Lehman Brothers International Europe, Re

The court’s power under paragraph 63 of Schedule B1 to the Insolvency Act 1986 is expressed in wide terms. It may extend to directing administrators to cause the company to perform a settlement agreement entered into in the interests of the administration.

The court is not required to approve the settlement agreement itself. However, concerns about its terms, whether raised by the court or interested persons, may be relevant to whether the direction should be given. Where the settlement has been reached through an appropriate arm’s-length process and no substantive concerns are raised, the court may rely on the administrators’ assessment that it is in the interests of the administration.

The joint administrators of Lehman Brothers International Europe applied for a direction under paragraph 63 of Schedule B1 to the Insolvency Act 1986. They sought authority to cause the company to perform a settlement agreement with the trustee responsible for the liquidation of Lehman Brothers Inc.

The agreement resolved substantial proprietary and unsecured claims between the London and New York estates and was conditional upon approval by the United States Bankruptcy Court for the Southern District of New York and upon the direction sought from the High Court. The United States court had approved the agreement. The central issue was whether the High Court should give the requested direction and, in doing so, what consideration should be given to the terms and negotiation process of the settlement.

1. The application was granted. The court directed the joint administrators to exercise their powers so as to cause Lehman Brothers International Europe to perform its obligations under the settlement agreement in accordance with its terms.

2. Paragraph 63 of Schedule B1 to the Insolvency Act 1986 confers a power in very wide terms. That power extends to the direction sought, namely a direction requiring the administrators to cause the company to perform its obligations under a settlement agreement.

3. The court was not asked to approve the settlement agreement. Nevertheless, concerns about its terms could be relevant to the decision whether to give the direction. Such concerns might arise from the court’s own consideration or from representations by interested persons.

4. The administrators had negotiated at arm’s length after obtaining extensive professional advice. They had considered separately the potentially conflicting interests of unsecured creditors and persons with proprietary claims. They had concluded that the settlement was in the best interests of all those interested in the administration.

5. The settlement resolved exceptionally substantial and complex cross-border claims and was plainly in the interests of the administration. No interested person, including the Financial Conduct Authority, had raised concerns. In those circumstances, the court accepted that the negotiation process was overwhelmingly likely to have achieved the best available outcome and gave the requested direction.