MF Global U.K. Repo Dispute With U.S. May Delay Creditor Payouts
Payments to creditors of the U.K. arm of MF Global Holdings Ltd. (MFGLQ) scheduled for next month may be delayed because of a legal dispute over repurchase agreements between the British and American units of the failed broker.
Louis Freeh, the bankruptcy trustee of parent company MF Global Holdings Ltd., filed a lawsuit in London saying U.K. administrators KPMG LLP wrongly rejected his claim for the repurchase agreements, often referred to as Repos. Freeh’s rejected claim was for several hundred million dollars, according to two people with knowledge of the matter, who declined to comment because the filing isn’t public.
The lawsuit means KPMG can’t make a distribution to creditors under U.K. insolvency rules without a court order, the firm said in a statement. An interim dividend to creditors had been scheduled for June 30.
“No one wants to delay distributions to creditors,” Freeh, who is the trustee for six MF Global entities, said in an e-mailed statement. “I have received very few details from my administrative counterparts -- none of which categorically refute the claim.”
KPMG said in a statement Freeh’s lawsuit was “unhelpful.” While the administrators retain an “open mind” about an interim distribution to creditors, the trustee’s appeal may cause delays.
Disputes between MF Global’s U.K. administrators and the various trustees of the U.S. entities have tied up about $1 billion that can’t be returned to clients or creditors until courts decide to whom it belongs.
“The administrators are unable to declare a dividend while any application by a creditor to challenge the rejection of their claim is outstanding,” without a court’s permission, said Linton Bloomberg, a lawyer at Weil Gotshal & Manges LLP in London who is advising KPMG.
James Giddens, another trustee who is winding up MF Global’s New York-based brokerage unit MF Global Inc., is suing KPMG over $700 million in customer funds held in London which he says should have been protected and belongs to American clients. That suit means KPMG has only been able to return to clients about 26 percent of what it recovered from their accounts.
MF Global Holdings filed the eighth-largest U.S. bankruptcy on Oct. 31 after getting margin calls and bank demands for money at its brokerage unit.
Creditors of its U.K. unit include customers without protected or “segregated” accounts, its employees and banks including JPMorgan Chase & Co. (JPM), according to a list published by KPMG.
Repurchase agreements are a financing mechanism that allows borrowers to sell securities and buy them back at a later date.
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