MF Global UK Limited
Update from the Special Administrators
Court Hearing 3 February 2012
As part of the process of making a distribution of client monies to eligible claimants, the Special Administrators will be reporting to the Court (the Honourable Mr Justice David Richards) as to the background to, and progress of, the special administration on Friday, 3 February 2012. In advance of the hearing, a formal written Report was this morning provided to the Court which, amongst other things, informed the Court of the Administrators’ intention to make an interim distribution of client money. The Report, parts of which are likely to be referred to during the hearing, is available to be downloaded below.
The precise time at which the hearing will take place will be available from approximately 2pm today on justice.gov.uk.
The Special Administrators intend to make a first interim distribution of 26 cents for each dollar of agreed claim. Based on the modelling by the Special Administrators this is the maximum that can be distributed at this stage. The principal reasons for the percentage being significantly lower than the client monies collected are as follows:
- Where there is doubt as to a particular outcome the Special Administrators need to reserve for all eventualities to ensure an ultimate pro rata distribution.
- There is continued uncertainty as to who is entitled to claim a share of the Client Money Pool (“CMP”). This is likely to be substantially resolved by the Lehman appeal which will be handed down by the Supreme Court in due course.
- Many creditors are claiming that their funds should have been segregated, even though they were not. The most significant example of this is $838 million of claims submitted by MF Global Inc. If it were not necessary to provide for this the calculated interim distribution percentage would be 42 rather than 26.
- Certain other provisions and reserves have been made and they are described in the court papers posted on the website.
A summary of the model output (PDF 22 KB) is available, together with an explanatory commentary (PDF 44 KB).
Given these legal uncertainties one approach would be simply to refrain from making any distribution from the CMP pending resolution of the legal points. The Special Administrators do not consider this to be in the best interests of clients. We have therefore worked through the uncertainties with our legal advisers and as far as possible quantified them so that we can get money back to clients at the earliest opportunity.
To the extent that, as a result of the forthcoming Lehman judgement or for other reasons, it is possible to write back reserves within the model, that will allow us to make further distributions.
How do I participate in the distribution?
1) Where it is possible to do so, your statement will be sent to you over the next few days, with a letter (which includes an indemnity) that we would like you to sign.
2) After receipt of the letter by us and in the absence of any issues arising from it, the Special Administrators will make the payment at the rate of 26 cent in the dollar to your designated bank account.
Many exchanges have still not provided final close out information. For customers trading on those exchanges it will not be possible to provide an accurate statement at this time. MFG UK’s systems have been adapted to deal with the distribution process, but it is not a process they were designed for and there are inevitable delays and limitations. Therefore many eligible claimants will not receive a distribution at the start of the process. As these issues are resolved we will make payments as and when we can, on an individual basis.
The Special Administrators continue to work through claims for entitlement to the client money pool from customers that had not been afforded client money protection by the company as at 31 October 2011. The ultimate classification of any entitlement to the client money pool by such entities cannot be determined until the Supreme Court has ruled on the Lehmans case. In any event therefore such entities will not be the recipient of any interim distribution of client monies made prior to such ruling.