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Recession Over – But Lehman Brothers Litigation Continues

The recession may be over but that has not quelled the tide of litigation that followed the collapse of Lehman Brothers as the bank’s liquidators continue their task of recovering as much as possible from the ashes of the financial leviathan.

Long before the financial meltdown began in 2008, Lehman Brothers Finance S.A (LBF) had entered into a series of options transactions with a finance company which took the form of put and call options linked to the Nikkei 225 Index.

It was not in dispute that the options were automatically terminated when Lehman Brothers Holdings Inc. filed for Chapter 11 bankruptcy in New York in the early hours of 15 September 2008. However, the consequences of that termination were hotly contested between LBF’s liquidators and the company.

The Tokyo market was on holiday when the shock hit but suffered heavy falls when it re-opened, with the result that the value of the options rose. The company calculated that it owed LBF a shade under Euros 1.85 million and paid that sum. However, the liquidators launched proceedings, arguing that a much larger sum was due.

In upholding the liquidators’ claim, the High Court found that the sum remitted had been calculated on an incorrect basis and represented a substantial underpayment. The company was found liable to pay an additional sum in excess of Euros 1.4 million, plus almost six years’ worth of interest.