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Frequently Asked Questions on the Consensual Proposals (as supplemented* on 25/03/2013)

*These FAQs have been supplemented by the modification of question 11 and the addition of questions 21 and 22 below.

Following the recent launch of the Consensual Proposals to facilitate the return of the Omnibus recovery (the “Proposals”), we have received a number of questions from customers.  In the process of responding to these queries we have identified several themes which we believe could be usefully shared with other customers in the form of Frequently Asked Questions (“FAQs”).

Please continue to monitor this website routinely for updates to the FAQs.

Capitalised terms which are used in this document will have the meanings given to them in the Common Terms unless otherwise indicated.

  1. How are my non-LBI trust asset claims affected if I become a Consenting Beneficiary?

    In relation to trust asset claims other than LBI Asset Claims (including claims to Customer Named Securities):

    1. CRA Omnibus Beneficiaries will continue to have the claims to which they are entitled under the CRA; and
    2. OSA Consenting Beneficiaries will continue to have the claims to which they are entitled under their governing legal agreements.
  2. Do my Legal Claims and Legal Liabilities become subject to the CRA if I become an OSA Consenting Beneficiary?

    No.

  3. Will you be providing any further information regarding my unsecured claims or debtor liabilities during the offer period?

    The Company does not intend to provide updated statements prior to the voting deadline and the end of the OSA Offer Period (as defined in the Omnibus Settlement Agreement) of 26 March 2013.

    While the Administrators understand that customers would like to have their other Legal Claims and Legal Liabilities determined prior to committing to the Proposals, it is not practicable for the Company to provide determinations within the timeframes contemplated by the Proposals. In many cases, certainty on indebtedness to the Company and unsecured claims against the Company can only be achieved following the settlement with LBI becoming effective and the Proposals being accepted because this resolves some of the significant uncertainties, particularly in respect of the very large number of Pending Trades (as defined in the answer to the question “How is my LBI Asset Claim affected by Pending Trades if I become a Consenting Beneficiary?” below).

    The principal purpose of the Proposals is to fix the entitlement of customers with LBI Asset Claims to a share of the distribution which LBI will make to the Company once the Settlement Agreement becomes effective. The size of any other Legal Claim or Legal Liability which you may have against or to the Company has no influence on the size or nature of this entitlement. A decision to support or reject the Proposals can therefore be made independently of the context of a customer’s overall position.

    The Company will be seeking to focus resources on the determination of unsecured claims and debtor liabilities for all Consenting Beneficiaries once the Proposals’ acceptance thresholds have been reached, recognising there may be nearly 300 Consenting Beneficiaries to process and balancing this activity with other customer requirements (such as admitting unsecured claims for dividend).
  4. If they become effective, do the Proposals compromise my rights to negotiate my debtor liability or unsecured claim?

    The Proposals do not compromise a customer’s right to discuss and resolve any open issues they may have in order to reach an overall debtor or creditor settlement with the Company, except that neither a customer nor the Company would be able to challenge the settlement status of Pending Trades (as defined in the answer to the question “How is my LBI Asset Claim affected by Pending Trades if I become a Consenting Beneficiary?” below) and neither would a customer be able otherwise to contest the composition of a Consenting Beneficiary’s 19/9 Position.

  5. How will the Company deal with any dispute I may have on my debtor liabilities?

    For CRA Omnibus Beneficiaries, disputes in relation to the Net Financial Liability (as defined in the CRA) will be dealt with in accordance with the CRA (including the dispute resolution provisions of the CRA). For OSA Consenting Beneficiaries, debtor liabilities will be determined on the basis of the governing legal agreements and disputes will be resolved through a combination of negotiations, dispute resolution and litigation.

  6. Will the Company appropriate my share of Omnibus recoveries without my consent?

    Under the Common Terms, a Consenting Beneficiary is not eligible to receive a Common Terms Distribution unless all outstanding debtor liabilities have been agreed between the Company and the Consenting Beneficiary or otherwise determined in a manner that is binding on the Consenting Beneficiary. The Company retains discretion to consider making partial distributions to Consenting Beneficiaries with outstanding liabilities subject to reserving an appropriate amount to take account of any unresolved matters by designating an Attributable Reserve. It is anticipated that consensual agreement will be reached with Consenting Beneficiaries before distributions or Attributable Reserves are appropriated to discharge liabilities. However, where the Company has the ability to appropriate, because the amount of the liability has been determined in a manner that is legally binding on the Consenting Beneficiary, it reserves its right to do so.

