MF Global UK Limited
(in special administration)
Indicative impact of the proposed settlement between the House Estate and the
Client Money Pool, and the Illustrative Financial Outcome as at 31 March 2014
5 June 2014
Important notice
This Document has been prepared by Richard Heis, Michael Pink and Richard Fleming, the Joint Special Administrator’s of MF Global UK Limited (the ‘JSAs’ and
‘MFGUK’ or ‘the Company’, respectively), to provide an update to the creditors and clients of MFGUK on the Illustrative Financial Outcome for Creditors and Clients
of MFGUK using information available as at 31 March 2014.
This Document has been prepared in good faith, however no representation or warranty, express or implied, is or will be made and no responsibility or liability is or
will be accepted by the Company, the JSAs or any of their respective representatives or advisers in respect of the truth, accuracy or completeness of the information
provided in this Document and such persons will not be liable to the recipients in respect of the information provided in this Document or its use. In particular, but
without prejudice to the generality of the foregoing, no representation or warranty is given as to the ability to achieve or reasonableness of any future projections,
prospects or returns (including any illustrative outcomes for clients, the unsecured creditors or shareholders) contained in this Document. Any illustrative outcome for
the clients, unsecured creditors or shareholders included in this Document (or commentary thereon) is illustrative only and cannot be relied upon as guidance as to
the actual outcomes for the clients, unsecured creditors or shareholders. Any person, creditor or client that chooses to rely on this Document for any purpose or in
any context, does so at its own risk. Neither the Company, JSAs, nor any of their respective representatives or advisors accepts any responsibility for any acts or
omissions as a result of the information contained within this Document and all liability for damages arising from the information provided is expressly excluded.
In the various illustrative calculations that follow we have shown high case outcomes above 100% for comparative purposes only. Our comparison of the settlement
versus non-settlement outcomes implies that any surplus will go to House creditors only. As noted in our previous estimated illustrative outcomes no determination
has been made as to the beneficiaries of any surplus.
The JSAs give no undertaking to provide the recipient with access to any additional information or to update this Document, or to correct any inaccuracies in it which
may become apparent.
This Document has not been prepared in contemplation of it being used, and is not suitable to be used, to inform any investment decision in relation to the debt of, or
any financial interest in, the Company or other companies in the same group.
Nothing in this Document constitutes a valuation or legal advice. Where legal issues are discussed, the information is only intended to be of a general nature and not
a full review of the issues covered.
Michael Pink and Richard Heis are authorised to act as insolvency practitioners by the Institute of Chartered Accountants in England and Wales. Richard Fleming is
authorised to act as an insolvency practitioner by the Insolvency Practitioners Association.
The JSAs act at all times as agents for the Company and without personal liability. The appointments of the JSAs are personal to them and, to the fullest extent
permitted by law, KPMG LLP does not assume any responsibility and will not accept any liability to any person in respect of this Document or the conduct of the
administration.
© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
1
Glossary of terms
Client Money Pool/CMP
Segregated client monies, together with those client monies that ought to have been segregated as at 31 October 2011.
Court
High Court of Justice Chancery Division Companies Court.
FCA
Financial Conduct Authority.
House Estate/General Estate
Non-segregated creditor and estate assets.
JSAs/Administrators
Richard Heis, Michael Pink and Richard Fleming as Joint Special Administrators of MF Global UK Limited (in special
administration).
MFGUK/the Company
MF Global UK Limited (in special administration).
Parallel claim
A Parallel Claim is a client’s unsecured claim for the difference between the value of its contractual right against MFG
UK and the value of its distributions from the CMP.
Shortfall claim
A Shortfall Claim is a client’s unsecured claim for breach of CASS 7 or other breach of trust. For most clients, their
Shortfall Claim is subsumed within their Parallel Claim. The only clients with separate Shortfall Claims are those whose
client money claims have a greater value than their contractual rights against MFG UK (‘Decreased Clients’). Further
information about Shortfall Claims and Parallel Claims is available from the Administrators’ website here.
© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
2
Contents
Page
Indicative impact of the proposed settlement
between the House Estate and the CMP
4
Summary of model
9
Client Money Pool – summary of illustrative
financial outcome
11
House Estate – summary of illustrative financial
outcome
14
Client Money Pool – post settlement estimate of
funds available for distribution
16
House Estate – estimate of funds available for
distribution post closure of the CMP
19
© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
3
Indicative impact of
the proposed
settlement between
the House Estate
and the CMP
Illustrative financial outcome
Proposed settlement between the CMP and the House Estate
Background
■ The Administrators are seeking to make a final distribution of client money and close the CMP as soon as practicable. The benefits to creditors and clients of a
prompt final distribution and closure of the CMP include faster payment and reduced costs. The firm’s House Estate creditors will also benefit from a prompt closure
of the CMP, as it is only when the CMP has closed that the House Estate’s liability for any deficiency in the CMP will crystallise. Until then, the House Estate bears
an FX risk by virtue of the fact that the CMP is denominated in US Dollars and the House Estate is denominated in Sterling.
■ In order to make a final distribution of client money and close the CMP, the Administrators and MFGUK (as trustee of the CMP) must:
a) resolve the value of the CMP’s tracing and other claims into the House Estate, which arise from failures by the firm to segregate sufficient client money;
b) sell or otherwise realise all remaining non-cash assets;
c) resolve the value that the CMP must pay towards the costs of the two estates from 1 May 2014 to closure of the CMP;
d) resolve the question of how to deal with clients who are shown in MFGUK’s records as having client money claims, but who have not submitted claims for
payment; and
e) resolve all outstanding claims against the CMP.
■ Point (a) could be resolved by litigation or by settlement. The overriding benefit of a settlement is that it would avoid the substantial cost and delay that would be
caused by litigation and a full tracing exercise. The estates are closely linked and as such the outcome of any litigation arising out of the purported failure by
MFGUK to segregate sufficient client money would impact both estates; if, for instance, the CMP were to lose any litigation and be ordered to pay the House
Estate’s costs, the consequent reduction in assets in the CMP would result in higher Shortfall and Parallel Claims into the House Estate.
■ Because of the potential benefits of a settlement to all concerned, on 7 April 2014 the Administrators issued the Client Money Resolution Application at the High
Court to fix a procedure for negotiating and, subject to the Court’s further approval, entering into a settlement between the CMP and the House Estate. The
application also proposed a way of dealing with clients who are shown in MFGUK’s records as having client money claims, but who have not submitted claims for
payment (point (d) above).
Update to the pre-settlement illustrative financial outcome
Before assessing the impact of the proposed settlement we calculated a revised illustrative financial outcome as at 31 March 2014. A summary of the revised position
is shown below, together with the movement from the prior illustrative financial outcome as at 31 December 2013.
Outcome - scenario comparison
The main changes between the two periods are as follows:
31 Dec 13
31 Mar 14
Variance
Low
High
Low
High
Low
High
CMP Outcome - cents in the $
85.0
86.0
85.5
86.7
0.5
0.7
House Estate Outcome - pence in the £
92.0
105.5
91.2
104.4
(0.8)
(1.1)
Notes:
Source:
■ An increase in forecast costs; and
■ A change in assumptions relating to the remaining debtors.
In the various illustrative calculations that follow we have shown high case outcomes above 100% for comparative purposes only. Our
comparison of the settlement versus non-settlement outcomes implies that any surplus will go to House creditors only. As noted in our
previous estimated illustrative outcomes no determination has been made as to the beneficiaries of any surplus.
JSAs records
© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
5
Illustrative financial outcome
Indicative proposed settlement between the CMP and the House Estate (cont.)
Impact of the proposed settlement
■ The Administrators have set out below the indicative impact of the proposed settlement. The proposed settlement represents an improved outcome for both estates
over the alternative “Non-settlement” scenario.
