Lehman Brothers: the billion-pound insolvency

More than three years since the unthinkable happened, Joshua Freedman sifts through the wreckage to find out which firms gained the most from the wind-up of the banking giant

A partner who wins a firm tens of ­millions of pounds in fees in one year would usually become a hero pretty swiftly, but there was no appetite for awarding medals when Lehman Brothers collapsed.

Linklaters, which advised PricewaterhouseCoopers’ (PwC) joint administrators Mike Jervis, Tony Lomas, Steven Pearson and Dan Schwarzmann, earned the lion’s share of the £60.5m paid out to barristers and solicitors in the UK for the administration in the year following the bank’s collapse in September 2008. Estimates at the time of the ­collapse had put Linklaters’ fees at a potential £20m.

Instructions of the century

That and other Lehman mandates were soon talked of as the ‘instructions of the century’.

Three and a half years after filing for US Chapter 11 proceedings, Lehman has emerged from bankruptcy protection, with filings showing that law firms and consultants earned a total of £1.02bn from work on the matter, making it the largest bankruptcy in history.

Linklaters’ total fees for the entire process have not been publicised, but Weil Gotshal & Manges, acting for Lehman, was the biggest biller, raking in $383m (£244.09m). Milbank, the firm acting for the creditors’ committee, came in second, bringing in $133m.

A raft of firms won roles on the ­protracted process advising on the US bankruptcy, the UK administration, the associated distressed M&A and a ton of court cases in the fallout.

Lehman, as it happens, had reviewed its formal UK legal panel six months before it went bust, appointing Allen & Overy, Ashurst, Freshfields Bruckhaus Deringer, Linklaters, legacy Lovells (now Hogan Lovells) and Weil.

Bank drafted

But there was nothing formal about the way Linklaters won its role for the UK administrators.

There was talk at the time of the magic circle firm’s relationship with PwC being the cue for Linklaters’ instruction on the case. But as The Lawyer revealed shortly after the bank went down, it was essentially Linklaters’ ties to Lehman, and not PwC, that meant the firm was in the right place.

Corporate partner Matthew Middleditch and, in later times, finance partner David Ereira both had strong relationships with the bank, which instructed the firm for some early ­advice when it was close to collapse. Linklaters advised Lehman on the appointment of an administrator, calling up PwC late on Saturday night 13 September 2008, on the weekend the bank collapsed, to say there could be a role as Lehman’s administrators. Lehman went into ­administration on Monday 15 September 2008.

The in crowd

It was the sheer size of Linklaters’ UK team on the Lehman Brothers International (Europe) administration that grabbed attention. The number of partners on the job rose from a handful at the beginning of the week to 20 by the end of the week, with restructuring partners Richard Holden and Tony Bugg taking the lead together with Middleditch and Ereira.

Banking partners Richard Bussell, Rebecca Jarvis and Yushan Ng, financial markets partners Michael Kent and Peter Bevan, capital markets partners Simon Firth andPauline Ashall, litigation partners John Turnbull and Euan Clarke, real estate partner James Knox and employment duo Raymond Jeffers and Catrina Smith advised out of London.

In New York, litigation partners Larry Byrne and US restructuring and insolvency head Martin Flics led on the instruction, with structured ­finance partner Adam Glass, bankruptcy partner Mary Warren, litigation partner Paul Hessler, corporate partner Joshua Berick and banking partner Sabrena Silver also acting.

The Bank of England hired Freshfields for UK regulatory advice on the case, with Lovells acting for the FSA after Ashurst, the FSA’s usual adviser, was conflicted out because it was acting for some of Lehman’s businesses that were not in administration.

In the US, Weil partner Harvey Miller led the team on the Chapter 11 bankruptcy, with Milbank winning the role for the creditors’ committee following a beauty parade. Co-head of restructuring Paul Aronzon led the Milbank team, having returned to the firm on the Monday of the collapse two years after quitting to join investment bank Imperial Capital.

There were plenty of extra jobs along the way aside from the major deals and litigation. Ashurst was hired by finance house CarVal ­Investors to advise on a £100m loan facility to PwC that allowed Lehman staff to be paid at the end of September 2008, while Linklaters’ Ereira led for Lehman’s UK administrators at PwC on a claim resolution agreement for the return of more than $11bn of assets to clients.

