NEW YORK, April 6 — MF Global yesterday won court approval of a plan to liquidate its assets, pay back creditors and end the US$40 billion (RM120 million) bankruptcy that rocked the financial world in 2011.
The commodities brokerage, run by former New Jersey Governor Jon Corzine, collapsed after investors were spooked by its exposure to about US$6.3 billion in European sovereign debt.
The approval marked a major step in ending the massive Chapter 11 filing, as MF Global is now able to implement the plan and pay creditors.
Judge Martin Glenn approved the plan at a hearing in US Bankruptcy Court in Manhattan, after noting the “long road” to confirmation.
“While there have been some very strongly held views and differences, counsel have worked exceedingly well together to resolve most of them, limiting what the court had to decide,” Glenn said.
The case became a political firestorm after it was discovered that about US$1.6 billion was missing from the accounts of the broker’s commodities trader customers. Regulators later determined that MF Global had misappropriated the customer money to cover liquidity gaps as it faltered.
Rare appearance by Freeh
Louis Freeh, the trustee liquidating MF Global’s estate, made a rare public appearance at yesterday’s court hearing, providing some reassurance to customers.
“I do firmly believe the customers in this case will be made whole,” said Freeh, the former FBI director.
Most customers have already been reimbursed for about 93 per cent of the value of their accounts.
While Corzine has not faced criminal charges, he and several other MF Global officials have been ordered to testify at numerous congressional hearings. Also, congressional committees, the FBI and the Securities & Exchange Commission have launched investigations into the source of missing customer money.
No criminal charges have been filed in connection with the case, and Corzine has denied wrongdoing.
Regulators have placed some of the blame for the company’s downfall on Corzine.
On Thursday, Freeh released a report pointing to his negligence, citing “the risky business strategy engineered and executed by Corzine and other officers and their failure to improve the company’s inadequate systems.”
The report came several months after a similar account from James Giddens, the trustee working to recover money for the broker-dealer’s trader customers, which concluded that Corzine mismanaged the firm’s growth.
Corzine is facing civil lawsuits from Giddens and former customers.
The plan approved by Glenn yesterday lays out how MF Global will pay back corporate creditors like lenders and bondholders.
JPMorgan Chase & Co, agent on a US$1.2 billion revolving credit facility, is a key player. Last month, the bank reached a settlement with Freeh under which MF Global agreed to subordinate part of its intercompany claim against its finance unit as a means of increasing JPMorgan’s projected recovery.
The deal avoided an objection from JPMorgan that could have been a hurdle in the plan’s confirmation, raising the bank’s payout forecast to as much as 76 per cent of its total claim, from 73 per cent previously.
But the settlement meant less of a payout for unsecured creditors of MF Global’s finance unit, who will see their maximum recovery dip to 34.4 cents on the dollar from 39 cents previously.
Unsecured creditors of MF’s parent entity have a maximum projected recovery of roughly 34 per cent of claims.
The company’s creditor payout plan was proposed earlier this year by a group of its hedge fund creditors, led by Silver Point, Knighthead and Cyrus. Freeh cooperated with the hedge funds on later drafts of the plan.
Going into yesterday’s hearing, the plan faced objections from the US Trustee Programme, the Department of Justice’s bankruptcy watchdog, as well as from Preet Bharara, the US Attorney for the Southern District of New York.
Both parties were concerned about language in the plan that released third parties from certain legal claims.
The objections were withdrawn after MF Global agreed to add language narrowing the releases. Specifically, the releases must not hinder the “government’s criminal, police and regulatory powers,” Judge Glenn ordered.
The US Trustee also raised concerns about MF Global’s proposal to use part of the proceeds of the plan to pay the legal fees of the hedge funds creditors who first proposed it. Glenn deferred judgment on that point.
An additional change negotiated by MF Global and its creditors will raise the amount of financing to fund MF Global’s wind-down to US$80 million from US$70 million.
The case is In re MF Global Holdings Ltd, US Bankruptcy Court, Southern District of New York, No. 11-15059. — Reuters