Lehman Brothers Australia has been put into voluntary administration with total debts of up to $800 million, after a failed bail-out deal with Japanese based Nomura Holdings.
Clayton Utz is advising the newly appointed administrators of the local arm of Lehman Brothers, led by Steve Parbery and Neil Singleton of PPB.
According to insolvency partner David Cowling, Clayton Utz has moved quickly to reallocate resources to cope with the surge in demand for insolvency advice.
“Clayton Utz responded quickly to the need for specialist services in the wake of the sub-prime crisis and formed ‘sub-prime squads’ with lawyers with a mix of skills – insolvency, corporate – which have been kept very busy,” he said.
The Lehman Bros matter looks set to become the first test case for the operation of the new Cross-Border Insolvency Act 2008, which incorporates the UNCITRAL model law into Australia.
“It can be safely assumed that the Act will result in a net loss of work to Australian practitioners given that it will rarely be the case that Australia is the ‘centre of main interest’ for a multinational corporate,” Cowling said.
However, it is not a given that the administration of the local Lehman subsidiary will be “subsumed” into the US administration. Cowling suggested that there may be a small window of opportunity for local insolvency practitioners despite the enactment of the new cross-border regulations.
“The Australian operations [of Lehman Brothers], whilst significant locally, are insignificant globally and thus, on a cold, hard cost efficiency basis, it may not be worth the additional cost for the US administration to assume ‘control’ of the Australian operations.”
The biggest losers could be Australian local councils, who make unlikely international law trailblazers. If their legal action in Australia is stayed by the operation of UNCITRAL, they may be forced to seek Federal Government assistance to pursue litigation in the US.
“On any view of it, the worldwide financial collapse of Lehman Brothers is an unmitigated disaster for those Australian local councils pursuing claims against it,” Cowling said.
Australian insolvency lawyers have had little time to contemplate the world in the wake of the Lehman Brothers spectacular collapse, focusing instead on handling the “exponential” increase in case workloads.
Aside from stretching the capacity of the major Australian law firms to handle the increased insolvency workload, the sheer volume of the financial institutions and creditors seeking insolvency advice in the wake of the Lehman Brothers crisis will also be a challenge for larger firms when it comes to conflict management, Cowling said.
“[This development] will inevitably give rise to a greater number of conflicts, which the major legal firms will have to manage carefully.
“The current ‘difficult’ position may be exacerbated should the Australian financial institutions ‘revisit’ their restructuring commitments to many of the existing, distressed corporates such as Centro and Allco, in the light of the deteriorating market place,” he said.
It’s not all bad news, though, because the sudden increase in workload at the top-tier insolvency practices could also benefit small insolvency practices, with a necessary “flow-down” of work to those practices, according to Cowling.
- Laura MacIntyre