UK Lehman ruling explained

Author: | Published: 5 Aug 2010

Monday’s UK Court of Appeal ruling means that investors with non-ringfenced assets can make claims against the main cash pool. It could mean that payouts to some Lehman Brothers's investors will be diluted, and established administration plans thrown into doubt. Here, the ruling and its consequences are explained.

Prior to its bankruptcy in September 2008, Lehman Brothers International Europe (LBIE) had been ringfencing money for certain clients in accordance with its understanding of the FSA Client Asset Sourcebook (Cass) rules.

Though the bank segregated the investments of several large hedge fund and institutional clients, it failed to ringfence all client funds, meaning that only a certain number of investors were automatically entitled to make a claim on the money.

Those whose money was segregated – and who wanted to protect it from other claims – appointed GLG partners to represent them in the administration. Under trust law these...