MF Global Holdings Ltd. (MF)’s U.K. employees owed bonuses by the failed broker were placed behind most other creditors in the bankruptcy process and may never receive their money.
KPMG LLP, the administrator of MF Global’s U.K. unit, said cash bonuses would be treated as unsecured claims, near the bottom of the creditor pile. Unvested share awards and stock options for the unit’s 700 employees, valued at about $62 million for the year ending in March 2011, are virtually worthless with the stock trading at less than 8 cents yesterday.
“It’s most unlikely they will get anything that’s deferred such as share options, stock units or other incentives,” said Jo Keddie, an employment lawyer at law firm Winckworth Sherwood. “The directors and everybody else will suffer significant losses since administrators have very little discretion as to wages, let alone contractual bonuses and other hard-earned incentives.”
MF Global, based in New York, was the fifth-largest financial company to file for bankruptcy when it sought protection on Oct. 31 after placing losing bets on European sovereign debt. KPMG was appointed to supervise the administration of the broker’s London unit, in the first use of a U.K. regime designed to quickly unwind failing firms.
Keddie said treating bonuses as unsecured claims was standard practice for the administration of financial firms such as MF Global and Lehman Brothers Holdings Inc. (LEHMQ)
A former MF Global employee in London, who declined to be identified because of a confidentiality agreement, said he didn’t expect to find out the progress of his claim on a cash bonus for at least 18 months.
Under the U.K. Financial Services Authority’s new compensation rules, as much as 60 percent of bonus payouts for managers and senior staff must be deferred for at least three years, and half must be in shares.
Including wages, options, shares and bonuses, MF Global’s U.K. unit paid $232 million to its employees in the last fiscal year, according to accounts filed at Companies House. One U.K. director received $7 million.
KPMG said bonus claims for all employees, including those let go after the company collapsed and the 300 retained to work on the administration, would be treated the same. “Any contractual deferred bonuses that were in place prior to the appointment of the administrators rank as unsecured claims against their employing company,” it said in an e-mailed statement.
KPMG partner Richard Heis said the remaining staff had been offered a retention bonus to work with the administrators, without commenting on how much the bonuses would be.
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