This update highlights developments in the administration of MF Global UK (“MFG”) since our last alert dated 15 June 2012.

Estimated outcomes

The Special Administrators (“SAs”) of MFG have provided a financial outcome range of potential returns for the combined estates of clients and creditors of MFG (i.e. those with client money/client asset claims as well as unsecured creditors). The SAs estimate that between $2.8 billion and $3.2 billion will be available to meet estimated claims of between $3 billion and $3.9 billion. The best-case scenario is therefore that all claimants will be paid in full.

Ongoing litigation between MFG and its US affiliates, MF Global Inc and MFG Finance USA Inc (see below), are among the most significant factors affecting the estimates.

Client Money

As at 31 August 2012, the SAs had paid out $159.5 million in client money distributions to over 2,000 clients with agreed client money claims. However, a further 1,572 client money claimants have not had their claims agreed. Such claims will need to be agreed before distributions can be made to these clients. The valuation of client money claims is partly dependent on the SAs’ Hindsight Application (see below).

The SAs also need to establish the extent to which the recent Supreme Court ruling on Lehman Brothers will mean that funds currently in MFG’s unsecured pool (in its house accounts) could be subject to tracing for the benefit of the client money pool.

Unsecured creditors

The SAs had thought that they would be able to make an interim distribution to unsecured creditors by 30 June 2012. However, this has been delayed by the ongoing litigation such as the RTM Application (see below). The Hindsight Application is also delaying an interim distribution to unsecured creditors because any increase in the client money asset pool may decrease the general asset pool available to unsecured creditors.

Client Assets

Client Assets must be returned in accordance with a Distribution Plan approved by the Court on 18 July 2012. The Distribution Plan sets out how and when the SAs intend to return the available client assets to creditors. If there is a shortfall of such assets, creditors may submit an unsecured claim for that shortfall.

The SAs have begun the return of £54 million to claimants with Accepted Client Asset Claims in accordance with the Distribution Plan. Where client asset claims have been accepted by the SAs, clients should have received a Claimant Option Form. The Claimant Option Form will need to be completed and returned, indicating how clients would like their assets returned and how payment of any applicable costs will be settled.

Some client assets remain outside the SAs’ control (e.g. at MF Global Inc) and the SAs are negotiating with the MFG Global Inc Trustee for their return. MF Global Inc are also claiming segregated status for assets held at MFG (see the 30.7 Application below).

Disputed claims

The SAs have now determined the status of approximately 500 of the 1,300 disputed client money and client asset claims. In the vast majority of cases, the SAs have held to their existing views on the basis of information available in the company’s books and records. Where claimants provide additional evidence, the SAs are aiming to determine the status of claims by 30 September 2012.

Ongoing litigation

Hindsight Application

The SAs have applied to the High Court seeking directions on the appropriate valuation of client money claims; in particular whether they should be based on their value at the time of appointment of the SAs on 31 October 2011 or the client’s ultimate close-out positions. A substantive hearing has been set for 29-31 October 2012.

RTM Application

The SAs have made an application to the High Court seeking directions in relation to a claim by MF Global Inc arising from certain repo-to-maturity (“RTM”) transactions. These transactions concern the repo of European Debt securities by MF Global Inc to MFG, and were governed by a Global Master Repurchase Agreement, providing for the net amount payable by one party upon termination to be determined by the non-defaulting party. Both MF Global Inc and MFG consider themselves to be the non-defaulting party. A substantive hearing of this dispute is set for 22-24 October 2012.

The 30.7 Application

This relates to $639m held by MFG for clients of MF Global Inc. Under CFTC Rule 30.7, MFG agreed to secure these assets, but the SAs have not accepted that they were segregated as client assets or client money. The substantive hearing has been set for 9-27 April 2013.

MF Global Finance USA Inc (“MFGF USA”) Application

The SAs have rejected a $419m claim from MFGF USA (which is in Chapter 11 administration) as they do not consider that MFG had a trading relationship with that company. MFGF USA has appealed against that rejection to the English Court, and the next directions hearing is set for 3-5 December 2012, but no date has yet been set for a substantive hearing.

Further guidance can be sought from the SAs’ website by clicking here.