The administrators of Lehman Brothers International (Europe) have been intending to propose a scheme of arrangement under the English Companies Act to enable them to distribute several billions of dollars of assets held on trust by the company in the face of difficulties in establishing who was entitled to the trust assets; in particular, they had not received responses from all potentially interested clients, could not rely on the accuracy of the company's records and had not received all the information requested from sub-custodians and other intermediaries. The proposed scheme was supported by a number of creditors and opposed by the London Investment Banking Association.
The administrators applied to the English Companies Court to determine whether the Court has jurisdiction to sanction a scheme in these circumstances. The Court ruled in a judgment issued on 21 August 2009 (In the matter of Lehman Brothers International (Europe) (in administration) (No.2)) that, notwithstanding the wide construction of "compromise" and "arrangement", the schemes jurisdiction only permits schemes which relate to arrangements between a company and its creditors (or members) in their capacity as creditors (or members). Accordingly, the Court did not have jurisdiction to sanction the proposed scheme.
What is in issue in this case is the property rights of those on whose behalf the company held the assets on trust. Where a trustee holds property on trust for a beneficiary, the beneficiary is entitled to have the trust property administered in accordance with the terms of the trust and, if he so wishes, to have the trust property returned to him. These terms can be varied by agreement with the beneficiary but the schemes jurisdiction does not permit trust and property rights of beneficiaries who do not give their consent to be varied or extinguished.
The judge indicated at the end of his judgment that the ordinary trust jurisdiction provided a means of authorising a trustee to distribute a fund where there can be no certainty that all the claimants to it have been identified and the trustee desires the protection of a court order in case a further claimant should subsequently appear or matters subsequently come to light which question the basis on which the distribution is made.