The High Court in England was asked to consider sanctioning a scheme of arrangement between Lehman Brothers International (Europe) (in administration) (LBIE) and certain of its creditors pursuant to Part 26 Companies Act 2006 (the equivalent of Part 15 Companies Act 1993).  This case was one of a number of proceedings involving the Lehman Brothers administration, many of which cases have reached the Supreme Court (see our earlier reports on September 2017June 2017June 2014March 2014December 2012 and March 2012).  The administrators have already made four dividends to creditors representing 100p in the pound but there remains approximately £6.6b in liquid assets left in the estate.  The purpose of the scheme is to compromise various complex legal proceedings in order to facilitate the distribution of the surplus funds to LBIE's estate, and bring the administration to an end.  If the Court did not sanction the scheme, the administrators considered that litigation among the company's creditors could continue for years.

The Court confirmed the three stage test to be considered when deciding whether to sanction a scheme of arrangement. The Court must consider:

  • Whether the provisions of the relevant statute have been complied with
  • Whether the creditors were fairly represented by those who attended the meeting, and whether the majority are acting bona fide and not coercing the minority in any way in order
  • That the arrangement is such that a reasonable creditor might reasonably approve.  If the answer to this last question is yes, the scheme is said to be "fair", even though the Court retains the ultimate discretion to approve the scheme.

The Court considered that the classes were properly constituted, those members were fairly represented, and there was no evidence of coercion.  Finally, the Court, adopting a common sense approach, found the benefits to the scheme to be considerable and obvious, and found there was no reason not to sanction the scheme.

See the decision here.