On July 14, 2009, the Joint Administrators of Lehman Brothers International (Europe) ("LBIE"), made an application to the High Court in London with respect to a Scheme of Arrangement (the "Scheme") (the UK administration’s analogue to a Chapter 11 plan of reorganization) designed to provide procedures to be used by LBIE for the purpose of returning so-called “trust property” held by LBIE to certain of its customers (“Creditors”). Among the primary purposes of the Scheme is the desire to avoid the need for a case-by-case resolution of the claims made by LBIE's Creditors. The Joint Administrators hope that the Scheme will "significantly expedite" the return of assets and avoid an unpredictable and tedious claims resolution process. They further hope to begin the return of assets in the first quarter of 2010. The Joint Administrators caution, however, that the Scheme is not intended to provide treatment of all claims against LBIE, but only Creditor claims for “trust property.”
An LBIE Creditor is considered to be one with a proprietary claim to segregated securities held in trust by LBIE when LBIE went into administration at 7:56 am (London time) on Sept. 15, 2008. An initial hearing on the Scheme is currently scheduled to take place at the end of July. The administrators anticipate that a series of creditors' meetings will be held in October, to be followed by an approval vote (approval of the Scheme will require a 75% favorable vote by the affected Creditors of LBIE). Should the Scheme be approved, there will be an opt-out provision that would enable opt-outs to become unsecured LBIE creditors, whose claims will be dealt with outside the Scheme. LBIE has worked with its creditors' committee to compromise nearly all claims of the Creditor of LBIE and to provide those Creditors with new claims, which carry with them the right to share in the LBIE trust property.
The Scheme's objectives include: (i) setting a bar date beyond which most claims can no longer be made against LBIE (currently proposed to be Dec.31, 2009); (ii) establishing a mechanism to determine and value creditors' claims (a pro forma claim form allowing for uniformity of claims will be prepared and assets are to be valued at either (a) sale price; (b) mid-market price; or (c) fair market value); (iii) establishing reserves; (iv) predicting costs for the management and distribution of assets held in trust by LBIE; (v) effecting distributions to LBIE's Creditors (as trust property becomes available for distribution, it will be allocated to LBIE's Creditors in proportion to their asset claims); and (vi) setting an end date for the Scheme (which is expected to be five years after its effective date). The Scheme contains a dispute resolution procedure with referrals to a valuation expert, an independent adjudicator, or the court. As LBIE identifies distributable assets, it will determine the allocation of such property on a stock line by stock line basis and then make distributions on a pro rata basis to Creditors with a claim to such property.
Included in the July 14 description of the Scheme is a useful set of charts to determine which LBIE customers are Creditors, what constitutes a Creditor's asset claim, the determination of valuation methodologies, methods of allocation of assets; illustrations of the timing of allocation determination, and a discussion of distribution of assets and liabilities, including the use of analysis and model examples.
To read the complete summary of the Scheme, please visit http://www.pwc.co.uk/pdf/lehman_mini_es_140709v2.pdf or to see the official summary, go to http://www.pwc.co.uk/pdf/lehamn_summary_document_140709v2.pdf