Eleventh Announcement in respect of the settlement of the Omnibus Claim 29/11/2013

Introduction

Following our previous communication dated 26 September 2013 this Eleventh Announcement provides customers with an update on:

• US withholding tax
• Second and catch up distributions

In short, progress with UK and US tax agencies continues but resolution is taking longer than anticipated.  We do, however, remain optimistic that a satisfactory outcome will be achieved enabling release of significant general reserves and specific deductions for tax, in due course.

In the interim, we are pleased to announce that we will accelerate plans for a second distribution together with a catch up distribution for counterparties who were previously ineligible for the first distribution given progress made in other areas. 

US withholding tax

As counterparties are aware, LBIE has requested guidance from the US Internal Revenue Service (“IRS”) with regard to the character and source of the settlement payments.  LBIE has previously communicated that due to the complexity and uniqueness of the arrangements, this issue was expected to take some time to resolve conclusively.

LBIE had previously expected that it would have obtained guidance from the IRS by the end of 2013.  However the delays resulting from the US Government shutdown in October, the continuing complexity and other factors now unfortunately mean we have to revise our estimate for the final resolution of all matters into next year. LBIE has engaged at least weekly with the IRS to progress matters since the IRS’ return to work, including in-person meetings in the US.  LBIE is also working with the IRS as part of its audit of counterparty information supporting the first distribution paid in September. Our custodian will provide counterparties with their relevant tax forms (i.e. Forms 1042-S and 1099) to facilitate reporting for US federal income tax purposes once the IRS determination has been received.

Receipt of guidance on the US withholding tax treatment of customer distributions will enable LBIE to release any excess reserves made in respect of US withholding taxes back to counterparties, net of any finally agreed taxes.

UK Tax

Our discussions with HMRC on UK Tax matters continue.

Timetable for second interim distribution

We intend to make a second interim distribution under the Common Terms on or around 30 January 2014.

We expect the second distribution to represent some but not all of the 8.9% remaining maximum return following the 100% already paid by reference to  Best Claims (on a Gross Distribution basis). LBIE may need to reserve or withhold tax from this amount.  A third (and final) distribution will be declared when all remaining uncertainties have been resolved.

In addition we will also make a catch up distribution for those beneficiaries that were not eligible for the September distribution but have since become eligible.  In line with the September distribution, LBIE will make a US withholding tax reserve of 30% of Best Claim paid or attributable to non US persons.

LBIE will only make distributions to Qualifying Consenting Beneficiaries as defined in clause 9.5 of the Common Terms.  We expect that the Cut-Off Date will be 6 December 2013 and the Distribution Date will be on or around 30 January 2014.  Customers are reminded that in order to be considered for participation in the proposed distribution, they must have formally agreed any indebtedness owing to LBIE and any Common Terms disputes between them and LBIE must have been formally resolved.  In addition, customers are required to have submitted correct tax forms, and SSIs to LBIE and all anti-money laundering criteria must have been met.

If LBIE has knowledge that beneficiaries cease or may cease to meet all of the relevant Eligibility Criteria as set out in clause 9.4.1 of the Common Terms during the period up until the Distribution Date, they will become ineligible and will no longer be able to participate. In order to reduce the likelihood of becoming ineligible counterparties are encouraged to:

• Ensure the tax form declarations remain current. LBIE will rely on forms previously provided for the September distribution unless they have expired or can no longer be relied upon due to changes in beneficial ownership. (LBIE will contact any such beneficiaries directly.)
• Respond swiftly to any further requests for information and documentation.

New or replacement Tax Forms need to be received by LBIE by 9 December 2013.

As a result of the above we encourage impacted customers to engage with their LBIE contact to resolve any outstanding issues and provide the relevant documentation for tax, payment and anti-money laundering purposes as soon as possible. Customers will be able to check their Eligibility Status on the Portal once the Notice of Intended Distribution has been communicated.

Customers who have not met all of the relevant criteria as set out in the Common Terms by 6 December 2013 will not participate in the second interim distribution 

Future Announcements in support of January distribution

LBIE will provide the following scheduled updates ahead of the second distribution (dates are based on an assumed distribution date of on or around 30 January 2014):

1. Notice of Intended Distribution–will be communicated by 2 December 2013, being a minimum of 7 days before the anticipated Cut-Off Date of 9 December 2013 
2. Notice of Distribution to Qualifying Consenting Beneficiaries – will be communicated on or around 10 January 2014.  This notice will include counterparty specific information on Gross Distribution, deductions and reserves.

LBIE will make a further announcement in mid January 2014 confirming the exact amount and timing of the second distribution together with an update for any other developments.

Important Notice – US tax

To ensure compliance with Treasury Department Circular 230, customers are notified that: (a) any discussion of US federal tax issues in this announcement is not intended or written to be relied upon, and cannot be relied upon, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code; (b) such discussion is included herein by LBIE in connection with the promotion or marketing (within the meaning of Circular 230) by LBIE of the transactions or matters addressed herein; and (c) you should seek advice based on your particular circumstances from an independent tax adviser.

Important Disclaimer

The contents of this update communication are being provided to you by LBIE for information purposes only. This update does not constitute a commitment or offer on the part of LBIE or its Joint Administrators, and should not be construed as such, nor does it constitute any form of advice to the recipients. The contents of this communication are based on analysis by LBIE, which has not been audited and LBIE reserves the right without specifying any reasons to amend all or part of this communication.

Any party (including any recipients) who obtains access to and chooses to rely on this update communication (or any part thereof) will do so entirely at its own risk. No person has, nor is held out as having, any authority to give any statement, warranty, proposal or undertaking on behalf of LBIE or its Joint Administrators in connection with this communication.

LBIE and its Joint Administrators will be under no obligation to provide the recipients with access to any additional information, to update this document or to correct any inaccuracies in it which may become apparent.

LBIE and its Joint Administrators, and their respective officers, employees and agents disclaim any liability which may arise from this communication, or any other written or oral information provided in connection herewith, and any errors and/or omissions herein or therein.

Nothing contained in this update communication is an acknowledgement of any claim that a recipient or any other claimant may have against LBIE or any other entity. Neither LBIE nor its Joint Administrators shall have any liability to any recipient or to any other person in respect of the information contained herein or for any defect or incompleteness in it. No representation is made by LBIE or its Joint Administrators about any claim that may be asserted against LBIE in respect of the LBI positions or any shortfall in recovery of the LBI positions.