LG represents Australian noteholders under Lehman Dante Programme
31 July 2009
A group of 29 Australian noteholders (the Belmont claimants) under the $2 billion plus Lehman sponsored Dante Notes Programme has secured a judgment in the English High Court against Lehman Special Financing Inc (LBSF) upholding the validity of provisions which provide for the subordination of swap counterparty claims in the event of the bankruptcy or default of the swap counterparty.
Noteholder priority in these circumstances is the industry norm and the efficacy of these provisions, which have been challenged by LBSF in England and the US, is widely perceived to be an important consideration in the assignment of credit ratings to credit-linked notes and other instruments.
The Belmont claimants were represented by business law firm LG and their Australian co-counsel, Johnson Winter & Slattery. The proceedings, together with similar claims brought by Perpetual Trustee Company Limited, have been closely followed by industry participants because of their potential implications for similar CDO and other derivative transactions in which the parties have specifically chosen English law to govern their relations.
The LG team was lead by banking litigation partners Jean-Pierre Douglas-Henry and Jamie Curle who worked in conjunction with Jim Hunwick and Michael Garry of Johnson Winter & Slattery. Richard Salter QC and Jonathan Davies-Jones of 3 Verulam Buildings appeared as Counsel.
Although the claim was initially brought against the trustee of the notes, BNY Corporate Trustee Services Limited (BNY), LBSF intervened and argued that the relevant provisions are unenforceable, both under English law and pursuant to certain provisions of the US Bankruptcy Code. BNY has remained neutral throughout. The decision confirms the position under English law, subject to an appeal foreshadowed by LBSF, but has yet to be determined under US law in the Lehman Chapter 11 bankruptcy proceedings where litigation on this issue is in progress.
Related questions of whether the English Court will recognise and give effect to US insolvency law on these issues, even if inconsistent with English law in this regard, have been adjourned to permit an appropriate application by LBSF for recognition and assistance under the Cross Border Insolvency Regulations 2006.
Note to editors:
- LG's Banking and Finance Litigation team acts for a wide range of banking and financial services clients including investment banks, clearing banks, hedge funds, investment funds and fund managers. We also represent investors and investor groups of all kinds and regularly advise on a wide variety of contentious banking issues.
- Full case names are as follows: (1) Belmont Park Investments Pty Limited and Others v. BNY Corporate Trustee Services Limited and Lehman Brothers Special Financing Inc; and (2) Perpetual Trustee Company Limited v. BNY Corporate Trustee Services Limited and Lehman Brothers Special Financing Inc. The neutral citation number is [2009] EWHC 1912 (Ch).
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Jean-Pierre Douglas-Henry
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