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
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
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
“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.”
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