1. Insol Europe Academic Forum & Centre for European Company Law Joint Insolvency Conference Leiden, 2 july 2010 Cross-Border Crisis Management in the Banking Sector Insol Europe Academic Forum & Centre for European Company Law Joint Insolvency Conference Leiden, 2 july 2010 Cross-Border Crisis Management in the Banking Sector The Problems in Practice: Lehman Brothers Treasury Co. B.V. by Rutger Schimmelpenninck Houthoff Buruma, Amsterdam

2. A Global Investment Bank -with headquarters in New York -and regional headquarters in London and Tokyo -Non-US net revenue (Europe, Asia) 2005: 37% 2006: 38% 2007: 51% Was Lehman not saved because of its large non-US activities?

3. Chapter 11  Monday September 15, 2009: -LBHI files for Chapter 11 (debtor in possesion) -Lehman U.K. (Lehman Brothers International Europe, “LBIE”) in administration.

4. Lehman Brothers Treasury Co. B.V. (“LBT”)  Bankrupt (in staat van faillissement) on October 8, 2008  Faillissement is a court-supervised proceeding  Dutch company with limited liability

6. Financing activities of LBT LBHI LBT Noteholders LB swap entities Individual Guarantee Loan + Derivatives Derivative (Board Resolution Guarantee)

7. Structured notes  Notional amount, maturity date  No fixed interest rate; value of the note (at maturity) dependent on derivative elements  Linked to equity, commodities, credit risk, currencies etc.  Notes are synthetic, no underlying assets  Guaranteed by LHBI

8. Structured Notes  Risks related to the embedded derivative elements were internally hedged (ISDA)  Notes were sold to professional and private investors  Trades via intermediary parties (banks) and clearing entities  Claims not due and payable due to bankruptcy  Event of Default = acceleration right

9. “ Dutch Power Note 12”  Typical equity-linked structured note  Sold to the public  Value of the note linked to the performance of basket of listed stock (Aegon, ING, Shell,KPN)  No underlying assets  “protection from stock movements up to minus 25%” ..but if average stock % goes below 25%...

10. 6 years Dutch Power Note 12; equity linked to ING, Aegon, KPN and Shell

11. Some observations on Dutch Power note:  Maximum performance is capped (automatic redemption)  Potential loss can be 100%  Full note documentation = 517 pages  Securities note states: “Investor should be experienced with global capital markets and derivatives”  Claims against intermediaries

14. Challenges on the claims side 1.Dutch insolvency law rules as to valuation vs. UK law governed note 2.Acceleration of claims 3.Different value dates (bankruptcy dates, ISDA termination dates), currency differences 4.Calculation agent (LBIE) in administration (independent valuator), but LBIE has no resources (people, systems) 5.Over 100,000 (ultimate beneficial) noteholders, who only hold a tradeable economic interest in global notes held by common depositaries 6.Keeping the structure of trading and settlement in place for the purpose of claims admittance and distributions

15. Challenges at the asset side  Amount of intercompany claim undisputed  LBHI’s Plan of Reorganization provides for a 50% admittance  LBT is under pressure of creditors not to accept this haircut (As the Judge is present at the conference, this is not the place to exchange arguments)

16. Closing remarks: practical and equitable approach needed  Cross-Border Insolvency Protocol between Lehman Brothers official representatives: + Platform to promote coordination and avoid unnecessary loss for creditors +Procedures Committee for determining inter-company claims - Coordination of procedures agreed, but not put into practice (bar date, POR)

17. WHY IS LBHI DEBT TRADING AT 15-20%? -Bad markets, declining values -Many illiquid assets -Debt to equity extremely low -Many off-balance sheet and guarantee obligations crystalize post-petition -Chapter 11 triggers “(event of) default” provisions -Knowledge/information drain -Employees leaving -Transfer of part of the business -Computersystems interrupted -Costs -Time factor

18. Chapter 11 flaws in Lehman  After BarCap sale: no going business left so is “debtor in possession” procedure appropriate?  When (de facto) liquidating: independent liquidator is needed who acts in the best interests of creditors  Tension between the interests of legacy creditors and secondary buyers  Examiner investigated limited issues

19. Any questions?

20. Each creditor retains legal position No Subcom LBHI creditors of the parent inter co claims and guaran- tees creditors with guarantee creditors without guarantee Sub 1 Sub 2 Subcom All creditors are equal. Some loose. Some win. LBHI Sub 1 Sub 2 creditors

21. Rutger Schimmelpenninck E: r.schimmelpenninck@houthoff.comr.schimmelpenninck@houthoff.com DD: +3120 605 6157 M: +316 5118 9185 Houthoff Buruma PO Box 75505 NL-1070 AM Amsterdam the Netherlands