A proposed liquidation plan for MF Global Holdings Ltd. isn’t “confirmable” because of two key provisions, U.S. Bankruptcy Judge Martin Glenn said today at a court hearing in Manhattan.
Under the plan, drawn up by banks and hedge funds including Citigroup Global Markets Inc. and Silver Point Capital LP, and revised with the MF Global parent’s trustee, the creditor group would be immune from lawsuits over their work on the case. Glenn said the release was contrary to law. He also faulted the group members’ claim to fees and expenses for themselves and their lawyers, citing an objection by the U.S. Trustee who supervises bankruptcies.
Trustee Louis Freeh, unwinding the parent of the failed brokerage formerly headed by Jon Corzine, joined the banks and hedge funds and proposed to distribute as much as 34 cents on the dollar to unsecured claimholders. While they amended the proposed plan and information document to deal with objections, including some by lender JPMorgan Chase & Co., they left other “showstoppers” intact, the judge said.
Glenn, who had provisionally set an April 5 hearing on the liquidation plan, said keeping to that schedule “would be a tougher issue for me if the proponents won’t say on the record that they’re willing to move toward confirmation without those provisions” about fees and lawsuits.
Separately, New York-based JPMorgan, the biggest U.S. bank, said it remains opposed to the proposed liquidation plan.
Bruce Bennett, a lawyer for the creditor group, told Glenn he aimed to deal with the issues in a way the judge would find “appropriate.”
By law, Freeh is entitled to fees and immunity from lawsuits because he is acting for the bankrupt company. The appointed creditor committee also gets fees.
Citigroup, Silver Point and other debtholders, representing themselves, can’t legally claim either fees or immunity from lawsuits, although judges may allow them to take fees if they make a so-called major contribution to the case. Lehman Brothers Holdings Inc. creditors who published a rebel liquidation plan got millions of dollars from the defunct investment bank.
While customers of brokerage MF Global Inc. have recouped almost all of their money, Freeh didn’t come up with a plan to pay holding company creditors until after the group of banks and hedge funds filed a rebel plan of their own on Jan. 10.
After joining the group, Freeh negotiated a revised plan and is pressing with them for court approval of the amended information document and payment scheme.
Martin Bienenstock, a lawyer for the MF Global parent’s official creditor group, told Glenn he has the power to approve fees for the banks and hedge funds, which have “accelerated” the progress of the case by nine months.
“Your honor, you can do anything you want, as long as there’s no objection,” he said.
“I don’t do that,” Glenn told Bienenstock. “I try to follow the law.” The U.S. trustee objected to the fees, Glenn said.
Glenn told Bennett he might allow some fees for negotiating the plan, although he wouldn’t approve payment for the group’s activities from the start of the October 2011 bankruptcy.
“I’m happy we’re here today and not in nine months’ time,” he said. “But I want to see you back up your claim for fees. Read the U.S. Trustee’s objection. Then we’ll see what happens.”
Bennett said he intends by the end of tomorrow to give the judge an amended disclosure statement, which must be approved before the judge can consider the liquidation plan. Glenn said he plans to continue the hearing Feb. 20.
JPMorgan, a creditor and arranger of a $1.2 billion loan to the defunct holding company, has faulted the proposed plan for its handling of liability for the loan, which obliges the holding company’s finance unit to pay not only the lenders but also the holding company that passed it the money. A change might bring creditors almost 60 cents on the dollar, instead of 34 cents, JPMorgan said in a filing.
Today, Peter Pantaleo, a lawyer for JPMorgan, told Glenn the bank needed time to try to convince the judge that the finance unit shouldn’t have to pay the same debt twice.
The plan also should be rewritten ahead of a creditor vote “to tell people this might or might not be allowed,” he said. “Now people are being told this is the plan, this is the outcome.”
JPMorgan was trying to slow the case down because it owed money to MF Global, said Bennett, who revised the rebel group’s first filing after JPMorgan said creditors should be told about the double obligation and how it cut potential payouts.
The group’s members, including Blue Mountain Timberline Ltd., Cyrus Capital Partners LP, Deutsche Bank Securities Inc. and Waterstone Capital Management LP, hold about 65 percent of certain MF Global loans and bonds, they have said.
Professional fees and expenses are eroding the assets left for MF Global creditors, according to the group’s filings. Bankruptcy lawyers and advisers have put in bills for $48.7 million, of which about $27.2 million was unpaid as of Nov. 30.
MF Global filed the eighth-largest U.S. bankruptcy on Oct. 31, 2011, after getting margin calls and bank demands for money following its investment in the debt of troubled European economies. The company, which was headed by former New Jersey Governor Corzine, listed assets of $41 billion and debt of $39.7 billion in its Chapter 11 filing.
Trustee James Giddens is separately liquidating the brokerage.
The case is In re MF Global Holdings Ltd., 11-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan).