The High Court has paved the way for local councils to pursue failed investment firm Lehman Brothers over their investment losses.

The court has dismissed an appeal by Lehman Brothers against a Federal Court judgement that found a deed of company arrangement approved by creditors of Lehman Brothers Australia was void.

Under that agreement, groups including charities, churches and local councils were deemed contingent creditors with an offer of between two and 13 cents in the dollar, against 47.8 to 100 cents for related-party creditors.

The deed would have further prevented contingent creditors from taking any further legal action against Lehman Brothers Australia and associated companies.

The latest decision now entitles a large group of local councils to collect a greater share of liquidation proceeds after they lost millions by investing in collateralised debt obligations arranged by the firms.

Alan McCormack, the GM of NSW’s Parkes Shire Council, welcomed the ruling.

“It puts us in a better position than we were when the deed went through,” he told insuranceNEWS.com.au. “That was the thing that upset a lot of the councils. We were capped in what we could get, and while the pot seemed to be getting bigger all the time our share stayed the same.”

John Walker, Executive Director of litigation funder IMF, described the decision as a fair result.

“This provides the opportunities to get a fair distribution of the assets of Lehman Australia and the continued opportunity to make claims against other Lehman Group companies,” he told insuranceNEWS.com.au.

Law firm Piper Alderman, which represented a large group of councils, said it intends to work with liquidators to assess client claims “as quickly as possible”.