Court limits claims by MF Global clients against general estate

Weil Gotshal & Manges has led a successful application to the High Court to clarify the right of clients of MF Global UK to claim money from the general estate of the collapsed broker.

On Friday (16 August) Mr Justice David Richards ruled in favour of the bulk of the client money shortfall application, made by MF Global’s administrators. He found that MF Global clients can only claim against the general estate of the broker for contractual claims which have not been paid and are not expected to be paid from the client money pool. 

The application was made because the MF Global UK client money pool holds around $1bn, but client money claims are expected to be in excess of that amount. The administrators, who instructed Weil when MF Global collapsed in late 2011 (1 November 2011), wanted the High Court to determine whether clients can also make unsecured claims against the general estate and how those claims should be calculated.

A pair of representative respondents were attached to the application, represented by Simmons & Simmons and Dentons.

In addition to the main issue, the application also asked whether clients could claim against the general estate for any difference between the value of their claims against the client money pool, and the amount expected to be recovered from the pool.

Richards J ruled that clients can make such claims if they arise from a failure by MF Global to comply with the provisions of chapter 7 of the FSA’s Client Assets Sourcebook (known as CASS 7), but only if and to the extent that, when added to a client’s expected recoveries from the client money pool, that claim would exceed the value of the client’s contractual claim. Clients will accordingly be unable to claim in full against both estates.

However on a third issue Richard J found in favour of ‘decreased clients’ – those whose net open positions when MF Global went into liquidation closed with a liquidation value of less than their market value. He said that MF Global had defaulted in its obligation to maintain client money at the required level, and therefore clients had suffered an actual loss and there was “a clear case for equitable compensation”.

The news follows a settlement between the UK and US estates of MF Global earlier this year (9 January 2013).

The legal line-up:

For the applicants, Richard Heis, Michael Pink and Richard Fleming (joint administrators of MF Global UK)

Weil Gotshal & Manges partner Adam Plainer, instructing South Square’s Antony Zacaroli QC and Adam Al-Attar

For the first respondent, Attestor Value Master Fund

Simmons & Simmons partner Robert Turner, instructing Erskine Chambers’ Richard Snowden QC and Ben Shaw

For the second respondent, Solid Financial Services

Dentons partner Neil Griffiths, instructing Erskine Chambers’ Peter Arden QC and Ben Griffiths