There are various possible ways the Court might hold that shortfall claims into the general unsecured estate should be valued.
As explained in previous updates, the Shortfall Order dated 16 August 2013 describes two kinds of unsecured claims that clients may have as a result of the likely shortfall in the client money pool (“CMP”): Parallel Claims and Shortfall Claims. Further information is available in the previous updates below.
In order to calculate clients’ potential Shortfall Claims (if any), the Administrators must calculate clients’ ‘Estimated Total CMP Recoveries’ and determine whether clients have a “CASS 7 Amount” and, if so, its value (both terms are defined in the Shortfall Order). The Administrators are currently working to finalise the client money pool and this may require assistance from the Court.
The Administrators will update clients as these issues progress, however, until the Administrators are able to finalise the client money pool and accordingly determine clients’ Estimated Total CMP Recoveries and any CASS 7 Amount, they will not be in a position to determine the value of client’s Shortfall Claims (if any).
However, the Administrators are focused on making prompt payments to clients and are therefore taking steps to make distributions to clients in relation their Parallel Claims, even though the value of clients’ Parallel Claims are not yet certain.
In order to do so, the Administrators have made an estimate of clients’ Parallel Claims (the “Estimated Parallel Claims”) using the assumptions set out below. This calculation is based on the figures set out in clients’ agreed Client Money Proposal Settlement Agreements, so clients do not need to take any steps to agree any Estimated Parallel Claim they may have or receive the distribution on that part of their claim.
The Administrators intend to make an initial distribution to certain clients in respect of their Estimated Parallel Claims (where such claims exist) on or around Friday, 28 February 2014.
As stated above, in order to make an initial distribution in relation to clients’ Estimated Parallel Claims, the Administrators have made several assumptions. These assumptions are assumptions only and should not be taken as indicating the likely future distributions rates from either estate or the likely cause of any shortfall in the CMP:
The Estimated Parallel Claims will remain as estimates until the CMP has paid its final distribution and has closed. As and when there is greater certainty as to the actual values of clients’ Parallel Claims, the Administrators will revise the assumptions used in calculating the Estimated Parallel Claims and will issue revised statements setting out the values of clients’ Estimated Parallel Claims and will make top up distributions if necessary.
The aggregate declared distribution level in respect of general unsecured claims in MFGUK’s estate is currently 65 pence in the pound. Clients with Estimated Parallel Claims will automatically be paid a ‘catch up’ dividend in respect of the Estimated Parallel Claims. Distributions will be made in GBP.
Update on the calculation of shortfall claims
As stated above, the Administrators are not yet in a position to determine clients’ Shortfall Claims (if any). The Administrators continue to work on this issue and will publish further updates in due course.
1. Why have I not received a distribution in respect of my Estimated Parallel Claim?
Clients who will be receiving a distribution in respect of their Estimated Parallel Claim will have received a letter from the Administrators setting out further detail as to the values of their Estimated Parallel Claims. Accordingly, if you have not received this letter, you will not be receiving payment in respect of your Estimated Parallel Claim.
This may be because your Estimated Parallel Claim is £nil or you fall below the Administrators’ minimum threshold for payment. Generally, only Increased Clients (i.e. the close-out value of their positions exceeds the value of their claim on the 31 October 2011 mark to market basis) will be taking part in this distribution. However, due to certain foreign exchange adjustments and the Administrators’ minimum payment threshold of £100, not all Increased Clients will be receiving a distribution at this point.
As stated above, as and when the uncertainties regarding the CMP are reduced and the Administrators are able to revise the assumptions used in calculating Parallel Claims, the Administrators will issue a revised statement setting out the value of clients’ revised or final Parallel Claims and top up payments will be made if necessary.
2. In calculating the Estimated Parallel Claim, the Administrators have assumed a 100 cents in the $ recovery from the CMP – therefore, should I expect to recover 100 cents in the $ on my client money claim?
No. The Administrators have adopted these assumptions to minimise the risk of overpayment whilst at the same time ensuring the expedient return of funds to clients. The Administrators do not actually expect the final CMP recovery to be 100 cents in the $. For the Administrators’ current estimated outcome, please refer to the Updated Illustrative Financial Outcome as at 31 August 2013 report (PDF 129.77 KB) dated 14 October 2013.
3. How have the Administrators’ calculated my Estimated Parallel Claim?
A client’s Estimated Parallel Claim is calculated as: (a) the GBP value of its contractual claim (converted to Sterling at the 31 October 2011 rate), less (b) the GBP values of all actual distributions that have been made to the client from the CMP (converted to Sterling at the relevant distribution date rates), less (c) an assumed final distribution from the CMP which brings CMP distributions to 100c on the $ (converted to Sterling at an assumed final distribution date rate).