■ The impact on both estates of there being no settlement is difficult to evaluate. The Administrators and their lawyers believe that the legal and forensic costs
associated with reviewing hundreds of thousands of transactions through some 250 bank accounts would be immense. Even after such an exercise, it is possible
that the result would be inconclusive.
■ As the Administrators have always assumed that we would settle without litigation or tracing, the costs of these exercises were not included in our prior illustrative
financial outcomes. Therefore, in order to provide a comparator to the settlement an illustrative cost of $20 million has been added to the illustrative financial
outcome as at 31 March 2014 outcome to reflect the result in a Non-settlement scenario.
Outcome – illustrative Scenario comparison
31 March 2014 - Nonsettlement scenario
31 March 2014
31 March 2014 vs. Nonsettlement
31 March 2014 - Proposed
Settlement Scenario
Non-settlement vs. Proposed
Settlement
Low
High
Low
High
Low
High
Low
High
Low
High
CMP Outcome - cents in the $
85.5
86.7
84.9
86.2
(0.6)
(0.6)
90.6
90.6
5.7
4.4
House Estate Outcome - pence in the £
91.2
104.4
90.2
103.2
(1.0)
(1.2)
91.2
104.8
1.0
1.6
Notes:
In the various illustrative calculations that follow we have shown high case outcomes above 100% for comparative purposes only. Our comparison of the settlement versus non-settlement outcomes implies
that any surplus will go to House creditors only. As noted in our previous estimated illustrative outcomes no determination has been made as to the beneficiaries of any surplus.
Source:
JSAs records
■ The above table shows:
– Non-settlement scenario - On the basis of the above assumptions, in the event that a settlement is not reached the anticipated outcome would worsen for
both CMP and House Estate claimants.
– The Proposed Settlement scenario will improve the outcome to both estates.
Negotiation process, and proposed terms of the settlement
■ On 1 May 2014, the Court granted an order approving the procedure for negotiating a settlement between the CMP and the House Estate. A copy of the order is
available in the update dated 2 May 2014 here.
■ Under the procedure detailed in the order, Richard Fleming was appointed as the CMP Administrator (to represent the CMP) and Richard Heis was appointed as the
House Estate Administrator (to represent the House Estate), both with separate legal advisers, with a view to negotiating a settlement.
© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
6
Illustrative financial outcome
Proposed settlement between the CMP and the House Estate (cont.)
Negotiation process, and proposed terms of the settlement (cont.)
■ In order to set the parameters for the negotiation, on 20 May 2014 the House Estate Administrator and the CMP Administrator exchanged position papers. The House Estate
Administrator’s position paper is available here and the CMP Administrator’s position paper is available here. The CMP Administrator subsequently served a reply to the House
Estate Administrator’s position paper, and the reply is available here. A summary of the position papers is set out below.
■ On 22 May 2014, there was a meeting between the lawyers for the two sides to discuss and test the legal arguments in support of the respective parties’ positions. On 23 May 2014
there was a meeting between the two sides to negotiate a commercial settlement. The House Estate Administrator and the CMP Administrator agreed a settlement, subject to the
permission of the Court for the House Estate Administrator, on the one hand, and the CMP Administrator, on the other hand, to enter into the settlement.
■ In summary the proposed settlement involves the House Estate paying $41.2 million to the CMP:
a)
in full and final settlement of all tracing, breach of trust and other claims between the estates;
b)
in exchange for an assignment of all of the CMP’s outstanding receivables; and
c)
giving credit for the CMP’s contribution to the costs of the two estates for the period from 1 May 2014 to the closure of the CMP.
■ The proposed settlement would accelerate distributions from both estates by several years and would avoid the very substantial costs that would be involved in determining the
outstanding issues between the two estates by way of litigation and a tracing exercise. The cost and timing reductions are so great that the JSAs consider that every client and
creditor of MFG UK would benefit if the settlement were approved and implemented. The below table demonstrates, based on the opening positions of both estates, an improved
outcome could be reached for that estate; however the outcome would be subject to substantial cost, delay and uncertainty, which would not be in the interest of any client or creditor.
