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Bericht van Allen & Overy d.d. 24 sept. 2008: Uitleg over surseance van betaling (Nederlandse vertaling volgt)

This memorandum does not constitute definitive advice and the reader is encouraged to consult with Dutch legal counsel on any legal issues relating to the LBTC moratorium.
 
Contents:
1. LBTC: key facts and general observations
 1.1 Key facts
 1.2 Prospects
 
2. Suspension of payments or moratorium
 2.1 General introduction
 2.2 Affected creditors
 2.3 Administrator and supervisory judge
 2.4 Management
 2.5 Filing of claims
 2.6 Term of moratorium
 2.7 Pari passu treatment of all affected creditors
 
1. LBTC: key facts and general observations

1.1 Key facts
The court has granted moratorium of payments to LBTC by its decision of 19 September 2008. These proceedings have retroactive effect and are deemed to have commenced at 00:00 am of that day. Mr R.J. Schimmelpenninck has been appointed as administrator (bewindvoerder).

By its same decision, the court has directed that the meeting of affected creditors, to be heard on the petition and to cast their vote on the 'definitive' granting of moratorium shall be held in Amsterdam on 10 December 2008 at 10:00 am, at the court house, Parnassusweg 220, Amsterdam (but see 3.2 below).

1.2 Prospects

• LBTC is a Lehman Brothers finance company. It will currently be primarily, if not solely, focussing on the manner to maximise value for its Noteholders. It is typically the duty of the administrator to oversee this process. The administrator will need time to familiarise himself with the business. The global dimension of this insolvency is clearly a complicating factor. It is not possible to predict with any degree of accuracy how much time the administrator will be needing to conclude his initial investigations. 

• Since LBTC is now subject to a court supervised insolvency proceeding, affected creditors can rest assured that they will be afforded equal treatment and that no individual affected creditor or group of affected creditors will be able to obtain or negotiate for itself a treatment that is more favourable than that of other affected creditors that are in a similar position.

• LBTC will presumably have filed for moratorium of payments, not because there are concrete prospects of recovery, but because it was unable to continue to pay its debts. It is not inconceivable that the administrator will go back to court to have the moratorium withdrawn and bankruptcy adjudicated instead at some time prior to 10 December 2008. If that happened, the creditors' meeting scheduled for 10 December 2008 would not proceed.

• Because of the nature of the business of LBTC, the administrator will be able to determine quite accurately the nature and the extent of the obligations of LBTC. He is likely to facilitate the process of filing of claims for voting purposes by issuing guidelines for the benefit of Noteholders and intermediaries through which Notes are held. He is also likely to try and establish a procedure to ensure that claims of Noteholders that are admitted in the insolvency of LBTC will also be recorded as claims under the guarantee issued by Lehman Brothers Holdings, Inc., which is in Chapter 11 in the US. These observations are also true in case the moratorium is reversed and bankruptcy adjudicated, in which case the administrator is most likely to be appointed as liquidator.

2. Suspension of payments or moratorium

2.1 General introduction
Moratorium is a court sanctioned recovery procedure, designed to protect a financially distressed company from its general unsecured, non-preferential creditors (affected creditors) if it is unable to meet its payment obligations if and when these fall due. The moratorium operates as an automatic standstill, during which time affected creditors are unable to demand or collect payment of their claims from the debtor. Moratorium is not a liquidation procedure.

The main purpose of moratorium is to restructure the company's debts, which is normally effectuated by offering a composition plan to the company's affected creditors. In order for such plan to succeed, it must be accepted by a majority vote in number of the affected creditors admitted for voting purposes, representing no less than 50% in amount of the total debt owing to them.

Moratorium may be applied for by the company only. It will be adjudicated by the court promptly on a provisional basis, whilst appointing an administrator as well as a supervisory judge. At the same time, unless a composition plan had been prepared and was ready to go out to the affected creditors, a date will be set for a meeting of the affected creditors to vote on the proposal to continue the moratorium.

2.2 Affected creditors
Moratorium affects general unsecured and non-preferential creditors only. It does not affect preferential creditors (such as the tax authorities) or secured creditors (i.e. creditors with the benefit of collateral security). Noteholders are affected creditors, irrespective of the fact that they may hold the benefit of a parent guarantee. Any claims under such guarantee are not affected by the moratorium of the issuer of the Notes.

2.3 Administrator and supervisory judge
Simultaneously with the granting of moratorium by court order, an administrator will be appointed as well as a supervisory judge. The administrator is typically a solicitor, but mcourt and ask for opening of bankruptcy proceedings instead, allowing an insolvent liquidation of the company's assets.

The administrator does not operate separate and independent from management. He is unable to bind the company towards third parties without cooperation from management.

2.4 Management
Management of the company is not removed or relieved from its duties as a consequence of opening of the moratorium proceedings. Instead, it must work in conjunction with the administrator in running the company.

2.5 Filing of claims
Moratorium is not a liquidation procedure. Therefore, affected creditors need not file their claims out of concern that they might otherwise be left out of any distribution schedules.

However, during moratorium, there may be two moments in time where affected creditors will be given an opportunity to be heard in a meeting and to vote. The first moment is the voting on the proposal to allow the moratorium to continue for an initial period of 18 months (see 2.6 below). The second is the voting on a composition plan, should this be offered to affected creditors.

It is only for the narrow purposes of casting their vote that affected creditors may need to file their claim. In each instance, they will be notified in individually or, in the case of Noteholders, in such manner as set out in the relevant contract documentation, and by public advertisement by the administrator well in advance of the relevant meeting.

2.6 Term of moratorium
Moratorium will be promptly granted by the court, upon the filing of the application by the company. For this reason, this phase is often referred to as 'provisional moratorium'. Since affected creditors will have had no involvement in or influence on this court decision, they will be given an opportunity to be heard and vote on the proposal to allow the company to restructure out of moratorium. The court will allow the moratorium to proceed unless this is opposed by either the holders of no less than 25% of the debt as represented in the meeting or by holders of 33% of the aggregate debt of the company.

The affected creditors will be able to make an informed decision on the basis of a public report from the administrator, that should be made available to creditors timely – in practice not less than 14 days - prior to such meeting.

Typically, the term granted for 'definitive' moratorium is 18 months, subject to further extension. In practice, moratorium rarely lasts that long, since either the company has a viable restructuring plan and will be able to come out of moratorium quickly, or it does not and is then likely to go bankrupt.

2.7 Pari passu treatment of all affected creditors
During moratorium, the company will be unable to pay and discharge pre-moratorium debt to affected creditors other than on an equal basis and pro rata to the amount of each affected creditors' claims.

This memorandum will be updated as soon as there are new developments to report on any of the areas discussed herein.
 
Contact Information
Rob Abendroth
rob.abendroth@allenovery.com
Partner - Amsterdam
+31 20 674 1330
 
Andrew Thomas
andrew.thomas@allenovery.com
Partner - Amsterdam
+31 20 674 1402
 
Sigrid Jansen
sigrid.jansen@allenovery.com
Associate - Amsterdam
+31 20 674 1168
 
This ePublication is for general guidance only and does not constitute definitive advice. © Allen & Overy LLP 2008
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