Set out below is an example of the Administrators’ calculation of an Estimated Parallel Claim:
|Client Money Claim (31-Oct)||1,000.00|
|Contractual Claim (latest)||1,300.00||1.6141||805.40|
|Less distributions from the CMP|
|Distribution 1||15 Mar 12||260.00||1.5008||173.24|
|Distribution 2||22 Aug 13||440.00||1.5356||286.53|
|Final estimated distribution||Est||300.00||1.6500||181.82|
|Estimated Parallel Claims||163.81|
Shortfall Application - calculation of Parallel Claims and Shortfall Claims
When judgement was handed down on the Shortfall Application in August, the Administrators published simplified worked examples showing the calculation of Parallel Claims and Shortfall claims (see below). Since then, clients have asked how FX conversions will be factored into the calculations.
In response, the Administrators have prepared a modified set of worked examples (PDF 304 KB). The modified worked examples show FX conversions, the impact on the calculations of multiple distributions from the client money pool, and also include charts illustrating the calculations. See a copy of the Shortfall Order (PDF 73 KB), to which the worked examples refer.
For the purposes of these calculations, the Administrators are investigating whether clients have a 'CASS 7 Amount' and, if so, its value. The Administrators are also in the process of calculating clients' 'Estimated Total CMP Recoveries' (both terms are definied in the Shortfall Order). The Administrators aim to update clients on these issues in the first quarter of 2014.
The Judge acknowledged that the parties: “are agreed that a client with a contractual claim is in principle entitled to prove for that claim (a parallel claim), although it also has a claim to client money by reference to the relevant contract.” The Judge then divided the application into three issues.
The first issue was: “the effect of an actual or anticipated distribution from the CMP on the amount for which a client may prove in respect of its parallel claim.” The Judge held that: “the amount of a provable debt by a client falls to be reduced by the amount of any distributions from the CMP, whether made before or after the proof of debt is submitted.”
The second issue was: “whether a client may prove for a personal claim against the firm to recover the difference between its client money entitlement as against the CMP and the amount in fact recovered by the client from a distribution from the CMP (a shortfall claim)." It was common ground that: “a shortfall claim can arise only in respect of such part of the shortfall as results from a breach of trust by the firm, that is to say a failure by the firm to comply with the provisions of CASS 7.”
The Judge held that a client can make a shortfall claim insofar as the shortfall results from a breach of trust by the firm, but can only claim “in respect of a shortfall in payment of its client money entitlement to the extent that it exceeds its contractual claim or in a case where the client has no contractual claim.”
The third issue was whether a client’s shortfall claim is limited such that it: “cannot exceed the contractual claim, if any, of such client” such that “there is no claim which the clients represented by Attestor can make in respect of the amounts by which their client money entitlements exceed their contractual claims. For convenience I will call this the excess shortfall, without intending an oxymoron.” The Judge held that clients “can prove in respect of the excess shortfall” (if any).
To assist clients and creditors in understanding the practical impact of the judgment and order, the Administrators have prepared a set of worked examples (PDF 35 KB).
Neither the Administrators nor the representative parties have sought leave to appeal this decision. However, if a client or creditor who is affected by the decision wishes to appeal it, they may do so if they file their appeal notice with the Court on or before 6 September 2013. Any appeals should be served on the Administrators. Please note that a client or creditor who appeals this decision will be at risk for costs. Further, any appeal will be likely to delay the Administrators’ ability to make further distributions to unsecured creditors.
If you have any questions regarding the judgment itself or the implications thereof, please refer to the FAQ below or direct any enquiries to the Administrators:
T: 020 7785 0308
Following the judgment, the respondent parties will now no longer be fielding communications in this regard.
The substantive hearing of the Shortfall Application took place on 23 and 24 July 2013. See a copy of the transcript of the first day of the hearing (PDF 1.25 MB) and a transcript of the second day of the hearing (PDF 1 MB).
At the end of the hearing, the Judge reserved judgment. The Judge did not indicate when he would give judgment, but the Administrators hope to receive judgment in the autumn. The judgment will be published on this website when it is available.
Shortfall Application update - skeleton arguments
In accordance with the directions order dated 24 May 2013, on 18 July 2013 the parties lodged and exchanged skeleton arguments. See copy of the Administrators’ skeleton argument (PDF 715.25 KB), a copy of the worked examples (PDF 51.57 KB) attached to the Administrators’ skeleton argument, a copy of Attestor’s skeleton argument (PDF 248.73 KB), and a copy of Solid’s skeleton argument (PDF 1.10 MB).
The substantive hearing of the Shortfall Application will take place on 23 and 24 July 2013.
Shortfall Application update - position papers
In accordance with the directions order dated 24 May 2013, on 4 July 2013 the parties filed and served position papers. See a copy of the Administrators’ position paper (PDF 87.80 KB), a copy of Attestor’s position paper (PDF 302.78 KB), and a copy of Solid’s position paper (PDF 826.32 KB).
