Update - Waterfall II Application (the “Application”) - German Law Issues - 1 October 2015

The LBIE Administrators refer to Issues 20 to 21 of the Application (the “German Law Issues”), the order of Mr Justice David Richards following the case management conference held on 9 March 2015 (the “Order”), the expert evidence as to matters of German law and the revised position papers of the Senior Creditor Group and Wentworth filed on 1 September and 14 September 2015 respectively (together, the “Revised Position Papers”). 

The German Law Issues were included in the Application in order to address issues arising from the German Master Agreement, as that term is defined in the Application. The Revised Position Papers reflect a number of material changes to the arguments being made on the German Law Issues. As a consequence, there are new legal arguments which are not yet (or not adequately) covered by the existing expert evidence filed and served by the Senior Creditor Group and Wentworth.

The purpose of this notice is to inform creditors of the steps proposed by the LBIE Administrators, with which the Senior Creditor Group and Wentworth have agreed, to deal with the material changes to the arguments being made on the German Law Issues in advance of the joint experts’ meeting between the German law experts.

Revised Issue 20

Issue 20 in the Application currently asks the Court to determine:

Whether, in calculating the amount of interest due under section 3(4) of the German Master Agreement, it is possible (and if so, in what circumstances and to what extent) to include an amount in respect of “further claims for damages” (“Damages Interest Claim”) so that this would constitute part of “the rate applicable to the debt apart from the administration” for the purposes of Rule 2.88(9).

As a consequence of the matters set out in the Revised Position Papers, insofar as the German Law Issues were concerned, it became clear that the parties to the Application needed to revise Issue 20 in order to address the new arguments being made. To that end, the Senior Creditor Group and Wentworth have agreed with the LBIE Administrators on a revised Issue 20, to read as follows:

20.1  Whether and in what circumstances, following LBIE’s administration, a creditor would be entitled to make a “damages interest claim” within the meaning of section 288(4) of the German Civil Code (BGB) on any sum which is payable pursuant to clauses 7 to 9 of the German Master Agreement?

20.2  If the answer to question 20.1 is yes, whether (and if so, in what circumstances) all or part of such “damages interest claim” can constitute part of “the rate applicable to the debt apart from the administration” for the purpose of Rule 2.88(9)?

At the Pre-Trial Review on 9 October 2015, the Joint Administrators intend to apply to the court to amend the Application in order to amend Issue 20 as above.

Further expert evidence

As a result of the material changes to the arguments being made on the German Law Issues and the revision to Issue 20, the LBIE Administrators have proposed to the Senior Creditor Group and Wentworth that their experts file and serve further expert evidence addressing the new arguments being made, to the extent that the existing expert evidence does not adequately address such new arguments. The Senior Creditor Group and Wentworth have agreed to this proposal. They have also agreed to the list of questions to be answered by the experts proposed by the LBIE Administrators. To see a copy of the list of questions, please click here.

Any creditor which disagrees with the proposed removal of the existing Issue 20 and the terms of the revised Issue 20, as set out above, should contact the LBIE Administrators at unsecuredcreditors@lbia-eu.com as soon as possible and in any event by no later than 4.00pm on 7 October 2015.

Should you have any queries regarding this update, please contact LBIE’s Communications and Counterparty Management team at generalqueries@lbia-eu.com.