MF Global administrators agree deal that could increase creditors’ return

KPMG ADMINISTRATORS to MF Global have reached a deal with the US arm of the collapsed investment bank, which will allow for a quicker and increased return to creditors.

MF Global collapsed on 31 October 2011, with KPMG partners Richard Fleming, Richard Heis (pictured) and Mike Pink appointed joint special administrators.

The administrators announced in July last year they would have to delay payment to creditors due to its appeal against a payment that had arisen due to litigation action from its US arm, MF Global Finance USA Inc.

It has now been revealed the administrators have reached an agreement with the US arm as well as another institution, which will allow UK creditors to receive payment quicker than previously anticipated.

However, the agreement is dependent on three factors: US Bankruptcy Court approval, with a hearing expected on 31 January; the withdrawal of the US entity MF Global Finance USA’s claim; and a withdrawal of a claim on the UK from another financial institution.

Previously, the US arm wanted $639m (£397m) to be repaid in full as a secured creditor. In the negotiated deal, the UK administrators have arranged to reduce the secured creditor amount to $196m, with the remaining balance added to the unsecured creditor pot – which is likely to see between 26% and 60% of the debt in that pot repaid.

Administrators are waiting for a financial institution, which Accountancy Age understands to be JP Morgan, to drop its claim and return funds to MF Global UK.

The collapsed bank held funds in various financial institutions and never had a physical bank of its own. JP Morgan declined to return funds it was holding until its own claim against MF Global was fulfilled, it is understood.

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. 

Heis said: “On the basis that the conditions of the agreements made between MF Global UK and the MF Global US entities can be met, we expect to be able to increase payments to clients (customers with segregated accounts) from 26 cents to around 60 cents in the $1. The settlement of the litigation from the US entities also means we expect to be able to make an initial distribution of around 20p in the £1 to unsecured creditors [the segregated creditor pot is denominated in dollars].

“The US agreements, if the conditions are met, will remove some of the larger obstacles to returning funds to customers; this will allow payment of the distributions set out today and pave the way for further distributions from both pools over the course of the year.”

No indication has been given of when the agreements will become effective. However, an updated financial outcome statement will be published by the administrators after the US Bankruptcy Court hearing at the end of January. 

It is expected between $3.1bn and $3.2bn will be recovered, but there are between $3bn and $3.3bn in claims against this amount from creditors.