Lehman Brothers International (Europe) ((in Administration))

APPROVED JUDGMENT

The joint administrators of four companies within the Lehman Brothers group of companies which I shall call “the Lehman Group” have made separate applications in the case of each relevant company for relief as follows. In the case of Lehman Brothers International (Europe) (“LBIE”), the rFelief sought is an order terminating the administrators' appointments under paragraph 79(4) Schedule B1 of the Insolvency Act 1986, together with an order fixing the time of the administrators' discharge from liability under paragraph 98(1) of the same Schedule BIn the case of the other three companies, their respective Administrators have applied for extensions of the administrations. In the case of Lehman Brothers Holdings Plc (“LBH”), an extension of time is sought until 30 November 2027. In the case of both Lehman Brothers Limited (“LBL”), and LB Holdings Intermediate 2 Limited (“LBHI2”), extensions of time for a year until 30 November 2026 are sought.

The application in respect of LBIE is rather a different animal than the other applications, and I propose, as did Mr Ryan Perkins of counsel, who has, with customary clarity, presented all the matters to me, to focus on that first.

LBIE went into administration on 15 September 2008 by order of the court in the wake of the global banking crisis and the collapse of the Lehman group as a whole. The Lehman Brothers administrations are, by any standards, of long standing, rather reminiscent of The Mousetrap. In terms of the recoveries effected, the Lehman administrations, especially of LBIE, have been remarkably successful. I am told that as at 14 September 2025, LBIE had received some £27.8 billion, enabling all credit claims to be paid in full together with statutory interest and, furthermore, for all LBIE's subordinated creditors also to be paid in full together with statutory interest. Statutory interest is at the rate of 8 percent simple per annum and the sums involved therefore are very large indeed.

The success of this administration process as regards LBIE has occasioned a number of very unusual and complex legal disputes. Difficult issues have arisen as regards priorities between creditors (often known as the Lehman Waterfall proceedings) and as to the ambit of, in particular, Schedule B1 as regards what is to be done with surplus assets over and above amounts payable to creditors of all description. One of the consequences has been that in July 2020, the administrators of LBIE sought and obtained the court's permission to pursue the statutory objective of rescuing LBIE as a going concern and, in that context, to consent to the making of equity distributions from the surplus in LBIE's estate to its sole shareholder, that is to say LBHI2. That unusual circumstance was described and adjudicated by Sir Geoffrey Vos, Chancellor, as then was, in Re Lehman Brothers International (Europe) [2020] Bus LR 1875. Mr Perkins, in response to a question from me, explained that in the particular context, the objective of carrying on LBIE as a going concern does not connote that it would have any active trading. In fact, it has not undertaken such trading for a very long time. What it connotes is simply that the administrators are pursuing the objectives of the administration on the footing that LBIE is not a failing concern and is able, as is patently obvious it can, to sustain its residual activities as a holding company with a view to the distribution of the vast assets which are still in the process of being recovered.

The sums recovered by LBIE are to be distributed first, as I say now, to its holding company LBHI2 and thence, by a complex onward distribution flow, to various other parties. The other parties include LBH, which is also, it will be remembered, one of the parties who has made an application before me and which has its own creditors, and to what are known as the Wentworth Joint Venture parties which acquire the benefit of a proportion of LBIH2's recoveries from LBIE. An admirably simplified Funds Flow Chart has been exhibited to the eighth witness statement of Mr MacNamara in support of all the applications and should be annexed to this judgment since it provides a clear depiction in readily understandable terms of the complex flow of funds which start at LBIE and trickle through what might be called the waterfall down to the various other interested entities.

As I have already intimated, LBIE's administration has been extended on a number of occasions under paragraph 76(2)(a) of Schedule B1. Obviously in this case, as in the case of all the Lehman's administrations, the statutory assumption that a year would suffice has not proved realistic. The most recent extension to LBIE's administration was an order made in November 2022 when I extended their term of office to 30 November 2025. In a detailed judgment dated 25 November 2022, for which the neutral citation number is [2022] EWHC 2995 (Ch), I set out my understanding of the principles to be applied to applications to extend an administration, and to applications for the discharge of administrators

The basis on which I then extended LBIE's administration was the continued requirement to recover outstanding assets and, in particular, the key driver was the then outstanding US litigation between LBIE and a company called AG Financial Products Inc. The litigation concerned a dispute over the correct termination value of a series of credit default swaps governed by the 1992 ISDA Master Agreement. In the event, those proceedings had been concluded. Other proceedings included a dispute with companies in the Firth Rixson group, my judgment in which is reported at [2022] EWHC 2532 (Ch) (and which was to be the subject of an appeal which was settled shortly before the Court of Appeal was due to hear the case). There have been additional disputes which have occupied the administrators of LBIE with, of course, an intervening period since November 2022.

Now, happily, and of great importance in terms of the history of these companies, the administrators of LBIE consider that they have achieved the purposes of the administration and there therefore arises the question of what should be done in those circumstances. Given that I extended the LBIE...