Australian towns, churches and charities are scheduled to vote Oct. 17 on a proposal by a Lehman Brothers Holdings Inc. unit and its insurers to pay them about $48 million to cover part of their investment loss claims.
Federal Court of Australia Justice Peter Jacobson today approved a plan by liquidators of Lehman Brothers Australia to hold the vote in Sydney. The vote will involve three towns that sued and other municipalities, churches and charities that lost money by relying on Lehman’s investment advice, after the parent company blocked a plan to pay all creditors.
U.S. insurers agreed to give $45 million and an Australian insurer A$3 million ($2.8 million) under the proposal. The payout is on the condition that creditors release the insurers from any future claims. As a result, the plan had to proceed under a court-supervised scheme of arrangement to be voted on by creditors.
Suing in the U.S. against insurers is always difficult, John Walker, executive director of IMF (Australia) Ltd., which funded the towns’ lawsuit, said today in a phone interview. He said $45 million “is a reasonable sum.”
The liquidators estimate creditors will get 44.3 Australian cents to 53.8 cents for each dollar owed, Jacobson said in today’s ruling.
An earlier proposal to settle all creditor claims was scuttled in June when Lehman Brothers’ Asian unit assigned its claims to the parent company, which had the power to veto and said it opposed the plan. The June creditors’ meeting was adjourned without a vote.
Lehman Brothers Australia appointed a voluntary administrator under the country’s bankruptcy laws on Sept. 26, 2008, after Lehman Brothers Holdings filed for bankruptcy. The company, then the fourth-largest investment bank in the world, had $613 billion in debt, making it the biggest bankruptcy in U.S. history.
The parent company is scheduled to pay out $14 billion to creditors on Oct. 3, bringing total distributions to $43 billion, according to U.S. court records. Australian creditors haven’t received anything yet.
The Australian unit has assets of between A$297 million and A$303 million and creditors are owed between A$596 million and A$654 million, according to an IMF statement in April. IMF’s clients are owed A$143.5 million, it said.
The Lehman unit “engaged in misleading and deceptive conduct” in investing the towns’ money in synthetic collateralized debt obligations whose value collapsed along with the U.S. housing market, Federal Court Justice Steven Rares said when he ruled in September last year that the unit was liable for the towns’ losses.
PPB Advisory, the unit’s liquidator, is appealing the ruling.
The case is In the matter of Lehman Brothers Australia Ltd. (In Liquidation). NSD622/2013. Federal Court of Australia (Sydney).