Announcement - Launch of LBIE admitted claims auction – 4 April 2016

The Joint Administrators of LBIE are pleased to announce the launch of a proposal known as the LBIE admitted claims auction (the “LACA”), designed to provide an opportunity for a majority in number of LBIE’s unsecured creditors to conclude their relationship with LBIE.  

The Joint Administrators continue to face a number of challenges in finalising creditors’ entitlements to the surplus in LBIE’s estate (the “Surplus”). In particular, the Joint Administrators:

1. see no reasonable prospect that there will be a judicial or consensual outcome of the current Waterfall I and Waterfall II applications (the “Proceedings”) to enable a distribution of the Surplus in the near future; and
2. require clarity on the question of whether there are any withholding obligations on distributions of interest from the Surplus pursuant to UK tax law before any payments of entitlements may be made from the Surplus. On 22 December 2015, the Joint Administrators issued an application to the Court for directions on this issue, which is due to be heard by the Court at trial commencing on 28 April 2016. Absent receipt of an expedited judgment, the outcome is not expected to be known for several months.

To date, creditors’ sole means of concluding their relationship with LBIE has been to individually sell their claims to third party investors. As a result of the continuing challenges in resolving entitlements to, and distributions of, the Surplus the Joint Administrators believe it is appropriate for them to develop alternative options to enable creditors to conclude their relationship with LBIE, in a manner which is consistent with their general duties and that does not impede or cut across the Proceedings. The LACA provides such an option. The Joint Administrators will continue to closely monitor developments and may make further proposals in the future (although no such proposal, if any, will be made before the closing of the LACA).

The LACA will provide eligible creditors who have an admitted claim with a value of less than £10 million the option to participate in an auction process, pursuant to which it is intended that they will sell their admitted claim to third party purchasers. This will enable such eligible creditors to achieve a complete exit from the LBIE administration in relation to such admitted claims (subject to the terms and conditions governing the LACA). LBIE has been working in conjunction with Lehman Brothers Nominees Limited (“LBNL”) to ensure that the LACA is structured appropriately.

The LACA is intended to simplify a third party purchase of participating admitted claims (and the diligence required by third party purchasers in relation to such purchase) by aggregating participating admitted claims into three claim pools, based on the dominant currency of each participating admitted claim. LBIE will provide certain information on the characteristics of the participating admitted claims in each claim pool to potential purchasers, with potential purchasers bidding on the entirety of one or more claim pools, rather than individual claims. This should enable potential purchasers to more efficiently analyse and purchase admitted claims.

The LACA is expected to provide a number of benefits to participating creditors, including a reduction in the administrative burden generally associated with a sale of such claims. LBIE will also enjoy certain benefits as a result of the LACA due to the further simplification of its estate.

LBIE has established the criteria by which a creditor will be deemed to be eligible to participate in the LACA. Creditors may have been excluded for the following reasons:

a)     the creditor is a former employee. Unfortunately, the tax consequences of the LACA for employees are complex and therefore it is not feasible to include claims relating to a creditor’s employment with LBIE; and/or

b)    the counterparty is a signatory to the claim resolution agreement (the “CRA”), or holds a claim which has been transferred or assigned from a person who is/was a signatory to the CRA, as the structure of the CRA creates an additional complexity around the transfer of claims; and/or

c)     LBIE believes the creditor’s claim is held on a sub-participated basis for, or is owned directly by, a third party investor who acquired the claim after 15 September 2008. The Joint Administrators believe that the LACA should be limited to providing an exit for original creditors. 

LBIE has applied the criteria to determine the eligibility of any creditor and its admitted claim based on LBIE’s books and records, in which the value, ownership and transfer of claims are recorded.

The relevant documentation for participation in the LACA is available for eligible creditors to view on the LBIE Client Information Portal. If the information (including the offer of participation and LACA terms and conditions) does not appear for a creditor on the LBIE Client Information Portal, that creditor is not considered to be eligible for the LACA. Pro forma copies of the relevant documents are available for information only below.

If all eligible creditors accept the offer to participate in the LACA, 691 admitted claims of approximately £700 million in total value, which amounts to around 7% of LBIE’s creditor base by value and nearly 70% by number, will be able to conclude their relationships with LBIE. Further information is provided in the table below.

Participation in the LACA is open to all eligible creditors and is entirely voluntary. In order to participate in the LACA, the relevant eligible creditor must review all of the LACA documentation available on the LBIE Client Information Portal and accept the offer to participate in the LACA by following the instructions as set out on the LBIE Client Information Portal.

The deadline for accepting the offer to participate in the LACA is 5 p.m. (London time) on 3 May 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, and creditors whose admitted claims are not eligible to participate in the LACA, will continue to hold such admitted 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 admitted claims as permitted by applicable law and any instrument by which their admitted 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.

Any person who wishes to register their interest as a prospective purchaser should do so by emailing lacabids@lbia-eu.com.

None of LBIE, the Joint Administrators or their firm, or LBNL, or any of their respective members, partners, directors, officers, employees, agents, advisers or representatives, make any representation as to whether any payment made to, or amount received by, any participating creditor pursuant to the LACA in relation to their admitted claim will be the same, greater or less than any amount such participating creditor would or may have otherwise received in respect of such admitted claim had they not participated in the LACA, whether on the judicial or consensual resolution of the Proceedings or otherwise.

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

Pro forma documentation for participation in the LACA:

1. Offer of Participation
2. Terms and Conditions