Bloomberg News

Lehman’s Australian Creditors in Lurch as Judge Ponders Suit

September 02, 2011

Sept. 2 (Bloomberg) -- Lehman Brothers Holdings Inc.’s Australian creditors, who agreed to settle claims in mediation, will have to wait for a judge’s ruling on a class-action suit filed by town councils before they can get any money.

The Alternative Dispute Resolution plan, which attracted 69 creditors since winning a judge’s approval in December, has been stalled because insurance companies aren’t willing to pay claims until the resolution of the class-action suit, Brett Walker, lawyer for Lehman’s liquidators, told a federal court judge in Sydney today.

“Negotiations between the liquidator and various insurers have not led to any commercial certainty at this stage,” Justice Steven Rares said in a summary of the case today. He said the proceeds from the insurers “will fall far short of the claims.”

Competing creditors including town councils and charities that invested in synthetic collateralized debt obligations, those who agreed to the mediation and those not involved in either group will probably seek proceeds from any insurance payments for themselves, Walker said. A ruling on the council lawsuit may clarify who has priority, he said.

Synthetic collateralized debt obligations are groups of credit default swap contracts that are combined to create a new asset that is then divided into tranches based on risk levels and sold as separate securities.

Wingecarribee Shire Council, about 140 kilometers (90 miles) southwest of Sydney, and two other towns sued Lehman in 2007 claiming the company’s Australian unit failed to advise of the risks of collateralized debt obligations and ignored policies that required municipalities to invest conservatively.

Council Losses

Wingecarribee has A$21.4 million ($23 million) of losses on the books from the investments, some of which the town continues to hold, it said at trial in March. The towns of Swan and Parkes have A$15.9 million of losses on the books.

Creditors in Australia have submitted proofs of debt for about A$435 million, according to documents submitted in court by Neil Singleton, one of the liquidators.

The town council trial began Mar. 2 and concluded June 7. Rares today gave no indication when he planned to issue a decision in the case.

The judge granted the liquidators’ request to put the mediation on hold, pending the ruling on the town councils’ lawsuit.

The cases are Between Wingecarribee Shire Council and Lehman Brothers Australia Ltd. NSD 2492/2007 and In the matter of Lehman Brothers Australia Ltd. (In Liquidation). NSD1795/2010. Federal Court of Australia (Sydney).

--Editors: Dave McCombs, Garry Smith

To contact the reporter on this story: Joe Schneider in Sydney at

To contact the editor responsible for this story: Douglas Wong at

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