WSJ: Lehman Units Argue Bankruptcy

Discussion in 'Bankruptcy' started by mugglefuggle, May 26, 2009.

  1. mugglefuggle

    mugglefuggle Guest

    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."
    mugglefuggle, May 26, 2009
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