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Three years on, Lehman Bros bankruptcy case nears end

NEW YORK (Reuters) - Three years after its collapse, Lehman Brothers is still stuck in bankruptcy court but three years is not as long as it sounds, says the failed investment bank’s lead bankruptcy lawyer.

“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 yesterday. Its Chapter 11 drama may soon be drawing to a close. The company received court permission on August 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 Robert Miller.

“People at the time were thinking this was going to be a nightmare,” said Professor 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 business plans.

One of the longest, the 10-year case of satellite company Iridium LLC, has ties to Lehman: both were overseen by Judge James Peck.

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 Northwest Airlines.

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. 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.

Once its plan wins court approval, Lehman will have to meet certain conditions under the US 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.

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 bankruptcies, which were far bigger than WorldCom.

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Published September 16, 2011 at 10:18 am (Updated September 16, 2011 at 10:18 am)

Three years on, Lehman Bros bankruptcy case nears end

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