The return of assets to clients of Lehman Brothers International Europe (LBIE) has been a slow, complex process. Administrators for LBIE have applied to the U.K. High Court for approval of a proposed scheme of arrangement (Scheme) intended to facilitate the process of valuing, recovering and returning client assets. (A scheme of arrangement is the analogue in a U.K. administration proceeding to a reorganization plan in a U.S. Chapter 11 proceeding.) See “Should Hedge Funds Purchase Unsecured Debt of Lehman Brothers Holdings Inc.? Key Legal Issues Impacting Returns
,” Hedge Fund Law Report, Vol. 2, No. 26 (Jul. 2, 2009). LBIE is the U.K. broker-dealer affiliate of Lehman Brothers Holdings Inc (LBHI), and served as a prime broker to various hedge funds. On September 15, 2008, LBHI filed a petition in the United States Bankruptcy Court for the Southern District of New York seeking relief under Chapter 11 of the United States Bankruptcy Code. Subsequently, 18 additional affiliates of LBHI filed petitions in the United States Bankruptcy Court also seeking relief under Chapter 11. For more on the LBHI bankruptcy see, “Lehman Brothers Holdings and Certain of its Subsidiaries File for Bankruptcy Protection
,” Hedge Fund Law Report, Vol. 1, No. 21 (Sep. 22, 2008). Also on September 15, 2008, LBIE was placed into administration in the U.K. The U.K. court has since appointed several partners of PricewaterhouseCoopers (PwC) as joint administrators of the LBIE estate. When LBIE collapsed, the assets of its hedge fund clients were frozen, and for such hedge funds, retrieving those assets has been a long and tortuous process. Reportedly, some hedge funds have collapsed based on their inability to recover assets frozen at LBIE. Others have had difficulty paying redemptions. And at a minimum, hedge funds with assets frozen at the insolvent broker-dealer have been unable to deploy those assets for investment purposes. To date, PwC has returned about $13 billion of the $32 billion in clients assets held at LBIE. The Scheme is intended to improve and expedite the process of returning assets to affected clients. On July 14, 2009, PwC issued a briefing note outlining the key points of the Scheme. Our article attempts to cut through the thicket of cross-jurisdictional complexity in an effort to help hedge funds with assets tied up at LBIE answer a simple question: how can they get their money back? To help answer this question, we discuss the background of the Scheme; Scheme approval process; who is eligible to file claims under the Scheme; how claims will be valued under the Scheme; netting; currency and tax considerations; an opt-out provision in the Scheme; when to expect disbursements; and the relationship of the Scheme to the related U.S. Securities Investor Protection Act proceeding.