Parties involved in the class action against Lehman Brothers Australia over the sale of credit derivatives have agreed on a settlement. Litigation funder Bentham IMF (formerly IMF) announced yesterday that lawyers for the claimants and the LBA liquidators had agreed to settle the IMF-funded claims.Under the terms of the settlement, which is conditional on court approval, the class action will cease. Claims will be assessed under a non-adversarial resolution process.IMF said the application for court approval was likely to be heard this month. If all goes according to plan, distributions to Lehman creditors will start in April next year.Sixty-nine Australian councils, church groups and charities brought a class action against LBA over credit derivatives sold to them up to the year 2007. The derivatives became illiquid during the financial crisis.In September last year, the Federal Court made a finding that LBA had engaged in misleading and deceptive conduct, was negligent and was in breach of its fiduciary duties when it sold collateralised debt obligations to its clients.Part of the settlement is that an appeal against that ruling will cease.The settlement follows an agreement with LBA's insurers in October. LBA's creditors approved a scheme of arrangement which resulted in the recovery of more than US$445 million from insurance policies.Approval of the scheme was a breakthrough for LBA's liquidator, PPB Advisory, after a scheme put to creditors in June was blocked by one of the creditors, Lehman Brothers Holdings International.The settlement of the insurance matter paved the way for settlement of the class action.The claimants are still going after McGraw-Hill Companies Inc, which owns Standard & Poor's. S&P rated the CDOs that LBA sold and the claim is for the balance of any loss not covered in the LBA settlement.IMF expects the LBA settlement to result in pay-outs of around 50 cents in the dollar. The total claim is for losses of A$170 million.