Shortfall Application update - witness evidence
In accordance with the directions order dated 24 May 2013, on 14 June 2013 Solid served the witness statement of Oleg Konshin. See a copy of the witness statement (PDF 797 KB) and a copy of exhibit 1 (PDF 1.82 MB). On 19 June 2013, Attestor (by a letter from its solicitors, Simmons & Simmons) requested clarification of certain parts of the 11th witness statement of Richard Heis. See a copy of the letter (PDF 237 KB). See the Administrators’ response dated 28 June 2013 (PDF 138 KB). No other witness statements have been served by the parties.
Shortfall Application update following procedural hearing
At the procedural hearing on 24 May 2013, the Court made an Order for directions which, in summary: (i) fixed the date for the substantive hearing to take place on 23and 24 July 2013, with a reading day on 22 July; (ii) appointed Attestor Value Master Fund LP to act as representative respondent for the Decreased Clients; (iii) appointed Solid Financial Services Limited to act as representative respondent for the Increased Clients; and (iv) made some changes to the substantive questions being asked in the application.
The sealed version of the Order can be found here (PDF 97 KB). The amended versions of the substantive questions are at Schedule A of the Order.
On 29 January 2013, the Court handed down judgment on the Hindsight Application the Court held that the client money entitlement of a client with an open contract as at MF Global UK’s (“MFG UK”) primary pooling event (the “PPE”) is to be valued by reference to that contract’s published settlement price on 31 October 2011 (the “PPE Valuation”) and not by reference to the liquidation value on the subsequent close out of that contract (the “Hindsight Valuation”).
Following that judgment, on 8 May 2013 the Administrators applied to the High Court for directions as to the basis upon which to value a client’s unsecured claim into the general estate arising from any shortfall in the client money pool (the “Shortfall Application”).
The issues behind the Shortfall Application were provided in our update dated 13 March 2013 below. The outcome of the Shortfall Application could affect the following classes of MFG UK’s creditors/clients differently: (i) clients whose open positions have a higher Hindsight Valuation than PPE Valuation (the “Increased Clients”); (ii) clients whose open positions have a lower Hindsight Valuation than PPE Valuation (“Decreased Clients”); and (iii) the creditors of MFG UK’s general estate (the “general estate”).
The Administrators will represent the interests of the general estate in the Shortfall Application, and have requested that the Court join: (a) Attester Value Master Fund LP to act as a representative respondent for the Decreased Clients; and (b) Solid Financial Services Limited to act as a representative respondent for the Increased Clients.
The Administrators will file a witness statement in support of the Shortfall Application in due course, at which point it will be uploaded to this website. A copy of the Shortfall Application can be found via the link below.
A procedural hearing is listed to take place on 24 May 2013 with a time estimate of half a day. The substantive hearing is provisionally due to take place on 23 and 24 July 2013, with a reading day on 22 July.
If you are a client of MF Global UK Limited and would like to contact your appropriate representative respondent's solicitors, please contact:
For Attestor Value Master Fund LP:
Simmons & Simmons LLP,
City Point, One Ropemaker Street,
London, EC2Y 9SS
FAO Gerard Heyes
For Solid Financial Services Limited:
Dentons UKMEA LLP,
One Fleet Place,
London, EC4M 7WS,
FAO Luci Mitchell-Fry
If you have any questions concerning the Shortfall Application, or if you are a client of MFG UK and you would like to receive hard copies of the above documents, please contact the Administrators at:
or by writing to:
MF Global UK Limited (in special administration),
5 Churchill Place,
Canary Wharf, London,
E14 5HU, England
On 5 February 2013 the Administrators published an update on this website concerning the judgment handed down by the High Court in relation to the Hindsight Application, explaining that, for distribution purposes, clients’ client money entitlements shall be calculated with reference to 31 October 2011, which was the date of the primary pooling event (PPE) for MFGUK.
It was also explained in that update that the Administrators were discussing with their legal advisors the basis upon which any shortfall claims from the Client Money Pool (CMP) into the unsecured estate of MFGUK should be valued. Since that update the Administrators have concluded that, because of the legal uncertainty and the material impact on unsecured creditors of choosing one basis for valuation over another, it will be necessary to make an application to Court to determine this question. The Administrators intend to make this application in the near future.
What are the different possible bases for determining the value of any shortfall claim?
There are various possible ways the Court might hold that shortfall claims into the general unsecured estate should be valued. Below are some examples which illustrate some of the key matters that will need to be determined by the Court. Please note, however, that these examples are by no means exhaustive and any judgment could well determine that shortfall claims should be valued differently from any of these examples.
