Update – Launch of the third LBIE admitted claims auction – 17 October 2016

The Joint Administrators of LBIE are pleased to announce the launch of a proposal known as the third LBIE admitted claims auction (the “LACA III”). The LACA III has been designed to provide a further, or new, option for certain of LBIE’s unsecured creditors (who have not already sold their admitted unsecured claims (each such claim, a “Claim”) pursuant to the first LBIE admitted claims auction (the “LACA”) or the second LBIE admitted claims auction (the “LACA II”) (or otherwise)) to conclude their relationship with LBIE by providing such creditors with the opportunity to make an offer to Lehman Brothers Nominees Limited (“LBNL”) to sell to LBNL one or more of their Claims.

The LACA III is similar in certain respects to both the LACA (see: http://www.pwc.co.uk/services/business-recovery/administrations/lehman/launch-of-lbie-admitted-claims-auction--4-april-2016.html) and the LACA II (see: http://www.pwc.co.uk/services/business-recovery/administrations/lehman/update-launch-of-the-second-lbie-admitted-claims-auction-15june2016.html). However, it differs from the previous proposals in a number of key respects, which may appeal to eligible creditors who did not or could not participate in either the LACA or the LACA II.

Detail regarding the LACA III is provided in the information available to eligible creditors on the LBIE Client Information Portal. Some of the key differences between the LACA III and both of the LACA and the LACA II are:

• each eligible creditor is invited to make offer(s) to LBNL regarding the sale of one or more of their Claim(s) and, as part of their offer(s), will specify the price at which it is willing to sell each such Claim;
• if an eligible creditor’s Claim(s) are sold pursuant to the LACA III, such eligible creditor will receive the price specified by the eligible creditor in respect of such Claim(s);
• potential purchasers of the Claims participating in the LACA III will not be obliged to purchase all or a specified number of Claims but will be able to submit a bid for one or more of those Claims which they wish to purchase;
• if an eligible creditor’s Claim is sold, no fee will be deducted from the price at which such Claim has been sold;
• Claims participating in the LACA III will not be placed into pre-determined groups based on the “dominant currency” of such Claims. Instead, the Claims participating in the auction will be placed into one of two pools depending on the admitted value of such Claim. Participating Claims with an admitted value of £18,000,000 or below will be allocated to “Pool A” and participating Claims with an admitted value of more than £18,000,000 will be allocated to “Pool B”;
• the LACA III is open to a number of creditors whose Claims were not eligible to participate in the LACA or the LACA II; and
• there will be a limited number of potential purchasers.

When specifying the price at which they are willing to sell each of their Claim(s), eligible creditors are expected to carefully consider and balance their desire to obtain the best value for their Claim(s) and their wish to ensure that their Claim(s) have the best chance of being sold. The Joint Administrators note that the LACA III is a new process and there can be no certainty that any or all Claims participating in the LACA III will be sold pursuant to the LACA III.

None of LBIE, the Joint Administrators or LBNL are able to assist an eligible creditor with setting a price at which they would be prepared to sell each of their Claim(s) and eligible creditors should read the information available on the LBIE Client Information Portal carefully, and seek any necessary independent professional advice, before setting the price at which they are prepared to sell their Claim(s). For ease of reference only, the Joint Administrators note that the results of the LACA and of the LACA II are available at:

• in respect of the LACA: Update - LBIE admitted claims auction results - 12 May 2016; and
• in respect of the LACA II: Update - LBIE admitted claims auction results - 21 July 2016.

Consistent with the LACA and the LACA II, pursuant to the LACA III, any Claims participating in the LACA III and sold pursuant to the auction will be sold to LBNL who will immediately on-sell the Claims to successful third party purchaser(s). This will enable such eligible creditors to achieve a complete exit from the LBIE administration in relation to such Claims (subject to the terms and conditions governing the LACA III). LBIE continues to work in conjunction with LBNL to ensure that the LACA III is structured appropriately.

The Joint Administrators consider that the LACA III is appropriate for LBIE for the following reasons:

