The recoveries comprise predominantly cash balances held with banks; amounts due to MF Global UK following termination of positions by counterparties, exchanges and clearing houses and the proceeds of liquidated collateral and house securities.
The special administrators of MF Global UK have today confirmed that they have now recovered over $1bn of non-segregated funds. The recoveries comprise predominantly cash balances held with banks; amounts due to MF Global UK following termination of positions by counterparties, exchanges and clearing houses and the proceeds of liquidated collateral and house securities.
Richard Heis, joint special administrator of MF Global UK and restructuring partner at KPMG, commented: “Recovering over $1bn of unsecured funds marks an important milestone in the special administration. We are continuing to work with the counterparties and institutions holding the remaining non-segregated assets to ensure their return as soon as possible. We are chasing a further $0.7bn of non-segregated monies and assets, 90% of which are held by four financial institutions. Additionally, we are pursuing in excess of $300m from MF Global affiliates; the vast majority of which is owed by MF Global Inc.”
The special administrators have now recovered almost $1bn of segregated funds, with the remaining $140m constituting claims against affiliates, where again the principal debtor is MF Global Inc. It is important to note that the recent Supreme Court judgment on Lehman, and the definition of client segregated status, has determined that unsegregated funds can be “traced” into the segregated pool.
Heis added: “Not only do we have the persistent issue of distinguishing the segregated or non-segregated status of around 1,200 clients plus the MF Global Inc claim - which limits the extent of payouts to both clients and unsecured creditors - we also have the issue of ascertaining exactly which unsecured funds should be “traced” and used to supplement the segregated pool. To the extent tracing is possible, it will have the effect of increasing the ultimate dividend made to the client money claimants at the expense of the unsecured creditors. This may affect the amount and timing of dividend payments to unsecured creditors although, as with the client money pool, we will seek to model the various contingencies so that a dividend can be paid if to do so does not run the risk of overpayment.”
As stated in the special administrators’ previous update, it is likely that further court guidance will be required on the issue of tracing assets and monies and adding them to the segregated pool. This could involve a forensic review of MF Global UK’s 250 non-segregated bank accounts. As this issue affects both Lehman and MF Global UK, the special administrators will liaise with the Lehman administrators with the aim of mitigating the costs of this exercise and to maximise efficiency across both cases.
The special administrators have paid out 26c in the $1 to agreed segregated client claims from the segregated pool. There is unlikely to be an additional pay out from the segregated pool until the validity of claims against it – such as the MF Global Inc $700m claim – is known.
The special administrators will publish the next creditors’ report at the end of May.
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Notes to Editors:
Richard Fleming, Richard Heis and Mike Pink of KPMG LLP were appointed joint special administrators of MF Global UK Limited, a UK based broker-dealer business, and MF Global UK Services Limited, which provides employee and pension services in relation to the UK operations, at 5pm on Monday 31st October 2011. MF Global UK Limited is a wholly owned subsidiary of MF Global Europe Limited which in turn is a subsidiary of MF Global Holdings Limited, a company incorporated in Delaware, USA, which filed for chapter 11 bankruptcy protection on 31st October.
The objectives of the administration are:
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with nearly 11,000 partners and staff. The UK firm recorded a turnover of £1.6 billion in the year ended September 2010. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 150 countries and have more than 138,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.
Richard Fleming, Richard Heis and Mike Pink of KPMG LLP were appointed as the "Joint Special Administrators" of MF Global UK Limited following an application to the High Court in London by the directors of MF Global UK Limited on Monday 31 October 2011.
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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.