AFTER two years of legal wrangling, nine Western Australian councils that lost millions of dollars of ratepayers’ money through Lehman Brothers Australia can pursue claims against the failed investment bank.
AFTER two years of legal wrangling, nine Western Australian councils that lost millions of dollars of ratepayers’ money through Lehman Brothers Australia can pursue claims against the failed investment bank.
The High Court last week dismissed two appeals against a Federal Court judgment, which found that a Deed of Company Arrangement (DOCA) approved by the bank’s creditors in June last year, was “void and of no effect”.
The decision means Swan, Ravensthorpe, Melville, Geraldton, Kwinana, Augusta-Margaret River, Coolgardie and Albany councils, the Southern Metropolitan Regional Council, and other investors that lost millions in products marketed by Lehman can pursue about $1 billion in damages.
As a result, contingent creditors no longer have access to a dedicated $43 million compensation fund for their claims, with the fund now forming part of the assets available to pay all admitted creditors.
Under the deed, contingent creditors were to be admitted as creditors without the need to prove the company had legally enforceable liability.
A team from law firm Piper Alderman, led by partner Amanda Banton, is representing the WA councils, with the matter funded by IMF Australia.
IMF executive director John Walker said Federal Court documents alleged Lehman breached its fiduciary duty by putting its own interests before those of its clients.
It has been alleged Lehman created its own products (collateralised debt obligations) and sold them to about 600 investors, mainly councils, churches and charities.
The CDOs were marketed as a safe investment because they had obtained a AAA credit rating, but they eventually soured, leaving investors more than $1 billion out of pocket.
Ms Banton said the High Court judgment confirmed the deed approved by creditors of Lehman was ineffective and that the bank remained in liquidation.
“Liquidation will achieve a better return for our clients than they would have received under the arrangement,” she said.
In May 2009, PPB and Lehman Brothers Asia Holdings Limited – one of Lehman Brothers’ largest creditors – proposed the DOCA where creditors of Lehman, including the group of councils, would receive up to 13 cents in the dollar of their CDO claims.
Related entities of Lehman were to receive substantially greater returns, estimated between 47 and 100 cents in the dollar.
But a majority of creditors narrowly voted to accept the arrangement with the vote being carried by the overseas Lehman entities.
The majority of councils voted against it, arguing that it was unfair and prejudicial to the interests of many Lehman creditors, principally the councils, charities and other investors that had the firm’s CDO products