  7. I am a CRA signatory and you have provided me with a voting figure for the Proposals. May I derive what my Net Contractual Position is from that?

    Voting value is a concept provided for in paragraph 1.6 of Schedule 4 of the CRA. Its function is to allow the Company to assess whether the votes cast in favour of a CRA resolution (in this case the resolution to amend and restate the CRA) have exceeded the threshold required in order for the Resolution to become effective. There is no process for challenging a CRA signatory’s voting value in the CRA or in the Proposals and for the avoidance of doubt, a CRA Signatory’s voting value has no impact on its claim.

    The voting value is calculated on the basis of all of that CRA signatory’s “Distribution Assets” and “Distribution Liabilities” (as defined in clauses 54.1 and 55.1 of the CRA respectively) as at 30 November 2012. It takes into account all of the signatory’s assets (as well as liabilities) and not just the LBI Assets as at that time and may therefore differ from its Best Claim.

    A CRA signatory’s voting value includes the Net Financial Claim (if any) except to the extent that such CRA signatory has agreed its Net Financial Claim under a CDD and transferred that claim in accordance with the CDD on or prior to the cut-off date. In this case, only the part of the Net Financial Claim (if any) which the CRA signatory has retained as at the cut-off date will be included in the voting value. Each CRA signatory’s voting value has been reduced to take account of any unsecured dividend distribution in relation to its Net Financial Claim.

    The Company does not intend to provide any breakdown of the calculation of an individual CRA signatory’s voting value.

  8. Can I still vote for the Proposals or make an OSA Offer if I have not yet terminated my contracts?

    Yes. However, customers will not be eligible to receive any LBI related distributions until they have agreed a termination position for all open contracts with the Company.

  9. If my omnibus related recoveries are deferred, will I get interest on the amount deferred?

    With respect to any CRA Omnibus Beneficiary that makes (as defined in the CRA) a LBI Appropriation Deferral Election for its LBI distributions to be applied as a Collateral Amount, clause 59.7.6 of the CRA will apply and no interest will accrue on the LBI distributions applied as Collateral Amount.

    With respect to any Consenting Beneficiaries who do not receive distributions in full because they are not a Qualifying Consenting Beneficiary or because of Attributable Reserves, as the relevant value remains in the pool of funds available to be paid out under the Proposals, all customers will get their share of any interest generated.

  10. Is there anything I can do to help the Company finalise my unsecured claim or debtor liability?

    Yes. The Company welcomes the provision of any information that may assist in finalising a customer’s unsecured position with the Company. For example, some customers have submitted Proofs of Debt, valuation statements and/or their own view of their position with the Company. These greatly assist the Company and will generally expedite the resolution of a customer’s unsecured position. In addition, to the extent that customers have unterminated contracts, terminating them or otherwise fixing a valuation date for the obligations under those contracts will help to finalise their unsecured claims or debtor liabilities.

  11. How is my LBI Asset Claim affected by Pending Trades if I become a Consenting Beneficiary?

    Customers’ LBI Asset Claims have been determined on the basis of information given to the Company by LBI as to whether trades, whether instructed by the Company or the customer, which were pending settlement at LBI at the time the Company entered Administration (including, without limitation, any such trades previously notified by the Company to a customer in a CDD or otherwise) (‘Pending Trades’) settled or failed.  Assuming that the Settlement Agreement and the Common Terms in the OSA and Amended and Restated CRA become effective, this information is not open to challenge.

  12. What happens to my unsecured claim if I have a CDD relating to Pending Trades and I become a Consenting Beneficiary?

    Customers who have already executed a Claims Determination Deed (‘CDD’) which includes provisions relating to Pending Trades have an agreed claim under the terms of the CDD based on settlement assumptions regarding those Pending Trades (‘Minimum Claim’). That claim is unaffected by the Consenting Beneficiary Agreements. See the answer to the question “What about my Remaining Claim?” below as regards any remaining unsecured claim.

