Update regarding conditional settlement agreements (16 August 2013)
The Administrators are pleased to announce that the conditions relating to the conditional settlement agreements with MF Global Inc and MF Global Holdings Limited have now been satisfied and that the settlement agreements are now effective.
As a result, as set out in the Illustrative Financial Outcome statement dated 5 August 2013, the Administrators intend to declare the following dividends early next week and begin to make payments in relation thereto from 22 August 2013:
Additionally, in relation to Client Assets, as a result of the settlement agreements becoming unconditional and certain assets which are now in the process of being returned by MFGI to MFGUK, the Administrators anticipate that the Shared Cost Percentage (as defined in the Distribution Plan), will decrease from 6.74% to 1.554%. As a result, claimants who have already received a distribution of their client assets will be entitled to receive a rebate in respect of the costs that they have already paid. Please refer to the section of the website entitled “Client Asset Distribution Plan” for further information in relation to the anticipated rebate.
On July 3, 2013, District Court Judge Victor Marrero and Bankruptcy Court Judge Martin Glenn, sitting jointly, granted the Customer Representatives’ motion for final approval of the JPMorgan Settlement and the SIPA trustee’s 9019 motion, respectively.
The appeal period for Judge Marrero's order in the District Court is 30 days. Parties also have fourteen days to object to Judge Glenn's order in the Bankruptcy Court, in each case running from the date of entry of the order, which we expect on Monday, July 8.
We will provide a further update once the respective appeal periods have run, on or around August 7, 2013.
Further to the update provided on 21.03.2013, regarding the expected US court approval timetable relating to the agreements reached between MFGI and JP Morgan Chase, and the SIPA Trustee and the class action representatives, the Administrators have been made aware of a slight change in the timetable.
The US Bankruptcy Court hearing that was scheduled to be held on 10 April has been adjourned to a date which is expected to be on or around the scheduled date for the US District Court hearing which is 3 July.
Given that date of the scheduled US District Court hearing has not been changed, the Administrators do not expect that the change will materially impact the dates that the JP Morgan Chase settlement becomes effective, the date that the conditional settlement agreements with MF Global Inc and MF Global Holdings Limited become effective or the timing of any first interim unsecured distribution or any top-up distribution to the segregated client money claimants.
Further announcements on this matter will follow if the expected timings materially change.
Update regarding conditional settlement agreements
On 22 December 2012, the Administrators announced the signature of conditional settlement agreements with MF Global Inc (“MFGI”) and MF Global Holdings Limited (“Holdings”). As stated in that announcement, certain conditions need to be satisfied before the settlement agreements become unconditional.
The conditions were:
Although the Administrators and JP Morgan Chase have reached agreement on the terms of a settlement and release, JP Morgan Chase has advised the Administrators that its agreement to such settlement and release is subject to the resolution of certain claims asserted against JP Morgan Chase in connection with MFGI’s SIPA proceeding, as well as a class action proceeding brought in the United States District Court on behalf of certain customers of MFGI.
Late on 19 March 2013, the SIPA Trustee of MFGI announced that JP Morgan Chase, the SIPA Trustee and the class action representatives have reached an agreement that, subject to being approved by the United States Bankruptcy and District Courts, would resolve those claims (http://dm.epiq11.com/MFG/Project). Once that agreement becomes effective, the Administrators expect to enter into the negotiated settlement and release with JP Morgan Chase. This will then lead to MFG UK’s settlement agreements with MFGI and Holdings becoming unconditional.
The Administrators understand that the Bankruptcy Court is expected to hold a hearing to consider approval of the MFGI settlement with JP Morgan Chase on 10 April 2013, and that 1 July 2013 is the date proposed by the parties to the US District Court for its hearing to consider final approval of the class action settlement with JP Morgan Chase. Assuming no appeals from any orders approving these settlements, the Administrators expect these JP Morgan Chase settlements to become effective on or about 1 August 2013.
MFG UK and MFGI have agreed in principle to extend the stay of the legal proceedings between them to early August to accommodate the approval of the JP Morgan Chase settlements, with the intention that the settlement agreements will become unconditional after JP Morgan Chase has obtained US District Court approval for its class action settlement and the relevant appeal period has expired.
How will this affect the timing of distributions to unsecured creditors and client money claimants?
Although the payment of a first interim unsecured distribution and any top-up distribution to the segregated client money claimants cannot be made until the settlement is unconditional, the time will be used by the Administrators to pursue further asset realisations and to finalise and agree further claims. Therefore, the Administrators’ goal is to be in a position to announce and commence payments shortly after the settlement agreements become unconditional, and the Administrators anticipate the settlement agreements becoming unconditional on or shortly after 1 August 2013.
Further announcements on this matter will follow once the US Bankruptcy Court hearing has been concluded.
