Client Money Update - Identifying Pre-Administration Client Money - Procedural Hearing 17/05/2011

This update provides further information to counterparties who believe that they have a claim against LBIE which includes amounts that may qualify for Client Money protection under the terms of the FSA’s Client Money Rules (“Pre-Administration Client Money”).

As noted in the Client Money General Update 14/02/11, the Joint Administrators have been considering the steps required and the legal principles to be applied in order to identify and trace Pre-Administration Client Money (if any) held in LBIE’s house accounts following the Court of Appeal’s judgment in the Client Money Application. The tracing rules are complex and the collapse of LBIE poses difficult questions concerning the application of the tracing rules in this context.

Accordingly, as noted in the Client Money Update 08/04/11, the Joint Administrators filed an application to the High Court seeking directions regarding (among other things) the legal principles to be applied to identify and trace Pre-Administration Client Money (the “Application”).

At a hearing on 11 May 2011, the High Court considered the Joint Administrators’ proposed timetable for the filing of further evidence and the appointment of respondents to the Application. On 17 May 2011, the Court ordered that the Application be adjourned, and that no further work be done in respect of the matters described in the Application, until the Supreme Court hands down its judgement on an appeal from the Court of Appeal’s decision in the Client Money Application. As explained previously, a hearing before the Supreme Court on that application is scheduled to take place on 31 October 2011 and is expected to last up to four days. It is presently anticipated that the Supreme Court’s judgment will not become available until early 2012.

While the judge understood why the Application had been issued and was sympathetic to the Joint Administrators’ desire to do everything reasonably possible to progress the administration, he was concerned that the Supreme Court’s decision may impact upon the nature of certain of the issues to be determined in the Application and may render some or all of the work required to identify client money in light of the Court of Appeal’s judgment in the Client Money Application unnecessary.  The judge noted that there may be other avenues of work which the Joint Administrators could nonetheless usefully carry out in connection with the Application prior to the Supreme Court judgment.

Further updates regarding the Joint Administrators’ progress in this regard will follow in due course. A copy of the judgment of Mr Justice Briggs dated 17 May 2011 is available here.

As always, the Joint Administrators will continue to communicate with you through this website on all matters relating to LBIE’s Administration. Should you have any questions regarding this update, please contact the Communications and Counterparty Management team at clientpositionresponses@lbia-eu.com.