On 16 September 2010 the UK Treasury published a consultation paper seeking views on its proposals for a new Special Administration Regime (SAR) for investment firms. The Consultation included draft regulations that will implement the SAR (the Draft Regulations).

The Consultation was prompted by the failure of Lehman Brothers in 2008 which posed (and continues to pose) serious challenges for insolvency regimes around the world.

The recent Court of Appeal decision inLBI EHF v Raiffeisen Bank International AG [2018] EWCA Civ 719 affirms the wide discretion of the non-Defaulting Party to determine "fair market value" in accordance with the close-out mechanism under paragraph 10(e)(ii) of the standard Global Master Repurchase Agreement (2000 version) ("GMRA").

Summary

Key point

• In certain circumstances the court will look to parallel statutory provisions where existing applicable statute does not accommodate the situation, as long as the latter is not offended, expanded or altered by doing so.

The facts

This application for directions was brought by the administrators of Lehman Brothers Europe Ltd (the “Company”) on:

In 2002 a European subsidiary of Lehman Brothers created a complicated synthetic debt structure called Dante, which was intended to provide credit insurance for another subsidiary, LBSF, against credit events affecting certain reference entities, the obligations of which formed the reference portfolio. A special purpose vehicle issued notes to investors, the proceeds of which were used to purchase collateral which vested in a trust. The issuer entered into a swap with LBSF under which LBSF received the income on the collateral and paid the issuer the amount of interest due to noteholders.

On April 18th, the FDIC released a report examining how it could have structured an orderly resolution of Lehman Brothers Holdings Inc. under the orderly liquidation authority of the Dodd-Frank Act had that law been in effect at the time.

On February 22nd, the Bankruptcy Court overseeing the liquidation of Lehman Brothers' broker-dealer business denied motions seeking to modify the order approving the sale of the business to Barclays Capital. The Court noted the extraordinary circumstances surrounding the sale, the affirmance of that sale order, and movants' failure to challenge the order for one year. The court held that even if the evidence presented here were known in 2008, the result would have been the same, i.e., the sale would have been approved.

On May 17th, a federal district court denied motions to dismiss a securities fraud lawsuit alleging that defendants failed to disclose adequately their investment in notes issued by a shell company owned by Lehman Brothers, who provided the principal protection guarantee. Defendants' knowledge regarding the notes and Lehman's insolvency contradicted their public statements, satisfying Rule 10b-5's scienter requirements. Plaintiffs also allege that their losses were exaggerated by defendants' lack of disclosure, adequately alleging loss causation.

On May 5, the judge overseeing the bankruptcy case of Lehman Brothers Holdings Inc issued an opinion refusing Swedbank AB's request to keep several million dollars in post-bankruptcy Lehman deposits as a setoff against pre-bankruptcy swap termination claims.

Lehman Brothers Holdings Inc. (LBHI) and its affiliated U.S. chapter 11 debtors (the “Debtors”) filed a joint plan with the Bankruptcy Court on March 15, the last day on which the Debtors who filed petitions on September 15, 2008, had the exclusive right to file a plan. As a result of the filing, the Debtors have an additional 60 days during which no other party may file a plan.