    Click to view more information on Pending Trades.

  13. What about my Remaining Claim?
    1. What is a Remaining Claim?

      The ‘Remaining Claim’ is the additional unsecured claim to which a customer who has executed a Pending Trade CDD may be entitled if its Pending Trades settled or failed as set out in the Information Pack in a way which is contrary to the assumptions made in determining the Minimum Claim.

    2. Do the Common Terms agree my Remaining Claim?

      The Consenting Beneficiary Agreements do not determine the Remaining Claims as such, or the timeframe by which such claims will be determined. Consenting Beneficiaries accept, based on the information in the Information Pack, whether the Pending Trades have settled or failed, and the Information Pack also shows certain resulting cash movements, e.g. net sale proceeds of a sale that settled.

    3. When and how will my Remaining Claim be determined?

      The process of determining Remaining Claims will begin once the Settlement Agreement with LBI has become effective. The process for determining Remaining Claims will involve (among other things):

      1. the issuance of notices by the Company setting out any discrepancies between the settlement status of Pending Trades pursuant to the Information Pack and those assumed under the relevant CDDs;
      2. agreement between the affected customer and the Company as to the amount of the Remaining Claim on the basis of the CRA (for CRA Omnibus Consenting Beneficiaries) or the relevant governing legal agreements (for OSA Consenting Beneficiaries); and
      3. documentation of the agreement reached under a CDD or similar document.
    4. How does the treatment of Pending Trades in determining my LBI Asset Claim impact determination of my Remaining Claim?

      Any Remaining Claim will be calculated using the same Pending Trade settlement profile as has been used in determining a Consenting Beneficiary’s 19/9 Position. For example, once the Common Terms become effective, it will not be possible to argue that a Pending Trade settled or failed to settle for the purposes of determining any Remaining Claim if that Consenting Beneficiary’s 19/9 Position would have been different had that been true.

    5. Does the Information Pack show the settlement status of all of my Pending Trades?

      No. The Information Pack only shows the settlement status of every Pending Trade required to roll forward a customer’s trust entitlement from 12/09/08 to 19/09/08 (see the Tab entitled “12-19 Movements” in the Information Pack). This is because prior statements which the Company has issued in relation to the Omnibus Claim have assumed perfect settlement as at 12/09/08.

      It will not therefore show the settlement status of a trade which was due to settle pre-15/09/08 but which did not actually settle until after 15/09/08, because this will already have been treated as settled as at 12/09/08.

      As referred to in (c) above, notices will be sent to customers with Pending Trade CDDs setting out any discrepancies between the settlement status of Pending Trades pursuant to the Information Pack and those assumed under the relevant CDDs as part of the process for agreeing a Remaining Claim.

    6. When will I receive a dividend payment in respect of my Remaining Claim?

      Once agreed under a CDD, Remaining Claims will be eligible for participation in the next occurring catch-up distribution.

    7. Will my Remaining Claim be tradeable?

      Once agreed under a CDD or similar document, a Remaining Claim will be transferable under the terms of that CDD in the same way as any other agreed claim. This is not affected by the terms of the OSA or (for CRA Omnibus Beneficiaries) the CRA.

  14. What if I have Pending Trades and I have not executed a Pending Trade CDD?

    For any unsecured creditors who have not executed a Pending Trade CDD by the time that the Settlement Agreement becomes effective, any agreed claim will be documented using a non-Pending Trade CDD.

    For Consenting Beneficiaries, the agreed claim will be formulated on the basis of the settlement profile of Pending Trades used for determining their 19/9 Position, and corresponding cash movements as shown in the Information Pack.

  15. How do I submit written disclosure against any representations or warranties that I am not able to provide, for example under clause 17.6.1 of the Common Terms?

    All disclosure documentation should be uploaded into the Information Pack Disputes section of the Portal prior to the OSA Offer or vote being made in respect of the Resolution. After making the OSA Offer or voting in respect of the Resolution, the Portal will be locked down, at which point all such disclosure documentation should be emailed to the Company’s Communications and Counterparty Management Team on the following email address generalqueries@lbia-eu.com and also sent by post to Client Communications, Lehman Brothers International (Europe) (in administration), 25 Canada Square, London E14 5LQ. All such correspondence should be clearly titled “Disclosure Against Representation(s)” and should comply with the requirements for such disclosures set out in the relevant Consenting Beneficiary Agreements.

