[UPDATED] Derivatives claimants cite unnecessary and onerous procedural requirements in objecting to Lehman's motion to establish procedures for U.S. bankruptcy claims - Teigland-Hunt LLP Client Alert
Lehman Brothers Holdings Inc. and its affiliated debtors (collectively, the “Debtors”) filed a motion on May 26, 2009 to establish a deadline of 5:00 p.m. on August 24, 2009 for filing proofs of claims in the Debtors’ Chapter 11 bankruptcy proceedings. In addition the Debtors are seeking approval of specialized procedures and proof of claim forms for claims related to derivative transactions (the “Proof of Claim Form”).
While most claimants are not opposed to the bar date proposed by the Debtors, a wide cross-section of claimants have objected to the proposed procedures and Proof of Claim Form for derivative claims. If the Debtors’ motion were granted, the resulting order would require derivative claimants to complete detailed questionnaires concerning the evidentiary bases for their claims and upload additional supporting documentation and evidentiary support. Among the many items that derivative claimants would be required to provide are copies of all trade confirmations, evidence supporting delivery of the termination notice, evidence of collateral postings (such as wire transfer details), highly detailed trade level information, and extensive details about the trade valuation methodology applied during the close-out process, including contact details for parties that provided market quotations. Derivative claimants seeking to assert a claim under a Lehman guarantee would also be required to submit a detailed questionnaire related to the guarantee claim. The Debtors’ motion further seeks to provide that failure to complete the applicable questionnaires and upload all supporting documentation would result in the disallowance of a claim.
Numerous creditors, including many dealer firms, several custodians, and a few buy-side claimants, filed objections to the motion prior to the June 12, 2009 due date. Several creditors joined an objection filed by Barclays Capital Inc. and affiliates (“Barclays”). Barclays argues that the proposed Proof of Claim Form and filing procedures for derivatives claims (i) impermissibly reorder the carefully designed allocation of evidentiary burdens under the U.S. Bankruptcy Code and rules, (ii) impermissibly impose one-sided and front-loaded discovery on claimants, and (iii) are patently unreasonable and unduly burdensome. In addition ISDA submitted an amicus brief in support of the objections of derivatives claimants. A hearing to consider the Debtors’ motion and the objections filed was originally scheduled for Wednesday, June 17, 2009, at 2:00 p.m. but has been adjourned to June 24, 2009 at 10:00 a.m. at the United States Bankruptcy Court for the Southern District of New York.
If you have any further questions regarding Proofs of Claim in the Lehman proceedings, please feel free to contact Lauren Teigland-Hunt at (212) 269-1002 or GuyLaine Charles at (212) 269-1016.