A legal tussle between defunct Lehman Brothers and investors in highly complex debt vehicles has drawn attention from financial professionals and British football clubs alike.

The dispute reaches beyond the obscure clauses in the instruments caught up in the row, with consequences for the order in which creditors get paid out in a bankruptcy -- a source of contention in football insolvencies too.

Billions of dollars of derivatives are at stake, and risk losing their worth if the case goes against investors.

A similar, widely-trailed case settled in the United States last year had already sparked alarm among lawyers, noteholders, and academics watching the securitization industry.

One Manhattan federal court judge, calling for a review of a decision on the case last September before a settlement with Lehman was reached, cited its potentially game-changing effect on the structured finance business.

She added that it had potentially far-reaching ramifications for the international securities markets and has triggered significant uncertainty in the financial community.

The dispute centers on a series of credit-linked notes, part of only one of Lehman's synthetic collateralized debt obligation (CDO) programs -- known as Dante -- valued at $12.5 billion at the time of the firm's collapse in September 2008.

The stakes are high for those owed money by Lehman, for whom derivative deals are a big chunk of what they are hoping to claw back. The creditors are pitted against a group of Australian investors known as Belmont in a UK appeal to the Supreme Court, where three days of hearings ended this week.

A verdict is expected to emerge after several weeks, lawyers close to the case said.

Both Lehman and the investors are hoping to seize the assets backing the deals, and any final ruling would set a precedent for how the priority of payments in billions of dollars worth of similar deals are worked out.

LOOMING DOWNGRADES

Investors need a validation of so-called flip clauses in the notes they hold, designed to reorder payment priorities in bankruptcies and allowing them to jump in ahead of Lehman.

Trouble looms if they lose, as noteholders in deals with similar structures would find they had no guarantee of being paid out when other parties default.

Certainly for anything that is rated, the rating agencies may seek to downgrade in some cases. They are watching very carefully what happens with the litigation, said Jennifer Marshall, a partner at Allen & Overy specializing in insolvency, whose clients have followed the case.

For non-rated transactions, I'm sure you'd find parties coming back to the table wanting to renegotiate.

The synthetic CDOs, which expose investors to a pool of insurance contracts on debt known as credit-default swaps, were in the main rated triple-A.

Some of the legal arguments at stake in the exotic-sounding financial deals could also have a bearing for football clubs.

The British taxman and the Premier League, the top league in the country, are intervening in proceedings, hoping for clarity on the priority of payments when clubs go bust.

Footballers are usually paid out first, to the detriment of the taxman -- a situation the UK Revenues and Customs department may be able to reverse if it can cite legal precedents.

But a conclusion may yet take time to emerge.

Lehman managed to settle with another group of Australian investors caught up in the Dante CDO row last November, after U.S. bankruptcy judge James Peck ruled in Lehman Brothers Holdings Inc.'s favor, but UK courts found against it.

Should Lehman lose its appeal at the Supreme Court, a transatlantic battle between the U.S. and British courts could be revived, if litigation heads back to the United States.

Lawyers would have to work out which rulings to abide by, adding an extra lawyer of complexity to Lehman's sprawling bankruptcy workout, the biggest and costliest in U.S. history.

(Editing by David Cowell)

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