Landmark Lehman Appeal

05 Aug 2010

Simmons & Simmons Advises CRC Credit Fund Ltd

The English Court of Appeal has today handed down its judgment in the matter of Lehman Brothers International (Europe) Limited v CRC Credit Fund Ltd. & Ors, an appeal from the decision of Mr Justice Briggs given in December 2009.

The hedge fund CRC, acting as a representative respondent, appealed a ruling handed down in December that meant some LBIE clients would be treated as unsecured creditors in the bank's UK insolvency case because their money had not been properly segregated into client money accounts in accordance with the regulatory rules. CRC’s claim was that client money should have been put in  ring fenced accounts by LBIE under FSA rules so that in the case of liquidation the money was segregated and distributed immediately back to clients.

The case dealt with the interpretation of the FSA’s Client Asset Rules (the “CASS Rules”). The key issues included the operation of the statutory trust for protecting client money, the client money to be segregated from the general estate of any custodian or prime broker upon its insolvency and which claimants would be entitled to participate in this pool of segregated client money. 

Commenting on the decision, Simmons & Simmons partner, Robert Turner, said: “This is important for investor confidence in the UK as there was concern that previous judgments left a gaping hole in UK investor protection. The judgment will provide more safety for UK investors in future, as their money will be protected even if their brokers fail to follow the rules.”

The Court of Appeal held that all of LBIE’s clients that held money with LBIE when it collapsed in September 2008, and who were entitled to client money protection under the CASS Rules, should share in the payout from the client money accounts, even if their client money had not been placed in the ring fenced accounts. Additionally the Court of Appeal held that the administrators of LBIE should now look outside the ring-fenced client money accounts for any identifiable client money in the LBIE house accounts which money should be added to the rind-fenced accounts.

The Simmons & Simmons team was led by partner Robert Turner and Darren Fox, Jonathan Joseph, Gerard Heyes, Chris Agnoli and insolvency partner Peter Manning.

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