Lehman administrators call for US-style rules in UK insolvency

The administrators of Lehman Brothers have called for a key element of US insolvency rules to be introduced in the UK to help them avoid trawling through “billions of dollars” of claims that would otherwise have been avoided.

Under US Chapter 11 bankruptcy rules provisions stop creditors of an insolvent company getting their hands on a share of a trust in which the company has invested in.

But Lehmans’ European administrators PwC have faced “billions of dollars” worth of such claims within the Lehmans estate.

The so-called US “anti-alienation” provisions would have provided administrators some breathing space as certain assets are ring-fenced from creditors, said Lehmans European joint administrator Steve Pearson, because it prevents people who would otherwise have made “quite considerable claims” from doing so.

But this advantage was not available to the PwC team.

“We are stuck with the problem of billions of dollars worth of claims,” added joint administrator Tony Lomas.

It is widely recognised the insolvency experts are charting new territory in unwinding Lehman Brothers European arm, which has highlighted possible flaws in the UK’s current insolvency framework.

Pearson said: “I think in terms of the underlying financial issues, they are new, but the approach we take is the same. It’s a case of ruthlessly efficient project management.”

Consequently, the PwC team has been working closely with the Tripartite Authority ­ the Treasury, Bank of England and the Financial Services Authority ­ to carve out best practice going forward.

Lomas said the anti-alienation issues were now on the “T3” agenda as part of the job he described as “ten times larger” than Enron.

“The T3 are aware of it. They are there to learn from this if another bank was ever going to collapse in the future.

“There’s still a long way to go, and it’s very much about sharing the major lessons in the context of the revision of financial markets regulation and the insolvency regime,” Lomas added.

PwC said its talks with the creditors committee were very constructive, but Pearson also stressed that tough negotiations were very much part of the process.
“We’re not pretending it’s all sweetness and light,” he said.

Approximately 200 PwC staff are still working on the job alongside about 400 former Lehmans staff. Pearson said the staff were the only qualified people to help unbundle the failed trades left in limbo due to Lehmans’ collapse.

The co-operation with Lehmans staff has proved to be vital in the process of unwinding the company.

“We have a fantastically supportive team from across PwC working together with the Lehmans people,” Pearson added. “People usually jump from sinking ships. These people didn’t.”

Further reading

Comment - A year on and we're still learning from Lehmans