Lehman Brothers Holdings Plc, Re

The court may extend an administration beyond the statutory one-year period where there is good reason to do so. The discretion must be exercised judicially, having regard to the statutory purpose and the interests of creditors. Different considerations may arise once an administration has entered a distributive phase. The court will generally favour continuation where liquidation would impede distributions or increase expense, but must remain alert to objections and unnecessary prolongation. The administrators must seek only the period reasonably required and should end the administration sooner if completion becomes possible.

Administrators applied for extensions of the administrations of five Lehman group companies. Four companies sought extensions of two years, while LB UK RE Holdings Limited sought one year. The administrations had continued for many years because of complex intercompany relationships, unresolved priorities, anticipated distributions, clawback proceedings and, in the case of LB UK RE Holdings Limited, outstanding issues concerning a deed of indemnity connected with a securitisation structure.

The applications were supported by the administrators and, where relevant, the remaining creditors. No objection was made. The central issue was whether there was sufficient reason to extend each administration and, if so, for the period sought.

1. Jurisdiction and discretion. The court held that the statutory regime imposed no specific constraint preventing an extension, but the discretion had to be exercised judicially. The one-year limit reflects the need for an early review of whether administration remains viable. [4]
2. Good reason and distributive administrations. Where an administration has moved into a distributive phase, the court may be positively inclined to grant an extension. Liquidation may impede distributions and increase expense. That consideration does not remove the need to establish good reason or to ensure that the administration is not unnecessarily prolonged. [4]
3. Application to four companies. The unresolved distributions, priority disputes, creditor claims and United States clawback proceedings justified two-year extensions for LBH, LBHI2, LBL and Eldon Street. The creditors’ interests, the administrators’ evidence and the absence of objection all supported that conclusion. [7]-[16]
4. Application to LBUKRE. A one-year extension was justified because completion remained blocked principally by the unresolved release of a contractual indemnity and related steps in unwinding the Florian securitisation structure. The extension was supported by LBUKRE’s sole remaining creditor. [17]-[18]
5. Each application was granted. The administrators remained under a duty to bring the relevant administration to an end earlier if the necessary work could be completed sooner. [18]-[19]