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The Deal: Lehman Makes Its Mark on Bankruptcy's Landscape

NEW YORK ( The Deal) -- In the minds of many, Lehman Brothers' collapse and subsequent bankruptcy has served as a turning point in the country's financial landscape.

And while five years have gone by since the epic Chapter 11 filing on Sept. 15, 2008, its influence remains strong. For example, the movement behind the possible creation of a Chapter 14 of the U.S. Bankruptcy Code that would just be for financial institutions is a direct response to Lehman.

Meanwhile, the Lehman petition was clearly the impetus behind at least one piece of legislation, the Dodd-Frank Wall Street Reform and Consumer Protection Act, designed to improve accounting transparency among financial institutions and prevent future taxpayer bailouts of them.

Less clear is how "the skinniest Chapter 11 petition in history," as debtor counsel Harvey Miller of Weil, Gotshal & Manges LLP called it recently, inspired the speed at which bankruptcy sales were done in the cases of General Motors (GM) and Chrysler, which filed within two months of each other in the spring of 2009 and were sold in as lightning-quick a fashion as Lehman's North American investment bank and brokerage assets.

Without question, general market turmoil, an economic freefall and widespread mistrust of the big banks and the regulators tasked with overseeing them followed the brokerage's implosion.

"[It was] the biggest unplanned bankruptcy in the history of bankruptcy law, period," said the person presiding over the Lehman case, Judge James Peck of the U.S. Bankruptcy Court for the Southern District of New York in Manhattan, during a Sept. 12 teleconference commemorating the five-year anniversary of the filing.

"Anyone who was in my overcrowded courtroom [the first day] will remember the experience as absolutely one-of-a-kind, extraordinarily dramatic."

The judge, who said he felt an "enormous responsibility" when randomly assigned the case, said the first few days of the case "will go down as the most momentous week in bankruptcy history, full stop." Right off the bat, Peck approved a $1.29 billion sale of Lehman's North American investment bank and brokerage assets to Barclays Capital (BCS) on Sept. 20, 2008, less than a week after the company's filing -- a move Weil's Miller calls "courageous" given the alacrity in which it was done.

Chris Kiplok of Hughes Hubbard & Reed LLP, who represented Securities Investor Protection Act trustee James W. Giddens, stated that the Barclays transaction was one of several early case developments that marked "the end, in my mind, of the triage phase. ... We paused and saw that we had the right professionals on the case in the case ... [we knew] we could drive the case instead of having the case drive us."
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