Client Money - General Update 14/02/2011

As part of LBIE’s ongoing administration, we have been engaged in an extensive communications programme for all clients and the Joint Administrators remain committed to providing counterparties with regular information updates on this website. 

This update provides further information to counterparties who believe that they have a claim against LBIE which includes amounts that may qualify for Client Money protection under the terms of the FSA’s Client Money Rules (“Pre-Administration Client Money”). 

Supreme Court

As stated in the Client Money Update 21/12/2010, in December 2010 GLG Investments Plc Sub-Fund: European Equity Fund was granted permission to appeal to the Supreme Court. The hearing before the Supreme Court is provisionally scheduled to take place on 31 October 2011 and is expected to last up to four days.

Lehman Brothers Bankhaus AG (“Bankhaus”)

• LBIE Claim: On 22 December 2009 the Joint Administrators filed a petition on behalf of LBIE clients at the Frankfurt Main Regional Court in Germany, claiming the return of US$1 billion of client money deposited with Bankhaus prior to the date of Administration. As stated in our Client Money update of 7/10/2010, a second oral hearing for the pronouncement of the decision was held on 7 October 2010 whereby the Court dismissed the petition made by the Joint Administrators. On 10 November 2010, the Joint Administrators filed an appeal notice at the German court and await Bankhaus’ response.. The appeal process is expected to take a number of months, as likely as not with additional submissions to the Court expected on behalf of LBIE and Bankhaus.
• Bankhaus Counterclaim: As outlined in the Joint Administrators’ Fourth Progress report dated 14 October 2010, Bankhaus indicated its intention to pursue a counterclaim against LBIE, under provisions of the German Insolvency law relating to payments, for the return of US$1 billion which was repaid to LBIE on 12 September 2008. The Joint Administrators prepared a robust defence and, following an oral hearing on 2 December 2010, the German Court dismissed the Bankhaus claims against LBIE in its judgment of 16 December 2010. The Bankhaus insolvency administrator has appealed the judgment.

Creditor Claims

There has been some confusion as to whether creditors who submitted statements in the Client Money Portal are required to file a Proof of Debt against the LBIE estate.  By way of background, our Client Money Update of 08/04/2010 asked potential claimants with Pre-Administration Client Money (as defined in Mr Justice Briggs’ judgment) to confirm their stated balances in the Client Money Portal.  These balances were subject to appeal and the Joint Administrators acknowledged at the time that any entitlement shown on the statements might change.

Notwithstanding the submission by a claimant of its confirmation of entitlement, the Client Money Statements are not, nor were they ever intended to act as a formal Proof of Debt for the purpose of making an unsecured claim in the administration of LBIE.  All unsecured creditors, whether or not they believe that they have a Pre-Administration Client Money claim against LBIE, must file a Proof of Debt to be considered for a dividend in respect of their unsecured claim(s) .  Please click here for further information on how claimants may submit a Proof of Debt in the unsecured creditors’ portal.  Please note that all unsecured creditors who believe that they have a claim against LBIE for Pre-Administration Client Money should include these amounts in their Proof of Debt under the relevant claim sections.  Further guidance can be found in the Guidance Notes and on the unsecured creditors’ portal.

Identifying Client Money 

As indicated in the Joint Administrators’ Fourth Progress report dated 14 October 2010, as a result of the Court of Appeal Judgment, the Joint Administrators face significant challenges regarding identifying Client Money in LBIE’s house accounts and determining which  counterparties may have a claim in respect of Pre-Administration Client Money.

The Court of Appeal judgment raised difficult questions as to which clients entered into transactions with LBIE which entitled the clients to client money protection.  The Joint Administrators are analysing the various different possibilities.  The position is, however, very complex (not least because LBIE has over 3,500 potential creditors and around 800 bank accounts) and will be a matter for debate before the Supreme Court. 

Also, further to the Court of Appeal judgment, the Administrators have been considering the steps required, and the legal tests to be applied, in order to identify and trace client money held in LBIE's house accounts.  It is very likely that the Joint Administrators will require the Court's assistance in order to determine the relevant legal principles.  The Joint Administrators are accordingly considering the form of an application to Court and have commenced discussions with potential respondents. Further updates on these issues and the progress of the Client Money team will be provided in due course.  As always, the Joint Administrators will continue to communicate with you through this website on all matters relating to LBIE’s administration. Should you have any questions regarding this update, please contact the Communications and Counterparty Management team at clientpositionresponses@lbia-eu.com.