Collateral Trapped is Collateral Damage in the Wake of the Lehman Brothers Debacle

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On 24 November 2008, the High Court dismissed an application made by four US investment funds in the matter of Lehman Brothers International (Europe) (“LBIE”) and PricewaterhouseCoopers (“PWC”), the administrators of the now defunct European arm of Lehman Brothers banking group (the “Lehman Group”).1

The judgment rendered by The Honorable Justice Blackburne underscores the non-interventionist stance being adopted by English courts with regard to applications made by former clients of the prime brokerage business of LBIE, whether the applicants are seeking the return of securities held by LBIE on their behalf (as was the relief sought, but denied by the court, in the recent case of RAB Capital plc2) or simply more information concerning their securities (as in this particular case). The judgment stated that the courts, whilst sympathetic to the financial misfortunes of LBIE’s former prime brokerage clients, would refuse to interfere with the administrators’ conduct of the administration, except for good cause. The administrators were to be accorded wide latitude in deciding, from day to day, how to go about achieving the statutory purpose of the administration, which is to obtain a better result, compared to a winding-up, for the company’s creditors as a whole. Absent improper or wrongful conduct on the part of the administrators, the courts will leave it up to the administrators to decide on the modus operandi for the day-to-day conduct of the administration process.

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