The trustee for Lehman Brothers Inc., the defunct brokerage, will distribute almost $3.5 billion on Sept. 10 to general unsecured creditors with $20.4 billion in approved claims.
The distribution scheduled for next month represents 17 percent of general unsecured creditors’ claims. It’s being made to creditors of record on July 15.
James Giddens, the brokerage trustee, is holding $1.15 billion in reserve on account of almost $6.8 billion in unsecured claims not yet resolved, according to an Aug. 15 court filing.
In June, when Giddens sought court approval for the first distribution to unsecured creditors, he said he would distribute $3 billion or more.
The new distribution brings to $110 billion the total that Giddens has given to customers and creditors since the world’s largest brokerage liquidation began in 2008. Although customers have been paid in full for cash and securities held in their accounts, the Securities Investor Protection Corp. hasn’t been required to advance funds to cover customer claims.
Giddens this year also got approval from the bankruptcy court in New York for full payment of secured claims and those entitled to priority.
The “general estate,” meaning assets not earmarked for customers, amounted to about $5 billion on July 31, according to a court filing. In addition, Giddens had $1 billion left over after full payment to customers.
After holding back required reserves of more than $1.2 billion, Giddens had a net of $4.7 billion available for the first interim distribution to unsecured creditors. The $3.5 billion distribution takes into account the $1.15 billion in reserve for disputed claims.
Giddens previously said he had resolved about 2,700 claims. About 550 were withdrawn voluntarily. He objected to almost 8,800 others.
All told, Giddens has resolved about $118 billion in general creditor claims, while approving about 2,650 for $20.4 billion. He previously distributed more than $105 billion in full payment of 111,000 customer claims.
The Securities Investor Protection Act in substance requires full payment to customers before other creditors are entitled to distributions.
Until the customers recovered in full, liquidation expenses were paid with advances from SIPC to prevent customers from paying the costs of the brokerage liquidation.
With customers fully paid, the excess is for unsecured creditors, except that SIPC is first allowed by law to recover its advances to cover costs. Consequently, general unsecured creditors pay expenses of the liquidation that were advanced by SIPC.
Lehman Brothers Holdings Inc. and the brokerage unit began separate bankruptcies in September 2008. The New York-based parent’s reorganization plan was approved in December 2011 and implemented in March 2012. In April, the parent made a fifth distribution.
SIPA brokerage liquidations work much like Chapter 7 liquidations, in which creditors don’t vote on a plan because distributions are approved by the court.
The holding company Chapter 11 case is In re Lehman Brothers Holdings Inc., 08-bk-13555; the brokerage liquidation is Securities Investor Protection Corp. v. Lehman Brothers Inc., 08-01420, U.S. Bankruptcy Court, Southern District of New York (Manhattan).