• in light of the results of the LACA and the LACA II, the Joint Administrators believe it is appropriate to develop and facilitate a new auction process to provide a further opportunity for an increased number of creditors to conclude their relationship with LBIE in a manner consistent with the Joint Administrators’ general duties that does not impede or cut across the Waterfall I, Waterfall II or Waterfall III proceedings (together the “Proceedings”);
• on 24 August 2016, David Richards LJ handed down his approved judgment in respect of certain supplemental issues in the Proceedings (namely, supplemental issues 1(b), 1(c) and 2 to 5) and, on 5 October 2016, Mr Justice Hildyard handed down his judgment in respect of Part C of the Waterfall II application and supplemental issue 1(a). These judgments confirm the current legal position on a number of questions relating to the claims to the surplus in LBIE’s estate after the payment of debts proved (the “Surplus”) and, therefore, may assist creditors when considering the value of their Claim(s). Whilst permission to appeal has not yet been granted in respect of all or any part of these judgments, an appeal on all or some of the issues addressed by them remains possible. Additionally, on 11 October 2016, Mr Justice Hildyard handed down his judgment in relation to the application of withholding tax legislation to payments of statutory interest in an administration (the “Withholding Tax Application”). The Joint Administrators note that permission to appeal in respect of the Withholding Tax Application has been granted. Further information on the relevant judgments is available on PwC’s LBIE website (http://www.pwc.co.uk/services/business-recovery/administrations/lehman.html);
• the Supreme Court is hearing the Waterfall I appeal in the week commencing 17 October 2016. The transcripts of the hearing will be available on PwC’s LBIE website (http://www.pwc.co.uk/services/business-recovery/administrations/lehman.html) on or around 24 October 2016. The Court of Appeal is due to hear the Waterfall II, Tranche A and Tranche B appeals in April 2017;
• due to changes in the eligibility criteria for the LACA III, a greater number of creditors with Claims may now also be eligible to conclude their relationship with LBIE (subject to the terms and conditions governing the LACA III). The LACA III is open to creditors holding approximately 600 Claims with an admitted value of approximately £1.6 billion; and
• the LACA III is an alternative to the other initiatives being considered by the Joint Administrators. More detail is set out in the Joint Administrators’ sixteenth progress report available at (http://www.pwc.co.uk/business-recovery/administrations/lehman/lbie-16th-progress-report.pdf).

The relevant documentation for participation in the LACA III is available for eligible creditors to view on the LBIE Client Information Portal. If the LACA III related information does not appear for a creditor on the LBIE Client Information Portal, such creditor is not considered to be eligible to participate in the LACA III. A sample copy of the Participation and Sale Agreement is available below for information only.

Participation in the LACA III is open to all eligible creditors and is entirely voluntary. In order to participate in the LACA III, the relevant eligible creditor must review all of the LACA III documentation available on the LBIE Client Information Portal and make an offer to LBNL regarding the sale of their Claim(s) by following the instructions as set out on the LBIE Client Information Portal.

The deadline for making an offer to LBNL is 5:00 p.m. (London time) on 14 November 2016 (or such later date as is notified to eligible creditors by LBNL by email and announced on PwC’s LBIE website). Eligible creditors who choose not to participate in the LACA III or whose Claims are not sold pursuant to the LACA III, and creditors whose Claims are not eligible to participate in the LACA III, will continue to hold such Claims and can choose to (i) await the final outcome of the issues being determined in the Proceedings, which it is expected will inform how the Surplus should be distributed in due course, or (ii) otherwise deal with such Claims as permitted by applicable law and any instrument by which their Claim has been admitted.

Eligible creditors should seek independent advice (including, without limitation, financial, legal and tax advice) when considering whether or not to participate in the LACA III.

None of: (i) LBIE, the Joint Administrators or their firm, or LBNL; (ii) the members, partners, directors, officers and employees of those persons identified in (i) (as applicable); and (iii) the agents, advisers or representatives of those persons identified in (i) and (ii), make any representation as to whether:

• any Claim participating in the LACA III will be sold or whether any price received in respect of such Claim will be greater than the price set by the eligible creditor;
• any payment made to, or amount received by, any participating creditor whose Claim is sold pursuant to the LACA III will be the same, greater or less than any amount such participating creditor would or may have otherwise received in respect of such Claim had they not participated in the LACA III, whether on the judicial or consensual resolution of the Proceedings or otherwise; and
• the purchase price in respect of a Claim sold pursuant to the LACA III will be the same, greater or (subject to the price set by the eligible creditor) less than any amount the relevant participating creditor might have received pursuant to the LACA and/or the LACA II.

Participating creditors will agree and acknowledge that by participating in the LACA III and having the right to receive payment of the purchase price pursuant to the LACA III in return for the sale of their Claim, they will transfer to the purchaser any and all rights in respect of such Claim, including (without limitation) any rights to payment of statutory interest or amounts in respect of any currency conversion claims. Additionally, pursuant to the LACA III, they will provide a full release of all claims against LBIE, LBNL and other relevant parties in relation to any Claim sold pursuant to the LACA III or in relation to the LACA III.

All current (and previous) unsecured creditors of LBIE are hereby notified that:

• if such creditor provides any information to LBNL, LBIE and/or the Joint Administrators (whether via the LBIE Client Information Portal, by email or by any other method) in connection with, or for the purpose of, the LACA III and such information contains any personal data, such personal data may: (i) be processed by (including, but not limited to, disclosures between) LBNL, LBIE and/or the Joint Administrators; and (ii) be disclosed to potential, and successful, purchasers; and
• if a Claim is sold pursuant to the LACA III, information, whether held prior to or received in connection with, or for the purpose of, the LACA III, (which may include personal data) relating to any person who holds or who previously held such Claim, may be disclosed by LBNL, LBIE and/or the Joint Administrators to the successful purchaser of such Claim.

The Joint Administrators will continue to monitor developments closely and may make further proposals in the future.

For the avoidance of doubt, nothing in this announcement constitutes an offer by LBIE, the Joint Administrators or LBNL to any creditor in relation to the LACA III.

• Participation and Sale Agreement