The situation described in this Financial Times story is not earth shaking in dollar terms, but illustrates that corporate bankruptcies leave a trail of destruction in their wake. A number of funds were caught when Lehman failed, and the UK bankruptcy process may take a decade to resolve, leaving assets frozen in the meantime:
Several companies reliant on four US hedge funds face collapse because the funds cannot access shares and loans held at the London arm of Lehman Brothers, the collapsed bank.
The four funds – whose names were kept secret in a High Court ruling this week – claimed that they were likely to close in mid-December if they failed to get access to information about their assets frozen at Lehman. The funds made an unsuccessful effort to force the administrators of Lehman, four PwC partners, to give them details of their assets and how much they owe to Lehman.
The funds are likely to be followed by “numerous” others of the 1,000 former clients of the Lehman prime brokerage, Lehman Brothers International (Europe), according to PwC…
In his ruling, Mr Justice Blackburne said the funds argued that, if they could not get information on their assets by mid-December, “it is likely that the funds will be wound down forthwith”. As well as job losses, “the funds’ inability to engage in restructuring will probably lead to the collapse of at least four companies in which securities are held”.
Jonathan Kelly, a lawyer at Simmons & Simmons, said the decision was further proof that the UK courts were taking a hard line on claims against Lehman’s main European arm.
“The High Court is really desperate to illustrate that it is not going to take the place of the administrators in resolving these issues,’’ Mr Kelly said. “To do otherwise could open the floodgates.”
The judge said in his ruling that he was “sympathetic” to the plight of the funds but it would be wrong to overrule the approach being taken by the administrators, which PwC has said could take months.