ASIC interferes in the case of Lehman vs investors

The Australian Securities & Investments Commission (ASIC) made recently its intervention in the battle between collapsed investment bank Lehman Brothers Australia and local councils. It demanded the Federal Court judge hearing a dispute to leave it in order to make submissions in that case.

Lehman has gone bankrupt in the beginning of the crisis. It sold collateralized debt obligations which are worth billions of dollars to local councils and charities. Nevertheless their current value is much less that former one. That is why some of councils are seeking compensation.

ASIC wants to clarify whether a deed can compel creditors to release third parties, such as an international parent company, from liability. In May the company’s creditors voted for a deed of Lehman’s arrangement. Litigation funder IMF, which is funding the suit to overturn the deed on behalf of two aggrieved councils, Swan Council in Western Australia and Parkes Shire Council in NSW, is challenging the deed in the Federal Court. IMF's managing director, John Walker, said: "The [deed] can deal with rights of the councils against Lehman Australia; it can't take away their rights to do with Lehman Inc, or Lehman Asia, which it purports to do."

Charities, councils and other investors are facing losses of up to $1.2 billion after investing in the CDOs. This could prompt a class action from them. ASIC challenge may have important consequences as it heavily influences an outcome of the case.