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.