Ruling exposes Lyondell investors to clawback over 2007 buyout: Reuters

Nov 18 (Reuters) — Investors who pocketed $12.5 billion in the 2007 leveraged buyout of Lyondell Chemical Co may have to defend lawsuits by Lydondell creditors seeking to claw that money back, according to a federal judge’s ruling on Wednesday.

Billionaire Leonard Blavatnik led the Lyondell leveraged buyout in 2007, but in early 2009 the company filed for bankruptcy.

Creditors lost money in the bankruptcy. They blamed debt that was piled on Lyondell in the buyout, but the money from that debt went beyond their reach to former shareholders.

On Wednesday, U.S. Bankruptcy Judge Robert Gerber in Manhattan ruled the creditors could continue to pursue their clawback case and denied the defendants’ motion to dismiss it.

Gerber’s 46-page opinion did dismiss allegations of intentional fraud by the defendants.

The preliminary ruling clears the way for discovery and possibly a trial.

While the company has long since exited bankruptcy, a creditor trustee, Edward Weisfelner, has been fighting the view that the bankruptcy code’s “safe harbor” provision shields Lyondell investors from being sued over pre-bankruptcy deals.

Under federal bankruptcy laws, safe harbor provisions protect certain securities transactions, including payments to shareholders, from being unwound by representatives of a bankrupt company’s estate.

Federal judges in the only similar cases, stemming from the bankruptcies of SemGroup and Tribune Co, offered conflicting views of the safe harbor protections. Those cases have been appealed and are pending with the 2nd U.S. Circuit Court of Appeals.

A ruling by the Court of Appeals would in those cases would likely determine the direction of the Lyondell case.