Creditors of Lehman Brothers Holdings Inc.’s Australian unit approved an insurance payment plan allowing them to recover about $48 million of investment losses.

U.S. insurers agreed to provide $45 million and an Australian insurer A$3 million ($2.8 million) under the proposal, PPB Advisory, liquidators of Lehman Brothers Australia Ltd., said in an e-mailed statement today. The payout was on the condition that creditors release the insurers from any future claims.

The settlement “avoids protracted and risky litigation in a foreign jurisdiction,” PPB said in the statement.

The approval of the insurance plan will also allow the liquidators to move forward on settlement talks on a class action lawsuit, PPB Advisory said. The Lehman unit was found liable last year for losses incurred by three Australian towns that bought failed securities. The towns represented dozens of other local governments, charities and churches that also relied on Lehman’s advice.

“Previous attempts to settle have been problematic due to the risk of jeopardizing insurance recoveries,” PPB Advisory said. “Now that creditors have agreed to the insurance settlement, there is a strong expectation of settlement of the class action and a distribution to creditors in early 2014.”

Lehman Brothers Australia appointed a voluntary administrator under the country’s bankruptcy laws on Sept. 26, 2008, after Lehman Brothers Holdings filed for bankruptcy. The company, then the fourth-largest investment bank in the world, had $613 billion in debt, making it the biggest bankruptcy in U.S. history.

‘Deceptive Conduct’

The Australian unit has assets of between A$297 million and A$303 million and creditors are owed between A$596 million and A$654 million, according to litigation funder IMF (Australia) Ltd. IMF’s clients are owed A$143.5 million, it said.

The Lehman unit “engaged in misleading and deceptive conduct” in investing the towns’ money in synthetic collateralized debt obligations whose value collapsed along with the U.S. housing market, Federal Court Justice Steven Rares said when he ruled in September last year that the unit was liable for the towns’ losses.

The case is In the matter of Lehman Brothers Australia Ltd. (In Liquidation). NSD622/2013. Federal Court of Australia (Sydney).

–Editors: Dave McCombs, Garry Smith