KPMG ADMINISTRATORS to MF Global have doubled the amount unsecured creditors can expect to get back following a deal with the US arm of the collapsed investment bank.
It was previously expected that unsecured creditors would receive an initial distribution of about 20p for every pound owed, however, an updated estimated outcome for creditors reveals that figure is likely to be 40p for every pound.
Richard Heis, the KPMG partner appointed as joint special administrator alongside Richard Fleming and Mike Pink following the bank’s collapse in October 2011, said: “We are pleased to be able to announce further improvements in anticipated distributions to MF Global UK‘s customers, in particular a potential increase in the first interim distribution to unsecured creditors. This increase has largely resulted from further progress made by the joint administrators in agreeing client claims.”
Creditors were told last July they would have to wait for any funds to be distributed pending the outcome of a legal dispute between the bank’s US and UK units over ownership of MF Global’s assets.The US arm wanted $639m (£397m) to be repaid in full by MF Global UK as a secured creditor – meaning they are likely to recieve the full amount.
In early January, the administrators were able to negotiate a deal whereby the secured creditor amount would be reduced to $196m, with the remaining balance added to the unsecured creditor pot – of which between 26% and 60% is likely to be repaid.
The deal was subject to US Bankruptcy Court approval which has now been obtained.
The creditor repayment estimates are based on the US arm following through with its deal and the withdrawal of a claim from another financial institution, which Accountancy Age understands to be JP Morgan.
Accountancy Age understands that the JP Morgan dispute is with the US arm and not the UK. Administrators received $175m and are willing to hand it over to either the US arm or JP Morgan. However, the two entities must resolve among themselves which will receive the funds.
The special administrators aim to make the payments to clients and creditors shortly after the conditions are satisfied and the settlement agreements become effective. However, they could not provide a timing of when the agreements will become effective.
KPMG administrators were appointed to MF Global, the first special administration regime (SAR) which was created in February 2011 following the collapse of Lehman Brothers.
The SAR process entails the administrators completing three tasks: making a swift return of client assets; timely engagement with authorities; and to rescue the business as a going concern, or to wind it up in the best interests of the creditors. A regular administration involves the latter, but not the first two objectives.
SARs were brought about to help creditors caught up in complex insolvencies receive their funds quicker. The collapse of investment bank Lehman Brothers at the back end of 2008 saw its administrators tied up in heavy litigation resulting in some creditors waiting years before they received any payment.
The fast-track move is a bold departure from the norm, as a probe would normally only begin several months after administrators had finished their own enquiries
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