  16. The definition of "LBI Duplicate Claim" in the ‎Common Terms refers to the definition of "Duplicative Claims" in the Settlement ‎Agreement. Where can I find the Settlement ‎Agreement?‎

    Please click to view The Settlement Agreement .

  17. Under the Common Terms, customers are being asked to make a ‎representation and warranty that their LBI Duplicate Claims have been validly released. In light of the application to the US Bankruptcy Court to ‎have such duplicate claims expunged, do customers have to take any other steps to release the LBI Duplicate Claims?‎

    No. In light of the application to the US Bankruptcy Court to have any LBI Duplicate Claims expunged, once the appropriate orders have been entered in by the US Bankruptcy Court, Consenting Beneficiaries will not be required to take any further steps to release such LBI Duplicate Claims.

  18. Is it possible for the distribution to be in ‎excess of the Best Claim?

    Each Consenting Beneficiary is entitled to recover a rateable share of the Omnibus Trust. The Best Claim is only used to calculate the extent of that share: it is not a calculation of the amount that will ultimately be recovered (which cannot, at any rate, be calculated with any certainty at this stage). Ultimately, if after taking account the Trust Entitlements that are due to Non-Consenting Beneficiaries and after liquidating the available assets, the value of the cash and realisations in the Omnibus Trust is in fact lower than the aggregate of the Best Claims of all Consenting Beneficiaries, then the value of each Consenting Beneficiary’s share will be lower than their corresponding Best Claim. Conversely, if the value of the cash and realisations in the Omnibus Trust ultimately exceeds the aggregate of the Best Claims of all Consenting Beneficiaries, then the value of each share will be greater than the corresponding Best Claim and, in such cases, the Consenting Beneficiary’s recovery will be higher than the nominal amount of its Best Claim.

  19. What are the authorisation documents that we need to upload? Do we need to upload signing authority documents if the OSA Offer or Resolution is being made/approved by the same person who signed the CDD?

    The person who makes the OSA Offer or votes in respect of the Resolution (the “Submitter”) must be validly authorised to do so by the person or entity to whom the Proposal has been made (the “Eligible Person”).

    1. Capacity of Submitter
      1. General Rule: As a general rule, if it is not abundantly obvious on the face of the information already available to the Company on the Portal that it may rely upon the Submitter’s ostensible authority to bind the Eligible Person, proof of authority should be uploaded. The Company reserves the right to request proof of authority prior to accepting an OSA Offer or counting an affirmative vote on the Resolution. For example, the Company may require proof that the director of the company which acts as general partner to a limited liability partnership and who makes the OSA Offer or votes in respect of the Resolution on behalf of the partnership has been duly authorised.
      2. Eligible Person/Employee/Director/Partner: Where the Submitter is the Eligible Person or is an employee, director or partner of the Eligible Person, he or she:
        • must be duly authorised to make the OSA Offer or vote in respect of the Resolution on behalf of the Eligible Person.
        • must have been set up as a Primary User on the Portal by the person designated as the ‘Administrative User’ for the Eligible Person on the Portal. Details of how to do this can be found at the following this link.
        • does not need to provide further proof of authority.
          The Company will rely upon their representation that they are fully authorised to make the OSA Offer or vote in respect of the Resolution. Such persons may, nevertheless, upload proof of their authority if they wish to do so. The Company reserves the right to request proof of their authority prior to accepting their OSA Offer or counting their vote (as the case may be).
      3. Authorised Representatives: Where the Submitter is not the Eligible Person or an employee, director or partner of the Eligible Person but instead:
        1. an employee of a subsidiary or holding company of the Eligible Person; or
        2. a third party (for example, a party with a financial interest in the claim of the Eligible Person or an advisor to the Eligible Person)

          then the Submitter must:

