MF Global SIPA Agreement Would Make More Than $ 800 Million Available For Creditors

by Tara Arick on January 17, 2013 · 0 comments

in Bankruptcy

- From LexisNexis® Mealey’s™ Daily Legal News.

An attorney for the Securities Investor Protection Act (SIPA) trustee in the MF Global Inc. (MFGI) Chapter 11 bankruptcy on Jan. 10 filed a declaration supporting a settlement proposed between MFGI and its U.K. affiliates of MF Global that would return more than $ 500 million in customer property to the MFGI bankruptcy estate and make in excess of $ 300 million of funds available for distribution to customer claimants (In Re: MF Global Inc., No. 11-02790, Chapter 11, S.D. N.Y. Bkcy.).

In 2011, MF Global Holdings (MFGH) filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York. MFGI, as a subsidiary of MFGH, also entered bankruptcy.

SIPA

In the wake of the bankruptcy filing, investors who had placed their money in MFGI’s accounts filed a lawsuit under SIPA. James W. Giddens was appointed the SIPA liquidation trustee.

On Jan. 10, Christopher K. Kiplok, a partner in the firm representing the SIPA liquidation trustee, filed a brief arguing that the Bankruptcy Court should approve a proposed settlement agreement between MFGI and the trustee, on the one hand, and MF Global UK Limited (MFGUK) and the MFGUK Joint Special Administrators Richard Heis, Richard Fleming and Michael Pink (the JSAs), on the other hand.

Kiplok contends that the settlement agreement allows for a prompt influx of several hundred million dollars to the MFGI estate primarily for the benefit of claimants who were MFGI’s former commodities customers who traded on foreign exchanges, known as the 30.7 claimants, as well as the satisfaction of hundreds of millions of dollars of MFGUK claims for the benefit of all classes of MFGI’s customers and creditors.

Distribution

Moreover, Kiplok argues that if approved by the Bankruptcy Court, the settlement agreement should permit significant additional distributions to customers, reduce potential demands against unallocated assets available to the general estate and resolve all material issues between the two estates.

He said the value of the disputes between MFGI and MFGUK exceeds $ 1 billion and their resolution would avoid costly and time-consuming litigation with uncertain outcomes and delays in the return of property.

Kiplok says that the SIPA liquidation trustee has also entered into a settlement agreement with Louis J. Freeh, the trustee of MFGI, the former parent of MFGUK. The agreement would resolve the claims between MFGI and MFGH, which would make it possible for the trustee to release considerable reserved amounts that were being maintained for the disputed claims of these former affiliates of MFGI.

Customer Claims

The proposed settlement, once effective, is expected to result ultimately in the return of more than $ 500 million in customer property to the MFGI estate and otherwise make in excess of $ 300 million of funds available for distribution to customer claimants through the netting and withdrawal of MFGUK’s customer claims in the MFGI liquidation, Kiplok says.

The settlement agreement would substantially increase the fund of customer property for distribution to all classes of commodities and securities customers and facilitate distribution consistent with the mandate of the statute without the uncertainty and delay of litigating disputed claims, he adds.

Kiplok of Hughes Hubbard & Reed in New York is joined by James B. Kobak and Sarah L. Cave in representing the SIPA liquidation trustee. MFGI is represented by Kenneth S. Ziman of Skadden Arps Slate Meagher & Flom in New York. MFGH is represented by Ziman, Steven J. Reisman of Curtis Mallet-Prevost Colt & Mosle in New York and Daniel J. Fetterman and Jeffrey R. Gleit of Kasowitz Benson Torres & Friedman in New York.

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