Lehman Extension Applications

Hearing date: 22 November 2022

Approved Judgment

This judgment was handed down remotely at 10.30am on 25 November 2022 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

Introduction

This is my judgment to explain my reasons for the orders I made at the end of the hearing of applications made by the respective current Joint Administrators of eight companies within the Lehman group of companies. All eight companies have been in administration for many years. As is well known, the appointment of an administrator ceases to have effect at the end of the period of one year beginning on which it takes effect (see Paragraph 76 of Schedule B1 Insolvency Act 1986 1). However, the court has power to extend the term of office for a specified period. There is no limitation on the period or the number of times on which an extension may be granted (see Paragraph 76(2)(a)). In the case of each of the eight companies, a sequence of extension orders have been made. Now, seven of the eight companies (“the Extension Application Companies”) have sought further extensions (“the Extension Applications”). Two of the companies (LB UK RE Holdings Limited and Storm Funding Limited) have also or instead sought orders fixing the time of their Joint Administrators' discharge from liability (“the Discharge Applications”). I have made the orders sought, except for the order of discharge sought in the case of LB UK RE Holdings: I have adjourned that application for reasons I shall explain.

The eight companies are:

(1) Lehman Brothers International (Europe), which I shall call “LBIE”

(2) Mable Commercial Funding Limited, which I shall call “Mable”

(3) Lehman Brothers Limited, which I shall call “LBL”

(4) LB Holdings Intermediate 2 Limited, which I shall call “LBHI2”

(5) Eldon Street Holdings Limited, which I shall call “Eldon”

(6) Lehman Brothers Holdings plc, which I shall call “LBH”

(7) LB UK RE Holdings Limited, which I shall call “LBUKRE”

(8) Storm Funding Limited, which I shall call “Storm”.

Each of the eight companies has been in administration for well over a decade. LBIE, LBH, LBL and LBUKRE entered into administration on 15 September 2008. Mable entered into administration on 23 September 2008; Eldon, on 9 December 2008; LBHI2, on 14 January 2009; and Storm, on 28 September 2008.

In the case of LBIE, Mable and Storm the last extension orders were made on 4 November 2016, in each case for a term of six years expiring on 30 November 2022.

In the case of LBH, LBHI2, LBL and Eldon, and following various extension orders before then, the last extension orders were made on 2 November 2020 for two years also expiring on 30 November 2022.

In the case of LBUKRE, the last extension order was made on 29 October 2021 for a year, again until 30 November 2022 (and again after various previous extensions).

As is unsurprising in the contexts of administrations which have lasted so long, there have been a number of changes in the individuals in office as Joint Administrators of the Extension Application Companies. I do not think it is necessary to chronicle these

As with many things connected with the Lehman Group and the administrations following its well-known collapse in September 2008 which imperilled the entire financial system in the West, the interrelationship between the various Extension Application Companies, and the key intercompany claims between them, is complex. There was provided to me a diagram showing a simplified overview of the various interconnected cashflows between the Extension Application Companies and certain other relevant Lehman Group entities: and that is to be appended to this judgment.

This tale of disaster, has however, yielded some elements of a happy ending in that the process of administration has realised and enabled to be distributed tens of billions of pounds. To take the example of LBIE some £27 billion has so far been received. All of the Extension Application Companies have been in distributing administration for a number of years.

The probably unparalleled length of these Administrations, and the applications now before me, need to be seen in the context of the success of the processes, though obviously the Court must also consider whether there would be better alternatives now, especially given the length of the proposed extensions sought. These are:

(1) Three years in the case of LBIE, Mable, LBL, LBH, LBHI2 and Eldon

(2) Until 31 May 2023 in the case of LBUKRE.

These are considerable extensions especially given the statutory period of just one year for an Administration unless extended by the Court.

In addition to these Extension Applications, I must also deal with the Discharge Applications made by LBUKRE and Storm (the term of administration for which expires on 30 November 2022). But I shall address the Extension Applications first.

The Extension Applications

I start with the applicable legal provisions. Paragraph 76 of Schedule B1 to the Act provides:

“ (1) The appointment of an administrator shall cease to have effect at the end of the period of one year beginning with the date on which it takes effect.

(2) But—

(a) on the application of an administrator the court may by order extend his term of office for a specified period, and

(b) an administrator's term of office may be extended for a specified period not exceeding one year by consent.”

Thus, Paragraph 76(2)(a) empowers the Court to extend an administrator's term of office for such period as the Court sees fit.

The leading case dealing with the exercise of the Court's discretion under Paragraph 76(2)(a) is the decision of Snowden J (as he then was) in Re Nortel Networks UK Ltd [2017] EWHC 3299 (Ch). Snowden J stated at [22]:

“ The Court's discretion under Paragraph 76(2)(a) is not circumscribed in any express way, but it is readily apparent that it should be exercised in the interests of the creditors of the company as a whole, and that the Court should have regard to all the circumstances, including (i) whether the purpose of the administration remains reasonably likely to be achieved, (ii) whether any prejudice would be caused to creditors by the extension, and (iii) any views expressed by the creditors. In that regard, where a company is making distributions to its unsecured creditors within the administration process, it is likely to be appropriate that the administrator's term of office should be extended to allow the distributions to be made, rather than to require the company to go into liquidation, which might well increase the costs or delay the distribution process with no countervailing benefit.”

The same principles have been applied in a large number of other cases, including in relation to the Lehman Group. For example, in Re Lehman Brothers International (Europe) [2016] EWHC 3379 (Ch), I extended the administrations of certain Lehman group companies for a period of between four and six years, stating at [9]–[11]:

“ [O]nce the matters have moved to the distribution mode, and whilst the administrators have things to do to complete their mandate and effect the final distribution, the working assumption, at least, should be that, unless good cause is shown for some specific advantage of the liquidation route over the administration distribution route, the implication of the courts granting the distribution status is that the administration should be maintained for as long as is reasonably necessary to complete the process of distribution and that, therefore, if an extension is necessary to enable the Administrators' functions to be thus completed, prima facie it should be granted.

It should be said, also, when considering the length of the extensions sought that the administrators, being professional insolvency practitioners, always have the obligation to consider, on a continuing basis, whether their functions are either at an end or might more efficiently be brought to an end in favour of some other insolvency process. I have every reason to suppose that continuous review will be maintained in the context of the Lehman entities.

Furthermore, of course, individual creditors have the entitlement to apply to the court if they consider the administrations are continuing too long or for no sufficient purpose, or if there are factors which suggest, contrary to the best estimate of the joint administrators and the court at the time, the extension is excessive.”

In the context of the...