Re Lehman Bros Australia Ltd

[2008] NSWSC 1132

CITATION:	Lehman Bros Australia Ltd [2008] NSWSC 1132
HEARING DATE(S):	23/10/08
JUDGMENT DATE :	23 October 2008
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
EX TEMPORE JUDGMENT DATE:	23 October 2008
DECISION:	Order extending convening period for each company
CATCHWORDS:	CORPORATIONS - voluntary administration - extension of time for second meeting of creditors - eleven companies part of substantial world-wide finance group - desirability of certain tasks being completed before administrators convene second meeting - minimal impact of statutory moratoriums
LEGISLATION CITED:	Corporations Act 2001 (Cth), Part 5.3A, ss 435A, 439A
CATEGORY:	Procedural and other rulings
PARTIES:	Lehman Brothers Australia Limited - First Plaintiff/First Respondent Lehman Brothers Australia Holdings Pty Ltd - Second Plaintiff/Second Respondent Lehman Brothers Australia Finance Pty Limited - Third Plaintiff/Third Respondent Lehman Brothers Australia Granica Pty Limited - Fourth Plaintiff/Fourth Respondent Lehman Brothers Australia Real Estate Holdings Pty Limited - Fifth Plaintiff/Fifth Respondent Lehman Brothers Real Estate Australia Pty Ltd - Sixth Plaintiff/Sixth Respondent Lehman Brothers Real Estate Australia Commercial Pty Limited - Seventh Plaintiff/Seventh Respondent LBVH 1 Pty Limited - Eighth Plaintiff/Eighth Respondent LB Queensland I Pty Limited - Ninth Plaintiff/Ninth Respondent HV 1 Pty Limited - Tenth Plaintiff/Tenth Respondent HV 2 Pty Limited - Eleventh Plaintiff/Eleventh Respondent
FILE NUMBER(S):	SC 5349/08
COUNSEL:	Mr C R C Newlinds SC - Plaintiffs
SOLICITORS:	Clayton Utz - Plaintiffs

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

THURSDAY 23 OCTOBER 2008

5349/08 LEHMAN BROTHERS AUSTRALIA LTD & 10 ORS

JUDGMENT

1 These proceedings concern eleven companies in respect of which administrators have been appointed under Part 5.3A of the Corporations Act 2001 (Cth). The administrators are Mr Singleton and Mr Parbery who were appointed on 26 September 2008.

2 The first meeting of creditors in each administration was held on 9 October 2008. On that occasion Mr Singleton and Mr Parbery were confirmed in office as administrators.

3 The convening period for the second meeting of creditors under s 439A will expire on Monday next, 27 October 2008. Each of the eleven companies and the administrators make application under s 439A(6) for an extension of the convening period. The extension sought is until 7 February 2008.

4 In approaching applications of this kind, the court has the task of attempting to reconcile the aspect of Part 5.3A which contemplates that administration will be a relatively summary and speedy process with the object of Part 5.3A stated in s 435A, which is that the property and affairs of the company should be administered in a way that maximises the chances of the company, or as much as possible of its business, continuing in existence or, if that is not possible, results in a better return for the creditors and members than would result from an immediate winding up.

5 The purpose of the second meeting of creditors is to enable creditors to make a decision about the company's future and which of the destinations available after voluntary administration it will seek. The task of the administrators in that context is to give guidance to the creditors so that they may make an informed decision on the basis of adequate information.

6 The position in this case is that the eleven companies are some, but not all, of the Australian subsidiaries of Lehmann Brothers Holdings Inc, a United States corporation which is under Chapter 11 administration in that country. The group as a whole carried on a substantial and sophisticated business in the financial markets. Particulars are given in Mr Singleton's first affidavit and there is reference there to the various instruments in which the companies traded in the ordinary course of their business.

7 There is also reference to a complex pattern of intercompany indebtedness involving members of the Australian group among themselves (I include here both companies in administration and companies not in administration), and between members of the Australian group and members of the Lehmann Brothers Group in other parts of the world.

8 There is potentially very significant work to be done in determining the state of the indebtedness among group members so that the separate position of each company can be ascertained.

9 There is also work to be done in relation to claims of creditors and, in particular, the largest group of non-associated creditors consisting largely of local government councils and statutory authorities that consider themselves to be creditors as a consequence of their purchase of certain forms of financial instruments and financial products. There are 41 creditors or institutions claiming to be creditors in that class.

10 There is a need, according to Mr Singleton, for each of those claims to be fully considered. There has not to this point been sufficient time or information to undertake that task.

11 There are also real property investments consisting of beneficial interests in land and interests under mortgages and other forms of security. There is a need for those to be carefully assessed, particularly in light of current unfavourable trends in property markets.

12 In relation to certain of the financial instruments and financial products, described as “collateralised debt obligations”, “residential mortgage backed securities” and “credit default swaps”, there is again work to be undertaken in understanding their full implications and coming to a view about appropriate dealing with them. In that connection, the administrators have instructed PwC Corporate to advise on the appropriateness of a possible method of realisation. That advisory assignment is about to be undertaken.

13 A matter to be considered closely is the impact that prolongation of the administration will have on persons whose claims are affected by the statutory moratoriums that Part 5.3A causes to arise. In this particular instance and for reasons I shall explain, that is not a matter of concern.

14 Significantly, none of the companies any longer has employees. The operations were sold, apparently as a going concern, to Nomura. The employees are now employed by Nomura.

15 I turn then to secured creditors.

16 There were two secured creditors. A mortgage debenture held by Australia New Zealand Banking Group Limited has been discharged. There is a security held by a Citigroup entity, but that now secures very little and is likely to be discharged soon.

17 The expected discharge to which I have just referred comes as part and parcel of the accomplished transaction under which Nomura acquired the business operations of the group in Australia and employed all of the employees. The Citigroup security concerned a guarantee in respect of rented business premises which will no longer be required in light of what I have just mentioned.

18 As for lessors, there are some operating leases in respect of computer equipment and catering equipment, but they are likely to be novated to Nomura or cancelled following the transfer of staff.

19 It is particularly relevant to mention that the administrators are hopeful of reporting to creditors on the possible terms of a deed of company arrangement. It is too early for them to conclude that any recommendation in that direction will be made, but there is, they say, a significant possibility.

20 I am satisfied that this is a case in which the interests of creditors will be better served by a measured and detailed approach by the administrators to the several issues of complexity to which I have referred. Completion of those tasks will enable the administrators to be in a better position to put fully formulated and considered recommendations before creditors in connection with the second meeting.

21 On the other side of the coin, there is really no-one who will suffer by reason of the imposition of a statutory moratoriums. Therefore, the interests of the creditors in having detailed information and in having the benefits of the time that the administrators can devote in attempting to plan for enhanced returns to creditors, including through a possible deed of company arrangement possibility, predominate.

22 I make the orders 3 and 4 in the originating process.

23 I also order that the second affidavit of Mr Singleton, the affidavit of 13 paragraphs, be kept confidential and be placed in the court file in an envelope marked "Confidential. Not to be opened except by order of a Judge and after 48 hours notice to Clayton Utz".

24 The originating process is stood over to the Registrar's list on 5 February 2009.

25 The plaintiffs have liberty to apply on 48 hours' notice.

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