recourse” notes. Below is a discussion of the court’s decision and its potential implications. The decision is currently being appealed.