In the very early hours on September 20, 2008, the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") entered an order (the "Sale Order") approving the sale of substantially all of the assets of Lehman Brothers Holdings, Inc. ("Lehman"), LB 745 LLC and Lehman Brothers, Inc. (collectively, the "Lehman Sellers") to Barclays Capital, Inc. free and clear of all liens claims, encumbrances and other interests.
In light of the recent Chapter 11 bankruptcy filing by Lehman Brothers Holdings Inc. and the subsequent determination of the Securities Investor Protection Corporation (SIPC) to commence a proceeding placing Lehman Brothers Inc.
On September 15, 2008, Lehman Brothers Holdings Inc. ("Lehman Holdings") filed for Chapter 11 in the United States Bankruptcy Court for the Southern District of New York (Case No. 08-13555). None of Lehman Holdings’ U.S. subsidiaries have filed for bankruptcy at this point. In addition, while Lehman Holdings has certain subsidiaries that are regulated entities (e.g., banks, insurance companies, etc.), none of those entities has yet been placed into any kind of insolvency proceeding by the applicable regulators.
September 21, 2008 Following a week of unprecedented market upheaval, players in financial contracts got some reassurance from the bankruptcy judge presiding over the liquidation of broker/dealer Lehman Brothers Inc. (“LBI”) and the sale of a portion of its assets to Barclays Capital Inc. (“BCI”).
Early this morning, Lehman Brothers Holdings, Inc. filed a notice, concerning the possible assumption and assignment of executory contracts to Barclays Capital as part of its purchase of the core assets of Lehman Brothers' U.S. broker-dealer business.
The credit default swap (“CDS”) has never been tested in bankruptcy proceedings on any significant scale, particularly under recent amendments to the Bankruptcy Code. In part, this is because the CDS market is a very recent phenomenon. CDS market participants also make considerable efforts to avoid holding a credit default swap where the counterparty has gone into bankruptcy.
Over the past two weeks, the federal government has relied on nearly every legal authority available to address the unfolding crisis in financial institutions with large mortgage-related holdings — direct and indirect financial assistance, government takeovers and even a decision to let the bankruptcy process run its course have all come into play. Today, several new actions have been announced, together with proposals that would require Congressional action.
As has been widely reported, on September 15, 2008, Lehman Brothers Holdings, Inc. ("Lehman") filed for protection under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). Except for LB 745 LLC which is the Lehman entity that was formed to own Lehman's headquarters in New York, the other subsidiaries (the "Lehman Subsidiaries") of Lehman have not filed for bankruptcy protection as of the time of publication of this Alert.
On August 26, 2008, the United States Court of Appeals for the Sixth Circuit held that a state-court judgment that modifies a discharge order is void ab initio.
Debtors operating under Chapter 11 bankruptcy protection routinely sell some or all of their assets during the course of their bankruptcy case. As part of a bankruptcy court approved sale process, debtors often request that the court exempt such transfers from stamp taxes1 pursuant to Bankruptcy Code § 1146(a). The exemption generally reduces obligations encumbering a debtor’s property and allows for a greater portion of sale proceeds to be available for distribution to creditors.