James W. Giddens, Trustee for the Securities Investor Protection Act (SIPA) liquidation of MF Global Inc. (MFGI), and Richard Heis, a Joint Administrator of MF Global UK Ltd. (MFGUK), today jointly announced that they have reached an agreement to resolve all claims between the two entities, including the 30.7 client assets and repo to maturity valuation disputes currently before the High Court of England. Mr. Giddens has filed a motion with the United States Bankruptcy Court for the Southern District of New York, the Honorable Judge Martin Glenn presiding, seeking entry of an order approving the agreement.
Simultaneously, Mr. Giddens and the Chapter 11 Trustee for MF Global Holdings Ltd., et al, (MFGH), Louis J. Freeh, have agreed to resolve all claims between their respective estates. Further, MFGH and MFGUK have agreed to resolve the claims between their respective estates and the litigation commenced by MFGH against MFGUK, subject to the satisfaction of certain conditions.
Combined, the agreements are expected to benefit customers and creditors of the primary MF Global insolvency estates worldwide: MF Global Inc., MF Global UK Ltd. and MF Global Holdings Ltd. The agreements, which are subject to certain conditions being satisfied before they become effective, put in place the key conditions needed for these estates to make significant distributions by avoiding lengthy and costly litigation, providing additional certainty on the total value of claims against the estates and reducing required reserves held against such claims.
"These agreements are in the best interests of former customers and other creditors and allow us to request court approval for significant additional distributions for securities and commodities customers," said Giddens. "Resolving complex issues with these entities marks a critical milestone in administering the MF Global Inc. estate. The agreements could not have come about without cooperation from all parties and the involvement of the Securities Investor Protection Corporation, the Commodity Futures Trading Commission and the Securities and Exchange Commission. We are now focused on court approval, satisfying the conditions to the agreements and making additional distributions."
"Our agreement with MF Global Inc. will clear important obstacles and allow us to significantly reduce reserves that have blocked us from additional distributions to the former customers and creditors of MF Global UK," Heis said. "Mainly as a result of litigation, we have been able to distribute only some 10 percent of the approximately US$2.5 billion that we have collected. This settlement, if concluded, will allow a major escalation in this, and we will move quickly to get money in agreed claimants' pockets at the earliest opportunity."
MF Global Inc. and MF Global UK Ltd. Agreement
As a result of the agreement between MFGI and MFGUK, it is estimated that between US$500 million and US$600 million would be ultimately returned to the MFGI estate, depending on final payout rates from the MFGUK client money and general creditor estates. Mr. Giddens anticipates the possibility of 100 percent satisfaction of allowed securities customers' claims and significant additional distributions to commodities customers who traded on US exchanges (4d funds) and commodities customers who traded on non-US exchanges (30.7 funds). Mr. Giddens has filed an application for additional distributions with the Bankruptcy Court.
The Joint Special Administrators will early in January produce a further updated estimated outcome statement showing the projected position of MFGUK post-settlement and an estimate of the increase in the client money distribution percentage and the amount of an initial dividend. The Joint Special Administrators will seek to pay as soon as possible after the settlement becomes effective.
The Joint Special Administrators approached Mr. Giddens and his team with substantial relevant information developed by KPMG and the management and staff of MFGUK concerning the financial position of the MFGUK estate. This allowed Mr. Giddens to conduct a detailed review, which determined there is reasonable basis for the projected payments from MFGUK to MFGI, although the ultimate amounts recovered are not guaranteed.
The parties are grateful for the cross-border cooperation between the staffs of Mr. Giddens and the Joint Special Administrators at KPMG. The Joint Special Administrators also have welcomed the assistance the Financial Services Authority has provided throughout the special administration.
All currently pending litigation between MFGI and MFGUK will be temporarily suspended to allow for completion of the agreement. The agreement is not an admission of liability in relation to 30.7 issues before the High Court of England, or any comment upon the merits of the 30.7 litigation or the legal issues that arise in relation to it or in relation to the effect of Rule 30.7 of the United States Commodity Futures Trading Commission.
Conditions that must be completed before the agreement becomes effective include the Bankruptcy Court making an order that (i) approves the settlement, (ii) prohibits MFGI 30.7 customers from making or continuing claims against MFGUK that are duplicative of claims made by MFGI, and (iii) requires 30.7 customers with allowed claims with a value of greater than $12,000 to give a release in favor of MFGUK in respect of any duplicative claims as a condition to receiving further payment from MFGI. The agreement is also conditional upon MFGH withdrawing its litigation against MFGUK.
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Media Contacts for MF Global Inc.:
Kent Jarrell (US)
T: 202 230 1833
James Acheson-Gray (UK)
T: +44 772 520 6970
Media Contacts for MF Global UK Ltd.:
T: +44 7920 274856
T: +44 7785 337672
Media Contact for MF Global Holdings Ltd.:
T: 212 896 1249
KPMG Press Office: 020 7694 8773
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with nearly 11,000 partners and staff. The UK firm recorded a turnover of £1.6 billion in the year ended September 2010. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 150 countries and have more than 138,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.
Richard Fleming, Richard Heis and Mike Pink of KPMG LLP were appointed as the "Joint Special Administrators" of MF Global UK Limited following an application to the High Court in London by the directors of MF Global UK Limited on Monday 31 October 2011.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.