Lehman Brothers Australia – Dividend Payment Update

The major outstanding issue holding up the next dividend payment remains the tax treatment disagreement with the ATO.  This has arisen due to tax losses potentially being foregone by Lehman Brothers Australia (LBA) and the Liquidator’s attempts to recover these losses on behalf of creditors.

LBA underwent a technical reorganisation under tax law in 2015 caused by the purchase by LBHI (the US parent entity within the Lehman Group of companies) of the debt owed by LBA to Lehman Brothers Asia (another major creditor).  This gave LBHI a majority of creditor votes in the LBA bankruptcy which amongst other things is viewed as a change of control under tax law and therefore triggered a number of wide-ranging anti-avoidance provisions in Australia’s tax laws which were designed to prevent multi-nationals avoiding paying tax, but were inadvertently also triggered in the case of LBA as an unintended consequence. 

The tax law uncertainty is convoluted and involves the treatment of many different aspects of the LBA business, ranging from its commercial debt to LB Asia to the trading stock it held.  It also appears the tax law arguments vary regarding different aspects of the business, so determining the outcomes is multi-facetted. Amicus understands the Liquidator is seeking a comprehensive resolution of all issues, but this seems to be taking an extended period due to their complexity and the ATO being (previously and rightly) pre-occupied with being the conduit for support payments made by the federal government as a result of the pandemic. 

The Liquidator has communicated to Amicus no final dividend will be paid to creditors unless and until the tax issues are resolved but this tax issue is the final outstanding matter that needs to be resolved.

Other outstanding items previously determined and reported on by Amicus were:

  • LBHI lost its appeal to the Second Circuit Court regarding the broader class of “Distributed CDOs” meaning that its claim against LBA in respect of the Federation SCDO effectively falls away. 
  • Disputes with LBHI regarding the waterfall payments for the smaller companies LBAF and LBAH have been settled. 
  • Lehman Brothers International Europe (LBIE) lost its appeals in its legal dispute with LBA regarding drafting errors in an agreement are now finalised excepting for a small amount of costs recovery owed by LBIE to LBA which is still awaiting payment. 
  • LBA has received all its rebates due to it from HMRC (the British Tax Office).

Most importantly, the Liquidator recently shared with Amicus its intentions to publish an official update to creditors on the situation in July 2021, hopefully confirming the points above and expanding on them more fully. 

Should the Liquidator’s update vary in any way from the information above, investors should assume the Liquidator’s version is correct and what Amicus has stated above is an error and/or Amicus’ misunderstanding. 

Please feel free to contact Amicus if you have any additional questions before or after the Liquidator provides its official update.

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