The Supreme Court has this morning handed down judgment in Lehman Brothers Holdings v Lomas and others in a case to  determine the level of recovery available to hedge funds and other investors which had purchased Lehman debt. The case also looked in particular at the question of whether investors were entitled to be compensated for currency movements that took place whilst the administration continued.  

Statutory interest

It decided that around £5bn would be paid out as statutory interest to claimants of the European arm of Lehman on issues relating to the US investment bank’s collapse in 2008. However, it dismissed a £2bn currency conversion claim by creditors who had argued they should be compensated for losses caused when they swapped their dollar claims into sterling. 

Administration

Rupert Reed QC, a commercial chancery barrister at Serle Court, said: ‘The Supreme Court’s judgment today contains a number of significant findings in relation to administration. In particular, it has, by a majority, overturned the Court of Appeal in rejecting the right of creditors under debts denominated in a foreign currency to recover compensation for losses arising from the depreciation of sterling after the date of entry into administration.  The rights of those creditors are limited to those provided comprehensively under the existing statutory scheme.'  

Strict approach

He said that the court had generally taken a strict approach in applying the Insolvency Act and Rules.  For example, it identified a statutory lacuna in confirming that statutory interest accruing during an administration is not recoverable in a subsequent liquidation.  It has also found that a section 74 claim for contribution from shareholders does not include a liability to meet statutory interest, that a section 74 claim is provable only by a liquidator, and that section 74 liabilities may not be set off against proofs filed by shareholders as creditors in administration.

Procedural

He added that, however, the court had mitigated its strict statutory approach by taking what Lord Neuberger has described as a ‘relatively simple procedural step’ to give effect to an extension of the Contributory Rule.  'That rule, which precludes shareholders recovering anything from a company as creditor until their contributory liability has been discharged, has in effect been judicially extended into administrations. I would expect the strict approach of the Supreme Court in applying the statutory scheme, and in restricting rights asserted outside that scheme, to be of even broader application insofar as other courts are inclined to adopt a similar approach.’