Illustrative Example 1
Client A has a Client Money claim of $100,000 valued by reference to 31 October 2011 (the Primary Pooling Event, or PPE), in accordance with the Hindsight Judgment. Client A's position was open as at the PPE and was subsequently closed out at a value of $60,000. Had Client A's claim not had client money protection, it would have been valued at $60,000 for the purposes of a claim into the general estate (as the hindsight principle applies to contingent unsecured creditor claims in English insolvencies). If aggregate distributions of, for example, 80c in the dollar are ultimately paid to clients from the CMP, then Client A will receive $80,000 from the CMP. Client A will have received less than the full value of its claim against the CMP. Does Client A have a 'shortfall' claim into the general estate and, if so, how should it be valued?
Possible answer 1
Client A is entitled to claim for $20,000 (being the shortfall between their client money entitlement and the amount they have received from the CMP) from the unsecured estate.
Possible answer 2
Client A has no right to claim for any shortfall in the unsecured estate of MFGUK as they have received $80,000 from the CMP, which is greater than the $60,000 they would have been entitled to if they had been a general creditor in the unsecured estate.
Illustrative Example 2
Client B has a Client Money claim of $100,000 valued by reference to the PPE, in accordance with the Hindsight Judgment. Client B's position was open as at the PPE and was subsequently closed out at a value of $90,000. Had Client B's claim not had client money protection, it would have been valued at $90,000 for the purposes of a claim into the general estate (as the hindsight principle applies to contingent unsecured creditor claims in English insolvencies). If aggregate distributions of, for example, 80c in the dollar are ultimately paid to clients from the CMP, then Client B will receive $80,000 from the CMP. Client B will have received less than the full value of its claim against the CMP. Does Client B have a 'shortfall' claim into the general estate and, if so, how should it be valued?
Possible answer 1
Client B is entitled to claim for $20,000 (being the shortfall between their client money entitlement and the amount received from the CMP) from the unsecured estate.
Possible answer 2
Client B has a claim of $10,000 in the unsecured estate of MFGUK (being the difference between the amount they have received from the CMP and the amount they would have been entitled to as an unsecured creditor).
Illustrative Example 3
Client C has a Client Money claim of $100,000 valued by reference to the PPE, in accordance with the Hindsight Judgment. Client C's position was open as at the PPE and was subsequently closed out at a value of $120,000. Had Client C's claim not had client money protection, it would have been valued at $120,000 for the purposes of a claim into the general estate (as the hindsight principle applies to contingent unsecured creditor claims in English insolvencies). If aggregate distributions of, for example, 80c in the dollar are ultimately paid to clients from the CMP, then Client B will receive $80,000 from the CMP. Client C will have received less than the full value of its claim against the CMP. Does Client C have a 'shortfall' claim into the general estate and, if so, how should it be valued?
Possible answer 1
Client C is entitled to claim for $20,000 (being the shortfall between their client money entitlement and the amount received from the CMP) from the unsecured estate.
Possible answer 2
Client C has a claim of $40,000 in the unsecured estate of MFGUK (being the difference between the amount they have received from the CMP and the amount they would have been entitled to as an unsecured creditor).
What is the impact of the proposed Shortfalls Application?
It should be noted that the above examples are illustrative only. The Court will be deciding fundamental issues as to the nature and inter-relationship of client money and unsecured claims and there is a wide range of possible outcomes, not all of which are illustrated above. Until the scope of those issues is clearer, the Administrators will not be making an uplift to the distribution payable to any clients whose claim has a higher value as at the PPE than at the point at which their positions were closed out.
While every reasonable effort is made to ensure that the information provided on the pages of this website concerning MF Global UK Limited (in Special Administration) and its Joint Special Administrators, MF Global Overseas Limited (in Administration), MF Global UK Services Limited (in Administration) and MF Global Finance Europe Limited (in Administration) and their respective administrators (together the "MFG UK Estate") is accurate, no guarantees for the currency or accuracy of the website or information therein are made. The pages of this website concerning the MFG UK Estate and related material (or third party information), is provided ‘as is’. It is provided without any representation or endorsement made and without warranty of any kind, whether express or implied.
Please be aware that the MFG UK Estate and KPMG LLP, hereby exclude all liability for any claim, loss, demands or damages of any kind whatsoever (whether such claims, loss, demands or damages were foreseeable, known or otherwise) arising out of or in connection with the use of this website or the information, content or materials included on this website, including without limitation, indirect or consequential loss or damage, loss of actual or anticipated profits, loss of revenue, loss of business, loss of opportunity, loss of anticipated savings, loss of goodwill or loss of reputation. Nothing in this disclaimer excludes or limits the Joint Special Administrators', the Joint Administrators' or MFG UK Estate's liability for fraud or fraudulent misrepresentation or any liability which may not be limited or excluded by law.
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This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.