Lehman Brothers Holdings Inc., which is selling assets to pay creditors another $32 billion by 2016, asked a judge to sign an order barring governments from taking taxes on any deals it strikes with buyers.
Such an order would “restate” an immunity from taxes that exists under a court-approved liquidation plan, Lehman said. Potential buyers want assurances that Lehman’s property transactions are free from government intervention, according to a filing in U.S. Bankruptcy Court in Manhattan.
The order “will simply and concisely reference and restate certain aspects of relief previously granted in the plan” and “eliminate the confusion and hesitation” of potential buyers and government officials, Lehman said in yesterday’s filing.
Lehman, once the fourth-largest investment bank, is still liquidating from offices in Manhattan’s Time & Life Building after officially exiting in March from the biggest bankruptcy in U.S. history. Since then, it has paid creditors almost $33 billion, or about 9 cents on the dollar. Lehman has said it plans total payments of $65 billion, or about 18 cents on the dollar, in compensation for money lost in its 2008 downfall.
Partly because of the scale of its liquidation, Lehman’s claim to be immune from taxes will draw a “counter-argument” from governments seeking revenue, said Chip Bowles, a bankruptcy lawyer with Bingham Greenebaum Doll LLP in Louisville, Kentucky.
“Governments will certainly object as, given the current economic situation of most state and local governments, tax dollars are very precious,” he said.
Kimberly Macleod, a Lehman spokeswoman, said she couldn’t immediately comment on yesterday’s filing.
Objections to Lehman’s request must be filed by Jan. 23. A hearing is set for Jan. 30 before U.S. Bankruptcy Judge James Peck. Lehman is also asking Peck to free it from sticking to a fixed schedule for paying creditors.
Among deals that will help to raise another 9 cents on the dollar for creditors, Lehman agreed to sell apartment owner Archstone Inc. for $6.5 billion following a court fight with one of the eventual buyers, Sam Zell’s Equity Residential. (EQR:US) Lehman also has billions of dollars of private-equity investments such as Formula One, along with loans, mortgages and other properties that it says aren’t subject to taxes.
The court order sought by Lehman would direct any “federal, state, commonwealth, local, foreign, or other governmental agency” to accept any action or document tied to the liquidation without seeking taxes of any kind, Lehman said.
Lehman, run by Chief Executive Officer Richard Fuld when its collapse helped bring on the worst economic slump since the Great Depression, filed for bankruptcy in September 2008 with assets of $639 billion. It failed, after an emergency loan from the federal government and fruitless efforts to find a buyer for all of its banking operations and assets, because of too much debt and risky real estate investments, according to a bankruptcy examiner’s report.
Barclays Plc (BARC), based in London, bought North American brokerage businesses from Lehman, leaving the rest of the U.S. brokerage still in liquidation separately from its parent.
Now, in “a bold move,” Lehman may be claiming special treatment that it isn’t entitled to, said Nancy Rapoport, a bankruptcy law professor at the University of Nevada, Las Vegas.
“From a gut level, I don’t like it,” she said. “The government bent over backward to try and save Lehman, and we should honor the statutory provisions of the Bankruptcy Code without giving Lehman any more special treatment.”
According to Bowles, Lehman is claiming that any asset sales or transfers made now are protected under its liquidation plan, even though Lehman is no longer in bankruptcy. Governments might argue that the sales are taxable deals occurring long after the plan won court approval, he said.
“Lehman should not have an unlimited ability to sell or transfer assets after a bankruptcy plan is confirmed without paying taxes,” Bowles said.
Lehman, whose creditors include Goldman Sachs Group Inc. (GS:US) and the New York Giants football team, paid lawyers and other advisers $600 million in its last year of bankruptcy, bringing the total to $1.8 billion since 2008.
The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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