Nov. 6 (Bloomberg) -- Lehman Brothers Holdings Inc.’s U.K. bankruptcy administrators can’t go ahead with an expedited plan to distribute as much as $8.9 billion in assets to creditors, an appeals court ruled.

PricewaterhouseCoopers, the administrators of Lehman Brothers International Europe, had sought to speed up the process of returning money to some creditors through the so- called scheme of arrangement. A London judge ruled in August that the court didn’t have jurisdiction to force dissenting creditors to accept the trust asset-distribution plan, and the administrators appealed.

The lower-court judge “was right to hold that he had no jurisdiction to approve the scheme insofar as it was concerned with the distribution of property held or controlled by it on trust for any of its creditors,” the London appeals court wrote in the ruling throwing out the case.

Lehman, based in New York, collapsed on Sept. 15, 2008, leaving creditors owed more than $600 billion and fueling a crisis in global financial markets. The U.K. administrators have recovered $40 billion of securities and cash, PwC said in a report last month. The administrators said today they have so far returned $13.5 billion to creditors.

The ruling “restricts the options available to the administrators for the return of client assets and, in particular, the degree of protection afforded to clients who receive assets back from the company,” Steven Pearson, a PwC partner working on the case, said in a statement today.

Alternative

PwC is creating an alternate plan that would ask creditors to sign contracts to agree to a settlement that will be offered “in coming weeks,” Pearson said.

“The alternative arrangements will only bind those clients who positively elect to sign-up,” said Pearson. “It is vital that affected clients take the time to understand” the offer and “by the end of the year, sign up to their terms.”

The “key drawback” to the contractual solution is that it doesn’t bind creditors who don’t agree to it, said David Ereira, a Linklaters LLP partner advising PwC, in a court filing. It would also expose LBIE and the administrators to possible lawsuits by those who don’t sign up, he said.

The London Investment Banking Association had opposed the asset-distribution plan, which allowed for creditors to be paid in groups rather than individually. The plan had the support of hedge funds including GLG Partners LP.

“This important judgment prevents what could have been far reaching and damaging implications for assets held on trust,” LIBA’s lawyer, Simon Orton at Freshfields Bruckhaus Deringer LLP, said in a statement.

To contact the reporter for this story: Lindsay Fortado in London at lfortado@bloomberg.net.

Last Updated: November 6, 2009 09:07 EST