* Attorney Harvey Miller says parties struck 'right chord'
* Says financial world has not learned enough from Lehman
By Nick Brown
NEW YORK, Sept 14 Three years after its
collapse, Lehman Brothers LEHMQ.PK is still stuck in
bankruptcy court -- but three years is not as long as it
sounds, says the failed investment bank's lead bankruptcy
"For the largest bankruptcy case in the world? Three years
is not a particularly long period," attorney Harvey Miller said
in an interview with Reuters.
Lehman filed for bankruptcy with $639 billion in assets
three years ago on Thursday. Its Chapter 11 drama may soon be
drawing to a close. The company received court permission on
Aug. 30 to let creditors vote on its $65 billion payback plan,
and it hopes to get the plan approved by a Manhattan federal
bankruptcy court in December.
That could allow it to exit bankruptcy and begin making
payouts to creditors in early 2012. For all the fears of a long
court process, that would be relatively quick by historical
standards, said Villanova University School of Law Professor
"People at the time were thinking this was going to be a
nightmare," said Prof. Miller, no relation to Harvey Miller. "A
three-year bankruptcy is not a nightmare."
Bankruptcies have moved more quickly since legislative
changes in 2005. The reforms were prompted by claims that
companies such as Eastern Air Lines Inc and retailer Caldor
Corp were using Chapter 11 to spend years tinkering with
One of the longest, the 10-year case of satellite company
Iridium LLC, has ties to Lehman: both were overseen by Judge
Other lengthy bankruptcy stints include Manville Corp, the
roofing and insulation firm whose 1982 bankruptcy lasted more
than five years, and Delta Air Lines Inc, which earlier this
year wrapped up a nearly six-year bankruptcy after merging with
Harvey Miller, of law firm Weil Gotshal & Manges, said the
final obstacle will be getting the votes from creditors needed
to approve its payout plan.
"Complex cases take a long time, even though the world has
sped up," he said.
Lehman proposed the plan in June, touting it as a
compromise with divided groups of creditors competing for
bigger payouts from the Lehman estate. It has garnered support
from some of the largest creditors, including a bondholder
group led by hedge fund Paulson & Co and derivatives creditors
that include Goldman Sachs Group Inc. (GS.N)
The biggest hurdle, Miller said, is an objection by
Lehman's European affiliate over whether its $8.9 billion claim
can be treated as a customer claim. If so, it would receive
higher payback priority and would be more likely to be repaid
in full, but at the expense of other claims.
"There are negotiations going on in London right now,
trying to resolve that," Miller told Reuters Tuesday evening.
Once its plan wins court approval, Lehman will have to meet
certain conditions under the U.S. Bankruptcy Code to begin
making payouts. In addition to the Paulson and Goldman groups,
which hold a combined $100 billion in claims against Lehman,
the company has secured support from Asian affiliates holding
$20 billion in claims.
WHAT HAVE WE LEARNED?
Before Lehman, the biggest bankruptcy on record was
WorldCom Inc, which filed in 2002 with $103.9 billion in
assets. But the recession touched off the Lehman and Washington
Mutual Inc WAMUQ.PK bankruptcies, which were far bigger than
Harvey Miller was there when Lehman collapsed in bankruptcy
on Sept. 15, 2008, and when it sold its North American business
to Barclays Plc (BARC.L) -- a deal he said salvaged
considerable value, but at a cost.
"Ten thousand employees went to Barclays, and the IP
systems were shut down," he said. "You really could not get
information. It was chaos."
But if Lehman has lessons to teach, Harvey Miller is not
convinced the world is ready to learn them. The regulatory
overhaul that has come out of Lehman pales in comparison to the
one that followed the Great Depression, he said.
He acknowledges the sweeping nature of the Dodd-Frank
financial oversight law, which arose from the 2008 financial
crisis. But some of the law's provisions are stuck in the
discussion phase, he said, while others do not do enough to
solve "the problem of too-big-to-fail."
Carl Felsenfeld, a professor at Fordham University School
of Law, agreed that Dodd-Frank does not address the problems
that related to Lehman's downfall, but said he does not believe
any regulatory framework on its own ever could.
"Remember, Lehman didn't have to happen -- it was a
regulatory decision not to bail them out," he said.
Most major financial institutions to survive the recession
are bigger and more global than they were three years ago, and
the financial community's lobbying efforts "are better than
they've ever been," Miller said.
Serious overhaul, he said, means giving regulators the
power to force companies to retract if they get too big.
"That's what should have come out of Lehman," he said.
(Reporting by Nick Brown, additional reporting by Tom Hals in
Wilmington, Delaware, editing by Matthew Lewis)