In a digital age and where significant assets may consist of dematerialised instruments, are our existing rules sufficient to provide a fair and effective regime governing the location of assets?
The failure of Lehman Brothers ("Lehman") in September 2008 resulted in the world's largest ever insolvency proceedings. Almost eight years later, these have yet to be concluded. Much of the work of the lawyers involved with the Lehman insolvency has concerned questions of the ownership of assets held by the various Lehman entities at the time of its failure. Resolution of these matters has been no mean feat in view of the complex financial arrangements that Lehman had put in place. Practitioners and judges have had to (amongst other things) legally deconstruct transactions, interpret transaction documents and correctly allocate assets amongst the parties claiming them. The cross-border nature of the Lehman business and the fact that most of the assets in question were intangible, intermediated securities complicated matters further. These intermediated securities often formed part of the collateral used by Lehman for conducting its own business so that assets belonging to the ultimate investors became increasingly removed from their direct ownership. This doctorate seeks to understand the consequences for investors of the law relating to the holding of intermediated securities in the event of the insolvency of an intermediary and to consider whether the existing rules that govern such arrangements are fair and effective. Through an examination of selected English law and US Lehman cases, this Thesis explores the role of location in determining the law governing the proprietary effect of transactions involving intermediated securities and what, if any, conflict of laws issues arose as a consequence of the Lehman collapse. It concludes that, despite limited assistance from the case law in answering the question, the rules applied in the Lehman insolvency were, largely, both effective and fair to investors, albeit in the long term. Nevertheless, issues concerning the cross-border recognition of rights to intermediated securities remain and, with them, the challenge of achieving further harmonisation in an increasingly complex and fragmenting world. In view of the difficulties in imposing "top down" harmonisation or standardisation of laws across jurisdictions, the "bottom up" approach of the UNIDROIT Convention on Intermediated Securities provides the most realistic solution.
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