Update on the proposed settlement of the Waterfall III proceedings - revised settlement arrangements – 12 July 2017

Following the Joint Administrators’ update to creditors on 23 June 2017, which can be found here, the Joint Administrators set out below an update in respect of the further progress made concerning proposed settlement arrangements between LBIE and other UK affiliates which if successfully resolved would result in a conclusion of the Waterfall III proceedings.  

As noted in our 23 June 2017 update, one of the consequences of the Supreme Court’s decision in Waterfall I was that LBIE and the Joint Administrators cannot make, nor therefore benefit from, a contribution claim against LBIE’s shareholders under s.74 of the Insolvency Act 1986 while LBIE remains in administration.  Moreover, based on the current relevant judgments and the extent of the surplus in the administration, the Joint Administrators do not anticipate such a claim being needed and consider the circumstances in which one would be needed as unlikely to occur.  Accordingly, the Joint Administrators have sought to continue with the discussions around a settlement of the Waterfall III proceedings as expeditiously as possible, ideally seeing a conclusion before the incurrence of all relevant costs associated with the substantive hearing currently scheduled for September.  

To this end, the Joint Administrators are pleased to announce that they and the other interested parties have reached agreement in principle on the commercial terms of revised settlement arrangements, the key features of which are outlined below:

• The Waterfall III proceedings will be finally settled and dismissed by consent;
• No claims will be asserted by LBL (against LBIE or the other affiliates) with respect to any re-charge or indemnity, whether for any potential future contribution claim or otherwise;
• LBIE and LBL will (in the context of the LBHI indemnity noted below) agree to a £nil balance between those estates;
• LBHI will provide LBIE with an indemnity, with priority ranking, capped at £62 million (increasing by 1 per cent. per annum simple), payable in the unlikely event of a shortfall in the LBIE estate to pay statutory interest and non-provable claims;
• LBL and LBHI2 will implement the transfer of LBL’s single LBIE share to LBHI2;
• LBIE and the Joint Administrators will not provide any undertakings regarding LBIE going into liquidation;
• LBIE, acting through its Joint Administrators, will withdraw its proof of debt submitted in LBL’s administration estate, and the statement of claim submitted in LBHI2’s administration estate, in each case in respect of contingent contribution claims (as, following the Supreme Court’s decision in Waterfall I, LBIE is unable to pursue such claims against LBL or LBHI2 whilst in administration); and
• The affiliates (excluding LBIE) will enter into an inter-affiliate settlement providing for the admission, or the release, of certain claims between those parties and allowing for distributions by the affiliates to their respective unsecured creditors and/or shareholders without (in the case of LBL and LBHI2) reserving for a potential future contribution claim.  LBIE will not object to such distributions.

LBIE’s, LBHI2’s and LBL’s respective Joint Administrators intend to file applications with the High Court, in which the Joint Administrators will be seeking the Court’s directions in respect of LBIE entering into the proposed settlement. The High Court hearing date to deal with this application has been listed for Monday 24 July 2017.

The LBHI2 Joint Administrators’ announcement on the proposed revised settlement arrangements can be found here entitled “Update on Proposed Settlement of Waterfall III Proceedings – 10 July 2017”.

The LBL Joint Administrators’ announcement can be found here.

Should you have any queries regarding this update, please contact LBIE’s Communications and Counterparty Management team at generalqueries@lbia-eu.com.

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.