          • be duly authorised by the Eligible Person to make the OSA Offer or vote in respect of the Resolution (as the case may be).
          • have been set up as a Primary User on the Portal by the person designated as the Administrative User on the Portal. Details of how to do this can be found at the following this link.
          • tick the box in the Portal indicating that they are acting as a representative of the Eligible Person.
          • upload proof that he or she is authorised to act on behalf of the Eligible Person (even if this proof has been previously supplied to the Company, for example, in respect of a CDD).
    2. Proof of Authority

      Any authority should:

      • be given in the name of the Eligible Person (ensuring that the name, registered address and registered number (where applicable) match those of the Eligible Person in the Portal).
      • be granted to the Submitter (ensuring the name and contact details supplied match those used by the Submitter on the Portal) and be wide enough to cover making the OSA offer or voting on the Resolution.
      • be valid under the laws of the jurisdiction in which the Eligible Person is resident or incorporated (and if the authority document is governed by a different law, be valid under that law as well).
      • have the company seal of the Eligible Person affixed (if applicable) and/or be signed by a person who is authorised by the Eligible Person to grant the authorisation (or by such number of such persons as required to make the granting of such authorisation valid) (each such person an “Authorised Person”). Proof (for example, a Secretary’s certificate) that each Authorised Person has authority to grant the authorisation should also be uploaded

    A template authority document is provided for use by Eligible Persons who wish to evidence the authorisation of a Submitter. Where relevant, it should be accompanied by such further documents as are required to ensure compliance with the criteria listed above.

    The Eligible Person and Submitter retain complete responsibility for ensuring that the Submitter is fully authorised to make the OSA offer or vote on the Resolution, and the Company may rely without further diligence on the authorisation documents that have been uploaded granting valid authority to the Submitter.

  20. Can I make a qualified OSA Offer or conditionally vote in favour of the Resolution (for example, by making my Offer or vote contingent on an agreement being reached as to the quantum of any unsecured Legal Claim or Legal Liability) or can I reserve rights which are not specifically preserved under the Consenting Beneficiary Documents or can I otherwise make an Offer or vote other than on the unamended terms of the Proposal?

    No. Any OSA Offer, or any vote in respect of the CRA Resolution, that purports to be subject to any qualification other than a valid Common Terms Dispute is likely to be rejected or in certain circumstances accepted on the terms set out in Clause 13.1.3 of the Common Terms (pursuant to which invalid disputes are deemed to be of no effect).

  21. I act for the holding company/subsidiary or investment manager of the Eligible Person. What authority documents am I required to upload?

    Anyone acting for a group company or the investment manager (or similar) of an Eligible Person should submit documentation evidencing the authority of the group company or investment manager to act on the Eligible Person’s behalf and providing their job description for the role they play at the group company or investment manager. 

    For example, if an Eligible Person is submitting an OSA Offer or voting in respect of the Resolution via a subsidiary or holding company, it should submit an authorisation executed by the Eligible Person (as opposed to a document executed by the subsidiary or holding company) which clearly shows that the subsidiary or holding company has the authority to act on its behalf.

    Likewise, if an Eligible Person is a fund submitting an offer via its investment manager, it should provide evidence (such as a management agreement, a prospectus or other legal document) that the investment manager has been validly appointed and has the authority to act on behalf of the Eligible Person.

  22. If I have Pending Trades, is LBIE bound to determine my unsecured claim using the same settlement profile as has been used to determine my LBI Asset Claim entitlement?

    Yes. LBIE will determine any unsecured claim that is affected by Pending Trades using the same settlement profile that is used to determine the customer’s 19/9 Position.  There is no need for customers to reserve their position on this when making an OSA Offer or when voting in respect of the Resolution and customers are requested not to do so in order to avoid the risk that an imprecisely worded reservation results in LBIE rejecting their OSA Offer or treating their Resolution vote as ineffective.

Contact us

Ed Macnamara

Ed Macnamara

Partner, Head of Restructuring, PwC United Kingdom

Tel: +44 (0)7739 873104

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Alison Grant

Alison Grant

Director, PwC United Kingdom

Tel: +44 (0)20 7804 7933

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David Kelly

David Kelly

Restructuring and Insolvency Partner, UK Head of Insolvency, PwC United Kingdom

Tel: +44 (0)7974 332659

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