Administrators call for rule shake-up

Tony Lomas and Neville Kahn, the lead administrators for Lehmans and Woolworths, have called for a rule overhaul forcing suppliers to abide by their contractual obligations so that insolvency practitioners can continue trading a business in the hope of finding a buyer.

Kahn said: ‘The biggest difficulty to continue to trade the companies is down to the fact that customers are able to automatically terminate contracts with the [collapsed company]. For administrators the automatic termination of contracts is something that hinders our ability to trade.’

Lomas added that ending a contract gives a supplier ‘the ability to hold you to ransom’.

Accountancy Age spoke to the two insolvency veterans after a Breakfast Briefing held at the London Stock Exchange, where they lifted the lid on the Lehman and Woolworths administrations, the two most high-profile corporate collapses of the current crisis.

As the number of insolvencies approached the highest levels since the last recession, Lomas, chairman of the Business Recovery Group at PricewaterhouseCoopers, also said that the government could not allow another collapse on the scale of Lehmans.

‘I would be very surprised if we had another major financial services collapse, simply because the impact would be potentially so serious that I’ve got to believe the government would want to save it – almost at any cost.’

While Woolworths has been wound up, Lomas and a team of 260 staff continue to sift through the wreckage of Lehmans, which is proving so complicated that the firm has called for a scheme of arrangement to make the complex web of creditors more manageable.

Another hurdle Lomas and his team also face is in clawing back assets that the administrators believe belong to them from the New York and Japanese arms of Lehman Brothers global empire.

In the application for the scheme of arrangement, the firm also warned that it might have to dip into the assets of Lehman Brothers if it was unable to claw back enough cash from the trust property – money belonging to creditors – to pay its fees.

The scheme said: ‘To the extent that the administrators are ultimately unable to recover out of the trust property their reasonable remuneration, costs and expenses incurred in dealing with trust property, whether pursuant to the proposed scheme of arrangement or otherwise, they shall be so paid and indemnified out of the assets of LBIE.’

While all this has been going on, Lomas has also had to keep creditors abreast of the situation and a creditors’ report was due in the middle of March. This is now planned to be delivered to creditors within the next few weeks Lomas said, but he predicted that the administration will continue into the next decade.

‘This process will last at least five years,’ he said.