Lehman Brothers Australia and a group of 70 local councils are locked in mediation talks in Sydney in a bid to resolve issues surrounding a $200 million loss suffered during the height of the credit crunch.

The talks aim to avoid Wingecarribee Shire Council, in the NSW southern highlands, launching a class action against the firm to recover money it and other councils lost in a $1.2 billion collateralised debt obligation portfolio.

In October last year the Federal Court ruled against the validity of a deed of company arrangement that blocked the councils from chasing claims against Lehman.

The councils launched legal action after they were deemed “contingent creditors” under the deed, with an offer of between 2-13 cents in the dollar compared with 47.8-100 cents for related-party creditors.

A Wingecarribee council spokesman told insuranceNEWS.com.au they’re unable to comment at this stage.