■ There will be a hearing before the Court on 3 July 2014 at which the JSAs will seek permission to enter into the proposed settlement. Any creditor or client who would like further
information should contact the JSAs. Any creditor or client who would like to object to the settlement must file their objection at Court as soon as possible and in any event by 4.30
pm on 26 June 2014.
Outline of Proposed Settlement
House Estate Opening Negotiating
Position ($)
CMP Opening Negotiating
Position ($)
Proposed settlement ($)
Proposed settlement (£)
Failure to Segregate
9,439,071
51,471,843
31,029,303
18,610,762
CMP affiliate debtors
29,865,662
32,549,998
29,865,662
17,912,833
Third party set-off agreement
(12,842,406)
(12,842,406)
(12,842,406)
(7,702,621)
Costs – 1 May 2014 to 30 November 2014
(18,442,783)
-
(6,815,535)
(4,087,823)
8,019,544
71,179,435
41,237,024
24,733,151
87.4
93.5
90.6
90.6
Net payable by the House Estate
Outcome from CMP (c/$)
Outcome from the House Estate - Low Case (p/£)
91.4
91.0
91.2
91.2
Outcome from the House Estate - High Case (p/£)
104.7
104.9
104.8
104.8
Notes:
Source:
(1) In the various illustrative calculations that follow we have shown high case outcomes above 100% for comparative purposes only. Our comparison of the settlement versus non-settlement outcomes implies that any surplus will go to House creditors only. As noted
in our previous estimated illustrative outcomes no determination has been made as to the beneficiaries of any surplus.
(2) After discussion, the CMP Administrator acknowledged that the maximum value of the CMP’s claims arising from the failure to segregate was approximately $44 million, plus an additional amount in respect of the costs incurred by the CMP as a consequence of
the breach of trust.
JSAs records
© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
7
Illustrative financial outcome
Proposed settlement between the CMP and the House Estate (cont.)
Procedure to approval hearing on 3 July 2014
■ The Administrators have discussed the proposed settlement with representative creditors and clients, including those on the creditors’ committee. The remaining
steps in seeking approval for the proposed settlement, per the order dated 1 May 2014 available here, are:
a) The CMP Administrator and House Estate Administrator shall file any additional evidence by 4.30 pm on 19 June 2014.
b) Any creditor or client of MFGUK who wishes to be represented at the Substantive Hearing must file and serve notice identifying the Order they will seek,
together with any evidence in support, as soon as possible and in any event by 4.30 pm on 26 June 2014.
c) The House Estate Administrator shall lodge an Application bundle at Court by 4.30 pm on 30 June 2014.
d) The House Estate Administrator, the CMP Administrator and any creditor or client of MFG UK wishing to be represented at the Substantive Hearing shall lodge
and exchange skeleton arguments by 4.30 pm on 30 June 2014.
e) There will then be a substantive hearing on 3 July 2014 at which the CMP Administrator and the House Estate Administrator intend to seek the Court’s
permission to enter into the settlement.
■ If any creditors or clients have any concerns about the proposed settlement, the Administrators strongly encourage them to contact the Administrators before taking
any steps to appear at the Substantive Hearing.
Allocated but unclaimed clients
■ In order to resolve and close the CMP, the Administrators also need to deal with those clients who are shown in MFGUK’s records as being entitled to make client
money claims, but who have not claimed.
■ The Administrators are applying for a direction that they no longer need to make provision in the CMP for those ‘allocated but unclaimed’ clients, and can
accordingly distribute the funds to other clients. This part of the application will also be dealt with at the 3 July hearing.
■ All further notices in relation to the Client Money Resolution Application will be given by way of advertisement on the MFGUK pages of the KPMG website only
(www.kpmg.co.uk/mfglobaluk) and will not be sent to clients or creditors.