Linklaters capital markets partners Michael Voisin and Pauline Ashall, financial regulatory partner Stephen Fletcher, tax partner Mark Kingstone and litigation partner Nick Porter all advised alongside Ereira.

The collapse of broker MF Global last year – which gave Weil the trophy mandate for the administrators and Ashurst a role for the FSA – looked like it might come close, but for the time being, there’s no business like Lehman business.


A buyer’s market: the great Lehman sell-off

The sell-off of Lehman Brothers’ assets gave work to a broad host of firms, from magic circle and US corporate powerhouses to UK national firms.

Bain Capital and Hellman & Friedman bought the bank’s investment management unit, with a Ropes & Gray team led by Boston partner Alfred Rose acting for Bain and Cleary Gottlieb Steen & Hamilton, led by New York partner Chris Austin, representing Hellman.

Skadden Arps Slate Meagher & Flom advised winning bidder Nomura on its acquisition of Lehman’s Asia operations in September 2008, with Hong Kong-based corporate co-head Nicholas Norris leading the team with assistance from London restructuring partner Lynn Hiestand and corporate partner John Adebiyi.

Linklaters again won a key role, fielding Hong Kong corporate head Keith Johnson to act for KPMG, the provisional liquidator to Lehman’s Hong Kong operation.

The same month Clifford Chance won a role alongside Cleary on Barclays’ £1bn acquisition of Lehman’s investment banking and capital markets businesses, with Clifford Chance corporate star Guy Norman, who has since transferred to Dubai, leading the UK team for Barclays together with corporate partner Patrick Sarch, finance partner Christopher Bates, capital markets partner Ed Bradley and restructuring partner Nicholas Frome. Cleary advised Barclays on the US side, fielding New York corporate partners Victor Lewkow, David Leinwand and finance partner Duane McLaughlin.

The spin-off of Lehman’s private equity business in March 2009 gave work to Eversheds, Paul Weiss Rifkind Wharton & Garrison, Skadden Arps Slate Meagher & Flom and Weil Gotshal & Manges. Eversheds private equity head Mark Spinner acted as UK adviser to Lehman Brothers Merchant Banking Partners (LBMB), which teamed up with South African investor Johann Rupert to buy the asset. LBMB used Paul Weiss corporate partner Bob Hirsh as US counsel, while Lehman hired Weil partner Shukie Grossman. Rupert turned to Skadden’s David Barrett, then an associate.


Fighting talk: the litigation winners

Linklaters took a large share of the work on the litigation arising from Lehman’s collapse, with partners John Turnbull and Euan Clarke instructing William Trower QC of 3-4 South Square and Daniel Bayfield of the same set for PricewaterhouseCoopers (PwC) on hedge fund RAB Capital’s attempt to recover £22bn of assets that had been frozen when Lehman went into administration.

Simmons & Simmons partner Robert Turner instructed Simon Mortimer QC and Andreas Gledhill, both of 3-4 South Square, for RAB Capital in the September 2008 case.

Another case in 2010 saw Linklaters partner James Gardner instruct Iain Milligan QC and Guy Morpuss QC, both of 20 Essex Street, to lead 3-4 South Square’s Daniel Bayfield and 20 Essex Street’s Socrates Papadopoulos for the administrators of Lehman Brothers International (Europe).

The High Court ruled that more than $1bn (£640m) of Lehman’s assets should stay with the European operations rather than be handed over to its global subsidiaries. Herbert Smith, Mayer Brown, Norton Rose and Weil Gotshal & Manges all won roles for the global subsidiaries.

A mass of firms and sets took roles in further litigation, including Court of Appeal and Supreme Court cases over Lehman’s failure to ringfence clients’ money, as well as a Supreme Court case concerning an attempt by the trustees of Lehman to recoup £61m from noteholders, which was thrown out because of a 200-year-old law.

There was even a chance of litigation against Linklaters itself over the Repo 105 deal that kept up to $50bn off Lehman’s balance sheet after the bank had misused the magic circle firm’s opinion.

The firm survived that, meaning the Lehman collapse remained a tasty earner for Linklaters.