WINGECARRIBEE Council is celebrating after the High Court dismissed an appeal from Lehman Brothers Australia.
Under control of administrators PPB, the investment bank was attempting to reinstate a Deed Of Company Arrangement that would shield it from an array of lawsuits by aggrieved investors.
Wingecarribee was among dozens of local councils and charities that invested in complex securities called collateralised debt obligations, which were sold by Lehman’s Australian arm.
The AAA-rated assets have since plunged in value, leaving Wingecarribee Council with an estimated loss of close to $25 million.
Last year, Wingecarribee joined forces with Swan and Parkes councils and was represented by Piper Alderman and litigation funder IMF.
They argued the Deed of Company Arrangement was unfair and particularly prejudicial to the interests of the “contingent” creditors of Lehman Australia, principally the local councils, charities and other investors in collateralised debt obligations marketed by the investment bank.
Under the deed, the councils were offered between 2¢ and 13¢ in the dollar.
Related party creditors within the Lehman Brothers were to receive between 47.8¢ and 100¢ in the dollar.
Councils were successful in September, with the Federal Court ruling the Deed Of Company Arrangement void, prompting Lehman Brothers Australia to launch their High Court appeal.
After yesterday’s High Court dismissal, the council could receive in excess of 50¢ in the dollar, IMF executive director John Walker said.
He described yesterday’s verdict as “a large step along the path”.
“The underlying strategy of the Lehman group of companies is to use the insolvency regimes in each country, including Australia, to basically leave creditors outside America, outside America,” Mr Walker said.
“Thankfully, our civil justice system delivered a resounding ‘No, you are not allowed to do that in Australia’.
“Deeds Of Company Arrangement can only address issues between the company and its creditors; they can’t be used to limit creditors’ claims against third parties.
“Councils now have an opportunity to receive their fair share of the value of the assets in Lehman Australia and retain the right to make claims against other legal companies.”
Wingecarribee Shire Mayor Duncan Gair said the news went a long way to vindicating the council for “staying the course”.
“It also makes you have a bit more faith in the justice system,” Cr Gair said.
“We felt we had been hardly done by up to this point of time, but it now gives us more hope we will be treated a lot more equitable than what PPB was offering, who have been very remise in their responsibilities as administrators.”
Cr Gair said that, after two years, finally having a result would make it much easier for councillors to face the public.
“This really is good news,” he said.
“It’s not going to end tonight. It’s still going to be a drawn out process, but we know the returns now will be much fairer, much more equitable and will be in relation to the percentage of the assets which are owned by Lehman Brothers in Australia.”
The council’s director of finances, Barry Paull, said the council could still face a long legal battle.
“While it’s certainly a very positive step ... we still have a way to go to get a reasonable resolution to all of this,” Mr Paull said.
“We are told there might be an offer coming to settle and I guess if that comes we will need to assess that, but if we don’t get a reasonable offer we will be back to the Federal Court of Australia.”
The decision of the High Court also means creditors of Lehman Australia are able to pursue claims against other Lehman Brothers’ companies.
The recent report of the examiner appointed by the US Bankruptcy Court to examine the affairs of Lehman Brothers suggests there may be more assets available for distribution than first anticipated.
If the Deed Of Company Arrangement had not been set aside, creditors of Lehman Australia would not have been permitted to make claims against other Lehman entities and would not have been able to share in any improved returns from the assets of Lehman Australia.
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