In a recent ruling from the bench, Judge James M. Peck of the United States Bankruptcy Court for the Southern District of New York held that Metavante Corporation’s suspension of payments under an outstanding swap agreement with Lehman Brothers Special Financing Inc.

Introduction

The High Court1 in England has confirmed the validity under English law of contractual provisions common in structured finance transactions which subordinate payments to a swap counterparty in circumstances where the swap counterparty has defaulted on its obligations under the terms of the relevant swap agreement.

The Judgment

Parties

In a long-awaited decision released on February 22, 2011, Judge James M. Peck of the United States Bankruptcy Court for the Southern District of New York ruled in favor of Barclays Capital in Lehman Brothers Holding Inc.’s multi-billion-dollar lawsuit arising out of the sale of Lehman’s investment banking and brokerage assets, which occurred in September of 2008.

On 31 July 2015, the English High Court delivered its judgments in the ‘Waterfall IIA’ and ‘Waterfall IIB’ cases. The decisions are important to stakeholders in determining key questions about how, following payment in 2014 of all the provable claims, the estimated £7.39-billion surplus (the ‘Surplus’) in Lehman Brothers International (Europe) (in administration) (‘LBIE’) will be shared amongst them. For others, the decisions may be of general interest in probing some rarely aired legal issues relating to the lower levels of the insolvency payment waterfall.

The United States Bankruptcy Court for the Southern District of New York, overseeing the bankruptcy cases of Lehman Brothers Holdings Inc. and its affiliated debtors (collectively, the “Debtors”), entered an order on July 2, 2009 (the “Bar Date Order”), establishing September 22, 2009, at 5:00 p.m. (Eastern Time) as the deadline for the filing of claims against the Debtors (the “Bar Date”).

Sanctioning of LBT Composition Plan Becomes Final

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 SIPC Trustee for Lehman Brothers Inc. ("LBI") and the Joint Administrator of Lehman Brothers International (Europe) ("LBIE") today announced an agreement in principle to resolve all claims, approximately $38 billion in the aggregate, between their respective entities.

The proposed settlement is subject to approval by the bankruptcy court in the United States and the English High Court. According to the LBI Trustee, if approved, "the agreement sets the stage for distributions that will provide 100 percent recovery of customer property."

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:  

The UK Financial Services Authority (“FSA”) confirmed on 31 Oct. 2011 that MF Global UK Limited (“MF Global UK”) will be subject to the new Special Administration Regime (“SAR”).^[1] This is the first time that the new regime, set out in The Investment Bank Special Administration Regulations 2011 (“SAR Regulations”)^[2] has been invoked.

Background