MF Global UK Limited (“MFG UK”) is in special administration under The Investment Bank Special Administration Regulations 2011 (the “Special Administration Regs”) which came into force in February 2011. This is the first time a company has been placed into special administration under the Special Administration Regs.
The Special Administration Regs were introduced in an attempt to improve the process where an investment bank fails. In part, the Special Administration Regs are an attempt to learn lessons from the failure of Lehman Brothers and the administration of Lehman’s European business. In many respects a special administration is very similar to an ordinary administration. As such, it is subject to the supervision of the English High Court in London. However, some of the differences are set out below:
A) The special administrators have to pursue three objectives (although the order in which they appear is not important):
B) The special administrators may set a bar date in order to expedite the return of client assets (other than client money). Two of the main difficulties in dealing with an insolvent investment bank are: (i) identifying what securities and cash are held on trust for clients with sufficient certainty that they may safely be distributed; and (ii) how to deal with shortfalls in client assets – eg. where clients’ claims to a particular stockline exceed the amount of securities in that stockline in an omnibus account on behalf of the investment bank’s clients. The setting of a bar date enables the special administrators to distribute client assets to clients and to pass good title to those securities.
If there are insufficient securities in a particular stockline in an omnibus account to meet all valid proprietary claims to that stockline, clients will bear the shortfall pro rata and have an unsecured claim for the balance. The special administrators of MFG UK are not presently aware of the existence of any such shortfalls. As regards client money, there has been some public concern regarding the segregated cash held by the US parent of MFG UK for its clients but, so far as the special administrators are aware, this is a US issue rather than a UK issue.
As in an ordinary administration where sufficient realisations are made to enable dividends to be paid, in due course, the special administrators expect to pay dividends to unsecured creditors who submit proofs of claim by the last date for proving (which has not yet been set).
C) A creditors’ committee will be established to assist the special administrators to fulfil their functions. Membership may include both creditors and clients with proprietary claims only. A committee of between 3 and 5 members will be formed at an initial meeting of creditors to be held as soon as is reasonably practicable and, in any event (absent an order of the Court extending time), within 10 weeks of the date on which MFG UK went into special administration.
D) The costs and expenses of dealing with and distributing client assets are paid out of client assets. Other costs and expenses are paid out of the investment bank’s assets.
While every reasonable effort is made to ensure that the information provided on the pages of this website concerning MF Global UK Limited (in Special Administration) and its Joint Special Administrators, MF Global Overseas Limited (in Administration), MF Global UK Services Limited (in Administration) and MF Global Finance Europe Limited (in Administration) and their respective administrators (together the "MFG UK Estate") is accurate, no guarantees for the currency or accuracy of the website or information therein are made. The pages of this website concerning the MFG UK Estate and related material (or third party information), is provided ‘as is’. It is provided without any representation or endorsement made and without warranty of any kind, whether express or implied.
Please be aware that the MFG UK Estate and KPMG LLP, hereby exclude all liability for any claim, loss, demands or damages of any kind whatsoever (whether such claims, loss, demands or damages were foreseeable, known or otherwise) arising out of or in connection with the use of this website or the information, content or materials included on this website, including without limitation, indirect or consequential loss or damage, loss of actual or anticipated profits, loss of revenue, loss of business, loss of opportunity, loss of anticipated savings, loss of goodwill or loss of reputation. Nothing in this disclaimer excludes or limits the Joint Special Administrators', the Joint Administrators' or MFG UK Estate's liability for fraud or fraudulent misrepresentation or any liability which may not be limited or excluded by law.
The use of this website and any dispute or claim arising out of or in connection with this website (including non-contractual disputes or claims) is governed by English law and you irrevocably submit to the exclusive jurisdiction of the English courts.
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This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.