Lehman payback

It was always going to take years for lawyers to unravel the financial maze behind the collapse of Lehman Brothers.

But lawyers are now warning creditors that it could take several years longer to get their money back thanks to a Court of Appeal (CoA) ruling earlier this week.

The CoA panel of three, chaired by the Master of the Rolls Lord Neuberger, unanimously ruled that hedge funds who lost money to Lehman’s UK division because it failed to properly ringfence their funds prior to its collapse could lay claim to the bank’s client money pool.  

Prior to its collapse Lehman Brothers International (Europe) (LBIE) had segregated a pool of as much as $2.1bn (£1.32bn) for some hedge fund clients to protect them in the event of bankruptcy. However, it failed to set aside several billions more for other clients who believed their money had been ringfenced.

In the original High Court judgment, handed down by Mr Justice Briggs in December, those non-segregated clients, represented by CRC Credit Fund, were told that they should be treated as unsecured creditors, making it more difficult to recover losses.

The CoA overturned that, prompting warnings from the defendant lawyers that it could take much longer for those companies that did have segregated funds to recover their losses from a pool that would be severely diminished because of the increased amount of creditors.

Allen & Overy partner Jennifer Marshall, who instructed 3-4 South Square’s Antony Zacoroli QC to represent the lead defendant GLG, one of the largest European hedge funds, warned that it could take “years” for the joint administrators, PricewaterhouseCoopers (PwC) partners Tony Lomas and Steven Pearson, to decide what money should go into the pot and how it should be distributed.

This point was argued before the CoA, but in her judgment Lady Justice Arden rejected it stating: “I think there’s limited value in the speed of distribution point.”

However, PwC’s Lomas said the ruling was “likely to have a significant knock-on effect both on the timing and level of any distribution of client money to LBIE’s clients”.

Simmons & Simmons partner Robert Turner, who led the appeal for CRC Credit Fund, said for GLG the distribution could take longer, but argued that there would be more money in the pool and the defendants could end up recovering more.

The CoA, meanwhile, has referred the matter back to Mr Justice Briggs in the Construction Court to give further guidance on how the client money funds should be traced.



Simmons & Simmons partner Robert Turner instructed 4 Stone Buildings’ Robert Miles QC to lead Richard Hill of the same set for CRC Credit Fund.

Norton Rose partner Hamish Anderson instructed 3 Verulam Buildings’ John Jarvis QC to lead James Evans and Richard Brent of the same set to act for Lehman Brothers Inc.

Field Fisher Waterhouse partner Duncan Black instructed Maitland Chambers’ Jonathan Russen QC for Lehman Brothers AG.

Weil Gotshal & Manges instructed Erskine Chambers’ Richard Snowden QC to lead Ben Shaw to act for Lehman Brothers Holdings.


Allen & Overy partner Jennifer Marshall instructed 3-4 South Square’s Antony Zacaroli QC to lead David Allison and Adam Al-Attar of the same set for GLG Investments Plc Sub-Fund: European Equity Fund.

Baker McKenzie partner instructed Arun Srivastava Maitland Chambers’ Nicholas Peacock QC to lead Catherine Addy of the same set to act for Hong Leong Bank Berhad.

Linklaters partner Stephen Fletcher instructed 20 Essex Street’s Iain Milligan QC to lead Maitland Chambers’ Rebecca Stubbs for the Administrators of Lehman Brothers International (Europe).

Interested party:

The Financial Services Authority directly instructed Erskine Chambers’ David Mabb QC to lead Stephen Horan of the same set.