Lehman Brothers International (Europe), Re

An administrator’s statutory objectives define the overall goal of the administration. They do not require every exercise of an administrator’s powers to be shown to advance that goal by a specific causal chain. Ancillary and necessary steps may therefore be valid if authorised and consistent with the administrator’s overall pursuit of the applicable objective. Where creditors have been paid in full, the rescue objective may govern the continuing administration. An administrator may consent to surplus distributions to a shareholder where the consent is a proper exercise of power and commercially appropriate.

Lehman Brothers International (Europe) was in administration. Its creditors had been paid in full, subject to reserves for unresolved claims, and a surplus was available. The directors sought the administrators’ consent under paragraph 64 of Schedule B1 to distribute surplus funds to the sole shareholder, LB Holdings Intermediate 2 Ltd. The administrators applied under paragraph 63 for a direction that they were at liberty to give that consent.

The central issue was whether consenting to the proposed distributions would constitute the performance of the administrators’ functions with an objective specified in paragraph 3 of Schedule B1, and whether the court should give the requested direction.

1. Direction granted. Under paragraph 63 of Schedule B1, the administrators were directed to be at liberty to consent under paragraph 64 to the directors’ request to distribute surplus funds to LB Holdings Intermediate 2 Ltd.
2. The objective of achieving a better result for creditors as a whole had been achieved. The rescue objective in paragraph 3(1)(a) was therefore the only continuing objective.
3. Paragraph 3 is directed to the administrators’ overall objective or goal. It does not require every exercise of every power to be specifically or causatively connected with advancing that objective. Such a requirement would be unworkable and would reduce the flexibility of the legislation.
4. The administrator must be authorised to perform the function and must faithfully pursue the statutory objective. The powers to manage the company’s affairs and property and to consent to the exercise of management powers encompassed the proposed consent.
5. The distribution would not itself cause or specifically promote LBIE’s rescue, but that was unnecessary. The consent was a proper exercise of power and commercially appropriate because the surplus was not required for creditors, interest or expenses and would otherwise remain sterilised during the continuing administration.
6. The objection based on LBHI’s Chapter 11 plan did not prevent consent. The distributions were from LBIE to LBHI2, not distributions of LBHI or LBHI2 capital stock, and the objector was not an LBIE creditor.