In Re Lehman Brothers International (Europe) [2025] EWHC 2871 (Ch), the High Court considered separate applications made by the joint administrators of four companies within the Lehman Brothers group of companies (together, the Group Companies).
Of particular note, and the focus of this article, was the relief sought by Lehman Brothers International (Europe) (the Company) for an order terminating the administrators' appointment pursuant to paragraph 79(4) Schedule B1 of the Insolvency Act 1986 (IA 1986), with a view to placing the Company into a members' voluntary liquidation (MVL) immediately thereafter. The remaining applications for the other Group Companies concerned relatively routine extensions of administration, which are not covered in this article.
By way of background, the Company entered into administration on 15 September 2008 following the collapse of the Lehman Brothers, and has remained in administration through a series of extensions. The circumstances leading up to the Company's current application were unusual due to the resounding success of the administration process. In particular, the administration of the Company generated substantial sums in recoveries (approximately £27.8 billion), which enabled all creditors (including subordinated) to be paid in full, together with statutory interest, as well as court approved equity distributions to the Company's sole shareholder.
Decision
Against this background, the court accepted the joint administrators' view that the purposes of the administration had been achieved, subject to a small number of minor matters which remained outstanding.
The court was then tasked with determining the appropriate next step following the end of the administration. The court considered: (i) a creditors'' voluntary liquidation, which was deemed inappropriate as the Company had no extant creditors; (ii) a dissolution, which was similarly deemed unsuitable, given the remaining matters to be dealt with; and (iii) moving the Company into MVL.
Not withstanding the fact that an MVL was the most logical next step in the circumstances, the prospect of moving administration to MVL faced difficulties, namely that there was no express mechanism permitting such a process within the current statutory framework under the IA 1986.
Ultimately, the court granted the application in full, acknowledging that, as the same outcome could be achieved by returning control of the Company to its directors, there should be an open mechanism to achieve the desired outcome but without the unnecessary procedural burden.
Comment
The significance of this decision is that it addresses the atypical position of a solvent company emerging from a successful administration where an MVL is the appropriate end-state, but no direct statutory route exists to achieve that outcome. The court affirmed that the statutory exit routes under paragraphs 83 (for CVLs) and 84 (for dissolution) do not exclude every possible outcome and that an order under paragraph 79(4) could properly be made in circumstances where doing so was the more efficient course.
In this regard, the evidence was central to demonstrating to the court that placing the Company into MVL would be more cost-effective than the available alternative (e.g., continuing the administration). In particular, the court placed weight on: (i) the schedule appended to the declaration of insolvency, which set out the Company's assets and liabilities, both accrued and prospective; and (ii) a further witness statement of one of the joint administrators, with an exhibit explaining the basis on which those figures had been calculated.
The case will be an important authority and useful guidance for office holders on the circumstances in which the court may be prepared to facilitate a transition from administration to MVL.