A defeat in the High Court means the staggering £106 million costs of winding up failed stockbroker MF Global UK are set to increase, with the administration to potentially take seven more years to complete.
The administration of MF Global UK, led by KPMG, has now been ongoing since October 2011, with the latest administrators’ report revealing that it racked up further charges of £1.4 million over the six months to 30 April 2018, taking the total up to that eye-watering figure of £106 million.
The estimated £55 million cost of winding up failed wealth firm Beaufort Securities, which includes retained staff, office space, IT infrastructure, administrative and legal support among other things, looks a relative snip compared to what KPMG's fees are in this case.
MF Global UK (MFGUK) was the first company put into the special administration regime by the then regulator, the Financial Services Authority, after its US parent filed for bankruptcy following a failed bet on European government bonds worth $6.3 billion (£4.7 billion). At the time, the company had $41 billion in assets under management (AUM) worldwide.
The company voluntary arrangement
After an especially long and complicated process, KPMG has returned £934 million to UK investors, equating to 94% of claims, but a High Court judgement has now created a further obstacle to the conclusion of the wind up.
After six years of gruelling work, which included simplifying the estate and addressing liabilities, the administrators made a company voluntary arrangement (CVA) proposal in December 2017. If implemented, this would have given unsecured creditors the option to exit the administration in exchange for a certain final cash payment, but the proposal was rejected in court last week.
KPMG had argued that by reducing the number of creditors, there would also be cost savings, with the exiting creditors receiving a final payment of 9.75p in the £1 on allowed claims.
On the other side of the arrangement would have been participating creditors, who would be liable to fund the amount payable to exiting creditors. One of these creditors, Attestor Value Master fund, was to pay 30% of this, while the remaining 70% would be funded by it and other participating creditors.
High Court showdown
All was well until a number of unexpected claims started coming out of the woodwork in January 2018.
The German Tax Authority (GTA) made a claim for €52 million (£45.6 million), while Deutsche Bank, which was MFGUK’s custodian and paying agent, filed two claims, one of which is for potential liabilities of up to €126 million. All three were rejected by the administrators, but an appeal hearing has been set for October 2018.
This new development threw a spanner in the administrators’ CVA plan, leading to a High Court showdown between the Financial Services Compensation Scheme (FSCS), representing other clients, and Attestor.
Due to the claims by the GTA and Deutsche Bank, Attestor argued that the CVA should not proceed because
the new claims could significantly alter the economics of the arrangement, highlighting that it was taking on additional risk by agreeing to become a participating creditor.
A ‘paper tiger’
In contrast, the FSCS claimed that the CVA should proceed, insisting the Deutsche Bank claim ‘was more of a paper tiger than a real threat’. After a ruling in favour of the FSCS in the first instance, Attestor successfully appealed the decision on 6 June, with the judge throwing out the CVA plans.
KPMG said: ‘Following the termination of the CVA, the administrators will continue to wind down the estate of MF Global UK and look for ways to improve the outcome for all creditors.’
In its latest estimate, KPMG indicated that finalising the winding up of the estate can take at least another seven years. It is also still unable to confirm the timing or quantum of any future distributions.