The special administrators of MF Global UK have published a six month progress report on activity to date, in accordance with statutory requirements.
Richard Heis, joint special administrator of MF Global UK and restructuring partner at KPMG, commented:
“In excess of 100 professionals from KPMG have worked closely with over 700 MF Global staff on the MF Global UK special administration over the past six months. The KPMG team is led by experienced restructuring specialists but we have also brought in forensic accountants, tax specialists, ex brokers, IT specialists and auditors to help unpick this complex case. Amongst the numerous work streams, we have liquidated 1.6m open futures and options positions and negotiated with over 100 counterparties, such as exchanges, clearing houses and banks around the world, for the return of over $2bn of segregated and non-segregated funds. Additionally, we have sold five businesses and shareholdings, generating $40m for the estate. We have also re-established connectivity with approximately 50 settlement banks and central counterparties to help us reconcile the balance sheet; book liquidation trades and send statements to 6,000 clients.
“Amongst the many tasks in hand, we are looking to progress the disputed $639m claimed by MF Global Inc in the English courts next month. Unfortunately resolving a dispute over such a large claim against the segregated pot is likely to have a material impact on our ability to make further distributions to segregated clients. However, in the meantime, we are making headway in ensuring funds are returned: working with the Financial Services Compensation Scheme has seen 250 clients receive compensation payments to date and a further 400 will be paid imminently; around 850 clients have received $90m in our first interim client money distribution and a draft distribution plan for client assets will be presented to court next month.”
Latest developments in the case:
Returning client monies/assets
- The agreement of customer balances and a protocol with the Financial Services Compensation Scheme has resulted in 250 clients receiving compensation payments, with a further 400 to be paid imminently;
- Substantial progress in tracking down information from 62 exchanges has meant that almost all 6,000 clients have now received their statements;
- The special administrators have now distributed over $90m of client monies (around 20% of the total $450m) via the first interim distribution – main delays in further distribution include ‘Know your Customer’ regulatory checks and assessing whether a client’s claim should be based on the open position as at the appointment of special administrators or their ultimate close out position (the so-called ‘Hindsight principle’);
- Court action to determine the ‘Hindsight principle’ will commence in July;
- The special administrators have returned around $10m of client assets;
- A distribution plan for the return of the remaining $75m of client assets has been drafted and will be submitted to court in July;
- The special administrators continue to chase a further £700m of non-segregated monies and assets.
- Potentially the single largest variable affecting returns to creditors is the claim received from the SIPA Trustee regarding the Eurozone sovereign bond positions – the special administrators believe this should be borne by MF Global Inc;
- The separate dispute between MF Global Inc and MF Global UK over the categorisation of $639m claimed by MF Global Inc is likely to have a material impact on the amount available for distribution to clients until it is resolved;
- The first directions hearing to determine the court timeline is scheduled for 1st June 2012;
- MF Global UK is claiming $400m from MF Global Inc. The special administrators have had limited visibility of the status of the claims to date but are aware that the SIPA Trustee has commenced his determination of the various claims;
- The special administrators have rejected a $419m claim from MF Global Finance USA Inc (in Chapter 11) as they do not consider that MF Global UK had a trading relationship with that company. MF Global Finance USA has made an appeal to the English court – the hearing is likely to be heard after August 2012.
Segregated versus non-segregated issues
- Contrary to MF Global UK’s records, some 1,200 customers claim that they should be classed as segregated clients. These disputes will take a considerable amount of time and expense to resolve and may require court determination;
- Subject to resolution of issues with MF Global Inc, the special administrators hope to provide further information on the ‘Estimated Outcome Statement’ for unsecured creditors by 30th June 2012 or shortly thereafter;
- Investigations into requests for a change of classification from non-segregated to segregated in the few days before the appointment of special administrators are underway to assess whether they were sufficient to change a customer’s contractual position.
- Following the Supreme Court judgment on Lehman on 29th February 2012, the special administrators are assessing whether any funds from MF Global UK’s house accounts can be traced for the benefit of the segregated pool. This requires complex operational and legal investigations and is likely to materially affect the special administrators’ ability to declare a dividend to the unsecured creditors.
Creditors’ committee and fees
- The special administrators have had four meetings with the creditors’ committee so far;
- The special administrators have incurred time costs of £39m (to end April 2012), representing 75,111 hours of work. They have received fees on account of £17.5m. The special administrators are in detailed discussion with the committee and it is likely that a material discount will be negotiated by the committee which will significantly reduces the costs to the estate;
- The special administrators’ fees are paid out of the unsecured funds but will be subject to certain apportionments in relation to client assets and the client money pool.
The full progress report is available at: www.kpmg.co.uk/mfglobaluk.
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For further information please contact:
Sorrelle Cooper, KPMG – + 44 20 7694 8527 / +44 7932 078218
Katy Broomhead, KPMG - +44 161 8384623 / +44 7824537963
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:
- To ensure the return of client assets as soon as is reasonably practicable;
- To ensure the timely engagement with market infrastructure bodies and the Authorities pursuant to regulation 13; and
- To either rescue the Investment Bank as a going concern or wind it up in the best interests of creditors.
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with over 11,000 partners and staff. The UK firm recorded a turnover of £1.7 billion in the year ended September 2011. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 150 countries and have 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.