The judge overseeing Lehman Brothers Holdings Inc.'s bankruptcy proceedings Wednesday gave the green light to a plan to hire an examiner to investigate the investment bank's historic collapse.
The examiner must be appointed by the U.S. trustee and approved by the court. The trustee, Diana G. Adams, said she began interviewing candidates earlier this week.
Judge James M. Peck asked Lehman Brothers, the trustee, and a number of the bank's creditors to "meet and confer" to detail a job description for the examiner once he or she is appointed.
This may be more complicated than it seems - for several hours Wednesday, attorneys provided what Peck called "nuanced expressions of support that actually are expressions of disagreement" about what the examiner's duties should be.
Further, the examiner would be charged with compiling information about a company already the subject of three federal investigations.
Even that there should be an examiner in the first place was a subject of contention. New York Comptroller Thomas DiNapoli late last year filed a motion requesting a trustee to oversee the company. A trustee would assume control of a company in bankruptcy and administer its day-to-day business, while an examiner has no inherent powers beyond his mandate from the court.
The comptroller has now deferred the request for a trustee, instead urging an examiner with "a broad scope" of powers.
Evan Fleck of Milbank, Tweed, Hadley & McCloy LLP, representing the Official Committee of Unsecured Creditors, though, argued for a narrower job description. The committee advocated limiting the examiner's charge only to collecting and reporting facts.
Once an examiner passes judgment on the company being investigated or on the best means to maximize the value of its assets, creditors line up in agreement or disagreement, the attorney said.
This can be counterproductive and undermine the usefulness of the examiner's report, he said.
Peck said he had a "cognitive problem" with limiting the examiner's report to facts. Any useful investigation would have to be colored by some form of judgment, Peck said.
"There's almost no such thing as pristine and pure fact-finding," Peck said. "There is no such thing as a totally agnostic point of view."
The trustee and attorneys for creditors generally agreed the examiner should be authorized to hire a financial adviser to help understand the company's complex transactions.
Part of what Lehman's counsel suggested the examiner should investigate is transactions among the parent company's subsidiaries.
The examiner's duties are subject to court approval.
Peck prevailed upon the parties meeting to establish recommended guidelines for the examiner to be wary of costs.
Lehman Brothers has between $6 billion and $7 billion in cash, depending on the results of certain claims, according to restructuring specialist Alvarez & Marsal.
The company is burning through $25 million a month.
"Just because the case is large doesn't mean the case should be viewed as a blank check," Peck said. "Over time the available cash will be expended."
In a presentation updating the restructuring, Alvarez & Marsal said Lehman has collected more than $2 billion in settlements on derivatives contracts, more than $1 billion of it since Nov. 7.
Lehman is trying to accelerate settlement of billions of dollars in derivatives contracts, many of them with municipalities. Lehman has resolved numerous objections to this process. A hearing on the unresolved objections was adjourned to Jan. 28.
Bryan Marsal, who replaced Richard Fuld as Lehman's chief executive at the end of last year, said he expects the reorganization to be completed in 18 to 24 months.
Despite suggestions the bankruptcy proceedings could last years, he sees no reason the restructuring should take that long, he said.
Alvarez & Marsal has 150 people working on six teams to satisfy Lehman Brothers' creditors and emerge from bankruptcy.
Lehman Brothers on Sept. 15 became the biggest bankruptcy in U.S. history when it sought Chapter 11 protection from creditors.