By Mani. Originally published at ValueWalk.
A judge in MF Global’s bankruptcy on Wednesday set the stage for nearly 100% recoveries for creditors, an outcome considered unthinkable when the firm collapsed less than four years ago.
Judge Martin Glenn of U.S. Bankruptcy Court in Manhattan, who approved the sale of MF Global’s brokerage litigation to its parent said the measure marked a “significant accomplishment” in the case.
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MF Global Inc’s liquidation is essentially complete
As reported by ValueWalk, MF Global petitioned for bankruptcy protection over three years ago, after its bad bets on European sovereign debt became public. Investigators later concluded there was a $1.6 billion shortfall in customer accounts that were supposed to be segregated from MF Global’s funds.
Though sufficient funds have been recovered to meet all valid customer claims, it was generally believed the creditors of the MF Global Inc. brokerage and its parent would never get all of their money back.
However, in an unexpected development, Judge Martin Glenn approved the brokerage’s request to hand pending litigation against former Chief Executive Jon S. Corzine and other company lenders to its parent company. This has paved the way for nearly full recoveries for creditors.
Earlier Corzine and others denied wrongdoing for the firm’s implosion and agreed to pay $64.5 million to settle similar litigation brought by investors.
On Wednesday, James W. Giddens, Trustee for the liquidation of MF Global, received approval from Judge Martin Glenn, to make a final, cumulative 95% distribution on all non-affiliate, non-subordinated, allowed general unsecured creditor claims.
In his statement, James Giddens called the recoveries for creditors “unimaginable”. He said: “The liquidation of MF Global Inc. is now essentially complete”.
MF Global’s parent company to forego right to collect claim
Reacting to the latest verdict, Hughes Hubbard & Reed LLP’s James B. Kobak Jr., a lawyer for James W. Giddens said: “No one could imagine recoveries like these at the outset of the case." He said the case underscored the mettle of the 1970 Securities Investor Protection Act, which governs the liquidation of failed brokerages like MF Global.
As part of acquiring the brokerage’s assets, including the pending litigation, MF Global’s parent company will forego its right to collect on the $1.16 billion unsecured claim it brought against the brokerage. The parent company’s foregoing the claim would free up cash that will facilitate the brokerage to ultimately repay its other unsecured creditors’ claims.
Once the final unsecured creditors’ distribution gets completed, the Trustee for the liquidation of MF Global Inc. will have distributed over $8.1 billion to MFGI customers and creditors including approximately $6.9 billion to cover 100% of allowed claims from customers.
Interestingly, the creditors receiving MF Global brokerage’s anticipated 95% payoff are likely getting much more than the recoveries for creditors of the parent company, who probably won’t get anywhere near all of their money back.
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