In mid-July, the Liquidator for Lehman Brothers Australia (LBA) sent a letter to creditors advising them of progress made towards the next dividend payment since the Liquidator’s last update in September 2017.
The July 2020 letter focused on the most important matter delaying the payment of the next dividend being the resolution of an outstanding tax issue with the ATO. This tax problem arose due to the purchase by Lehman Brothers Holdings Inc (LBHI – the US based parent company in the Lehman Group) of a debt owed by LBA to Lehman Brothers Asia (LB Asia) which triggered anti-avoidance provisions in the Australian tax laws creating a large potential tax liability for the LBA estate.
It was not the intention of the tax laws when drafted to create this situation, but legal advice indicated potential breaches of four provisions of the current laws (as outlined in the Liquidator’s July letter):
- Continuity of Ownership: Given LBHI purchased LB Asia’s debt to become the majority and controlling creditor
- Continuity of Trading Stock: Caused by LBHI’s purchase
- Same Business Test: Given LBHI’s purchase meant LBHI was able to change the course of the LBA bankruptcy by blocking a proposal made by the liquidator
- Commercial Debt Forgiveness: Whether the debt purchase was at fair market price
LBA has requested private rulings from the ATO on each of these points, but the ATO is reluctant to simply grant these rulings without considerable thought regarding the drafting. This is because the ATO does not wish to create “legislative loopholes” which other companies can mis-use to their advantage to minimise their own tax (the purpose of the rules being to prevent tax avoidance by multi-nationals).
The ATO’s current focus is rightly on government mandated support for the economy due to effects of COVID-19 (principally the Cash Boost, JobSeeker and JobKeeper programs) and the ATO is therefore unwilling to allocate resources to LBA’s tax issue. Despite being heavily pressed, the ATO has said the date when it will be able to address this matter has been postponed “sine die” (Latin: literal translation “without day” but effectively meaning with “with no appointed date or estimated time frame for consideration). Amicus does not anticipate an outcome this calendar year but is hopeful progress will be made before 30 June 2021.
The Liquidator stated in its July 2020 letter that all creditors will be provided a further update “in due course”. Amicus believes this should provide information on the financial position of the estate and an estimate of the range of any future dividends that may be paid. We expect the forecasts to be largely unchanged (being between 11 cents and 15 cents in the dollar), although we hope an additional scenario outlining the potential effects if the ATO tax ruling goes against LBA will also be included.
Please feel free to contact Amicus if you would like more information on the LBA dividend process or if you think you may have a claim against LBA for losses incurred on any structured products purchased. A positive of the delay is it allows more time for any organisation that has has not claimed to consider claiming, with any newly accepted claim being allocated a priority position for payment of back dividends paid to other creditors previously before any new payments to all creditors are made. Amicus has helped over 35 different organisations make successful claims against the LBA estate.
