Most Read Contributor in Hong Kong, September 2016
Originally published 7 September 2010
Keywords: Lehman Brothers, Hong Kong,
The insolvency proceedings of the Lehman Brothers' group of
companies worldwide ("Group") are among the most
complicated ones we have seen. A significant factor contributing to
the complexity is that many Group entities hold segregated assets
(principally securities and funds) for their clients, which may be
individuals or entities within or outside the Group.
On 25 August 2010, the Honourable Mr Justice Barma of the Hong
Kong High Court granted an application made by the respective
Liquidators (Messrs. Middleton, Brough and Cowley of KPMG) of five
of the Group's entities in Hong Kong seeking permission to
impose a "bar date" for third parties to claim the client
assets held by or to the order of these five entities. This
application is an important step in the Liquidators' plans to
distribute the client assets, by defining the universe of
The learned Judge was satisfied that, to the extent the five
entities hold client assets, they do so on trust. The
jurisdictional basis for imposing a "bar date" is to be
found in section 29 of the Trustee Ordinance (Cap 29)
("TO"). In summary, this section allows a trustee to
obtain protection when distributing assets held on trust, by means
of prior notice inviting potential beneficiaries to make claims by
a specified time, after which the trustee may distribute the trust
assets to claimants "having regard only to the claims,
whether formal or not, of which [the trustee] then [the time of
distribution] had notice".
There is authority suggesting that this notice should be
advertised in places where the beneficiaries are likely located. At
the hearing, the learned Judge endorsed the Liquidators'
proposals both to send the notice to individual third parties who
may have claims, and to advertise the notice on the Internet and in
local and overseas newspapers.
Section 29 of the TO requires the notice period to be not less
than two months. Given the additional complexities presented by the
Group's liquidation, the learned Judge agreed with the
Liquidators that a reference time of three months is preferable.
The Liquidators will adjudicate all claims received from third
parties so as to be able to distribute the client assets to the
parties entitled to them. Persons who do not make claims by the bar
date may lose their entitlement, if any, to share in any
distribution of these assets.
Most cases in which section 29 of the TO (or its equivalent in
other common law jurisdictions) has been invoked concern the
administration of the estates of deceased persons. Many of these
cases date back to early in the 20th century or earlier. The
present application shows how this section can be used in the
context of the winding-up of a massive financial institution in the
Mayer Brown JSM acted for the Liquidators in this application
Richard Tollan (who heads our contentious insolvency team)
appearing himself before the learned Judge.
Copyright 2010. JSM, Mayer Brown International LLP
and/or Mayer Brown LLP. All rights reserved. Mayer Brown is a
global legal services organization comprising legal practices that
are separate entities ("Mayer Brown Practices"). The
Mayer Brown Practices are: JSM, a Hong Kong partnership, and its
associated entities in Asia; Mayer Brown International LLP, a
limited liability partnership incorporated in England and Wales;
and Mayer Brown LLP, a limited liability partnership established in
the United States. The Mayer Brown Practices are known as Mayer
Brown JSM in Asia.
This article provides information and comments on legal
issues and developments of interest. The foregoing is not a
comprehensive treatment of the subject matter covered and is not
intended to provide legal advice. Readers should seek specific
legal advice before taking any action with respect to the matters
discussed herein. Please also read the JSM legal publications Disclaimer.
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The Code envisages that the insolvency resolution processes will be conducted by insolvency professionals.
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