Key points

  • Lehman Brothers UK considered solvent under provisions of subordinated loan agreements
  • Payments to Lehman Brothers Luxembourg therefore not held on trust

The facts

Lehman Brothers Luxembourg (“C”) brought a Part 8 claim for a declaration that amounts paid or to be paid to it by Lehman Brothers UK (“D”) under three subordinated loan agreements (equalling around £100m) were not required to be held on trust for D but were at its free disposal and available for distribution to C’s creditors.

The question arose because of a requirement in the loan agreements that payment to C could only be made where D was solvent at the time of, and immediately after, the payment by D – solvency meaning the ability to pay all liabilities of D in full, other than the subordinated liabilities. Any payments made in breach of that requirement were stated to be void for all purposes and held by C on trust for D.

Realisations by the administrators of D had been far more substantial than anticipated. All creditors but for C had already been paid in full.

The decision

The court held that D was clearly solvent for the purpose of the subordinated loan agreements and would continue to be solvent absent notice of any further liabilities. The definition of liabilities could not be taken to include liabilities currently unknown.


The decision clarifies the operation of the particular subordination provisions although we note that no party took an adversarial position on the point.

Lehman Brothers Luxembourg Investments S.a.r.l v Lehman Brothers UK Holdings Limited [2016]EWHC 617 (Ch)

Read more articles in the May 2016 edition of RCR Update