Creditors of Lehman Brothers Holdings Inc were granted approval on Tuesday to vote on the failed bank's $65 billion payback plan, clearing a major hurdle in the path to ending the biggest bankruptcy in U.S. history.

U.S. Bankruptcy Judge James Peck in Manhattan said he would enter an order approving the outline of the plan and send it to creditors for a November 4 vote, overruling a handful of objections from corporate creditors.

The disclosures in the plan outline are abundant and adequate as to the issues in this too-big-to-fail enterprise, Peck told a packed courtroom.

Peck overruled objections from investment funds Mason Capital Management LLC and Centerbridge Credit Advisors LLC, among others.

Lehman dealt with angry creditors for years, but ultimately faced a relatively small list of objections because it was able to get powerful critics -- including distressed investors and former trading partners -- on its side prior to the hearing.

Among its supporters were two creditor groups that hold a combined $100 billion in claims, more than one-fourth of the roughly $360 billion in claims against Lehman.

Those groups include bondholders led by hedge fund Paulson & Co, and derivatives creditors such as Goldman Sachs Group Inc and Morgan Stanley . Asian affiliates holding about $20 billion in claims have also pledged support.

Peck called the compromise on payout terms compelling, saying sophisticated parties ... have made what appears to be classic business decision based on the avoidance of risk.

NOT OUT OF THE WOODS

Obstacles remain to Lehman's emergence from bankruptcy and its ability to pay back investors who lost billions when the company filed for bankruptcy on September 15, 2008.

If creditors accept the plan, the matter would go back to Judge Peck for a final approval hearing that could take between two and three weeks due to the complexities of certain objections the company is likely to face at the confirmation stage, said Harvey Miller, an attorney for Lehman.

The parties tentatively scheduled that hearing to begin on December 6.

Even after creditors and the court approve a plan, Lehman must meet certain financing and other conditions, a process that could take additional days, weeks or months, a company spokeswoman said last week. Lehman has said it hopes to begin creditor payouts in the first quarter of 2012.

Lehman filed for bankruptcy with $639 billion in assets. The filing was six times larger than any previous U.S. bankruptcy and was considered to be a key catalyst to the financial crisis.

The case is In re Lehman Brothers Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555.

(Reporting by Nick Brown; editing by Andre Grenon and Gunna Dickson)

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