On 28 November 2011 the joint administrators of MF Global UK Limited (in special administration) issued a Notice of Intended Dividend pursuant to Rule 175 of The Investment Bank Special Administration (England and Wales) Rules 2011 (“the SAR”). The notice stated that the distribution would be made within a two month period beginning 30 April 2012.
Whilst we have made significant progress in recovering funds from banks and exchanges and in realising house assets, since that date a number of issues that impact the ability to make a dividend have arisen and these are set out below:
- The Supreme Court ruled in Lehman Brothers International Europe v CRC Credit Fund Limited & Others that client money pooling arrangements apply to client money in house accounts as well as in segregated accounts. This has created uncertainty as to what money is to be treated as being part of the client money pool and, therefore, as to the value of assets that constitute the unsecured estate. The tracing exercise to validate the assets is complex, is likely to require the input of the Court to establish legal principles, and we continue to work towards a resolution.
- In addition, the same ruling held that participation in the client money pool is not dependent on the segregation of client money. This has created uncertainty as to which claimants are entitled to participate in the client money pool and, therefore, which claims fall to be paid from the general estate. This impacts the value of claimants against the estate that we would need to consider in calculating the interim distribution. There are a number of legal principles to establish in relation to determining the segregated status of certain claimants. Court direction may be required before we can finalise this issue.
- The Trustee of MF Global Finance USA Inc has submitted a claim for a net amount of $418m (approximately £259m), which the joint administrators have rejected. The Trustee has appealed our decision to reject the claim. He has also sought to argue it is a trust claim. As a result of the appeal we are now required to obtain the court's permission if we are to proceed with making a distribution.
In calculating an interim dividend, we would need to make adequate provision for all the issues set out above and we would need permission from the court to declare the dividend. Pending resolution of: (a) the complex issues surrounding the classification of assets between client and house, and the classification of claims between client and the general estate; and (b) the MF Global Finance USA Inc appeal, it is impractical to make any payments at this stage. Accordingly, the joint administrators do not intend to seek the court’s permission at this time and have taken the decision to postpone the dividend pursuant to SAR 177(1) and 177(2) until such time as these issues have been resolved.
Further announcements will be made as work progresses.