WSJ: Lehman Units Argue Bankruptcy



The Wall Street Journal
May 26, 2009

Lehman Units Argue Bankruptcy
U.S. Trustees Seek Global Framework; U.K. Administrators Prefer Local


America's largest bankruptcy is causing an international standoff
between Lehman Brothers Holdings Inc.'s U.S. and U.K. operations.

Administrators for Lehman's U.S. estate plan to ask a federal judge
Tuesday to approve an international framework for coordinating
bankruptcy proceedings among subsidiaries spread across the globe. But
administrators representing Lehman's main European arm in the U.K. are
balking at the agreement, saying they are governed by local rules and
the interests of their own creditors.

The stalemate is significant because Lehman's U.K. estate held about a
third of the firm's roughly $630 billion in assets before it filed for
bankruptcy. The London-based estate also holds data essential to
insolvency proceedings among other smaller European subsidiaries.
[Lehman's European headquarters in London] Bloomberg News

While Lehman's U.S. estate wants a global agreement, its U.K. arm is
resisting. Here, Lehman's European headquarters in London in

When a large company with global operations seeks Chapter 11
protection, it can spawn numerous legal proceedings with different
rules in other countries. Since the U.S.'s fourth-largest investment
bank filed for Chapter 11 in September, nearly 80 Lehman subsidiaries
world-wide have folded in more than a dozen countries and legal
jurisdictions. On the horizon: a possible bankruptcy filing by General
Motors Corp., the world's largest auto maker with operations in some
140 countries.

Lehman's U.S. team wants to work with other estates to hold and manage
assets with a goal of recovering more for creditors, rather than
watching other estates sell assets at fire-sale prices. The
international agreement would also discourage subsidiaries from
lengthy reviews of accounting records when settling debts between

Supporters of the international protocol fear Lehman could be mired in
bankruptcy for years without some agreements to speed administration
of certain claims and other matters.

In the Netherlands, a Lehman subsidiary issued some 4,000 notes that
were mainly drawn up by Lehman officials in the U.K., said Rutger
Schimmelpenninck, a court-appointed bankruptcy trustee for Lehman's
Dutch subsidiary and partner at Dutch law firm Houthoff Buruma. Mr.
Schimmelpenninck hasn't yet received all the information he needs from
the U.K. estate to help him value those notes.

In addition, some subsidiaries failed well after Lehman sought
bankruptcy protection in New York, raising questions about the proper
accounting dates to use when valuing certain claims and other
contracts, he said.

Lehman's U.S. administrators haven't pointed to any specific actions
taken by the U.K. estate that would undermine other bankruptcy
proceedings. But the international protocol document outlines areas
where Lehman's U.S. restructuring team hopes to align estates'

Administrators in Hong Kong, Singapore, Germany, Luxembourg and
Australia have signed on to the protocol. The pact won't be legally
enforceable, as administrators are bound by rules in their own
jurisdictions. Still, U.S. Bankruptcy Judge James Peck has said
international cooperation should be "pursued with vigor and in good
faith" to smooth Lehman's trip through Chapter 11.

"There need to be international standards when dealing with a global
company that collapses," said Bryan Marsal, Lehman's chief
restructuring officer and co-CEO of turnaround firm Alvarez & Marsal
LLC. "Otherwise, every country acts like 'Every man for themselves.' "

PricewaterhouseCoopers, which administers Lehman's U.K. estate, said
it has made progress reaching other agreements with subsidiaries to
coordinate restructurings and won't submit to multilateral
negotiations. A global protocol is "unnecessary, insufficiently
tailored and unacceptably burdensome" for Lehman's U.K. estate and its
creditors, said Tony Lomas, a PricewaterhouseCoopers partner and
administrator of the London estate.

International protocols have emerged in bankruptcy cases before, but
never on such a massive scale. Lehman's efforts to persuade estates to
submit to the framework underscore the complexities wrought by a new
wave of bankruptcies flowing from the global financial crisis.

"With the increased internationalization of bankruptcy, it's more and
more important for the different jurisdictions to come to an informal
agreement," said Edward Altman, a New York University business
professor who focuses on bankruptcies. "There is no official code that
brings them together."


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