■ Hard copies of all documentation are available by request and free of charge by contacting a member of the Administrators' staff by email at
[email protected] or by telephone on +44 (0) 20 7785 0308.
© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
8
Summary of model
Illustrative financial outcome
Summary of model
Summary of model
■ The tables on the following pages provide an updated summary of the illustrative financial outcome as at 31 March 2014, based on the proposed settlement set out
in this report.
■ It should be noted that the illustrative range of financial outcomes presented includes a ‘low’ (i.e. more prudent) case scenario and a ‘high’ (i.e. less prudent) case
scenario. These should not be considered ‘best’ and ‘worst’ possible cases.
■ In the various illustrations which follow in this paper, we have shown high case outcomes above 100% for comparative purposes only. There has been no
determination as to the beneficiaries of any surplus which may ultimately become available, however, to allow comparison of the outcomes we have assumed that
any surplus would be distributed to House Estate participants only. The determination of beneficiaries of a surplus, will only be determined if ultimately a surplus
becomes available.
■ Key changes to the illustrative financial outcome since our earlier illustrative financial outcome and distribution model published in March 2014 (which presented the
illustrative financial outcome as at 31 December 2013) include:
– The incorporation of the terms of the proposed settlement set out on page 7;
– An increase to forecast costs to take into account a change in assumptions; and
– A number of other changes to receivables and liabilities which have occurred in the period.
■ Set out on pages 16 to 20 are the illustrative incremental distributions which we anticipate can be paid from the CMP and the House Estate following completion of
the proposed settlement, assuming Court and FCA sanction of the settlement and distribution process are agreed.
■ The JSAs have sought to break down the illustrative financial outcome into separate parts representing the House Estate and the Client Money Pool respectively, in
their respective base currencies. These component parts and overall illustrative outcomes need to be considered in the context of legal complexities, and the
application of the hindsight and shortfall application judgments that will impact the ultimate outcomes for individual creditors and clients.
© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
10
Summary of illustrative
financial outcomes
Illustrative financial outcome
Client Money Pool – summary of illustrative financial outcome
Illustrative financial outcome (1)
As at 31 Dec 13
As at 31 Mar 14
Settlement Scenario
$m
Low
Narrative
High
Client estate
Amounts under the control of the administrators
918
918
929
Transfer to the House Estate relating to a third party settlement
(13)
(13)
(13)
B
Affiliate recoveries
35
37
30
C
Affiliate debtors – likely amounts to be set off
14
14
14
C
D
Transfer from the House Estate relating to failure to segregate
-
-
31
954
956
992
Priority claimants/costs of the administration
Costs – to 30 April 2014
(5)
(4)
(6)
Costs – 1 May 2014 to 30 November 2014
(18)
(14)
(7)
General contingency
(10)
(10)
-
(34)
(28)
(13)
920
928
979
Client liabilities
(1,079)
(1,079)
(1,079)
Total client claims
(1,079)
(1,079)
(1,079)
(159)
(149)
(100)
A
Funds available for clients
E
Client liabilities
Illustrative financial outcome to clients before any client claims into the House
Estate
Funds available – excluding set-off amounts
Total claims – excluding set-off amounts
Illustrative financial outcome to clients before any client claims into the House
Estate – excluding set-off amounts
Note:
(1)
Source:
JSAs records
906
914
957
F
(1,065)
(1,063)
(1,057)
F
(159)
(149)
(100)
This illustrative financial outcome as at 31 March 2014 whilst in draft format is for illustrative purposes only and is based on the information available to the JSAs at the time of disclosure. No reliance
should be placed on the values contained within the summary or the illustrative financial outcome to clients.
© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
12
Illustrative financial outcome
Client Money Pool – summary of illustrative financial outcome (cont.)
Narrative
A. There are no ‘Low’ and ‘High’ ranges in the settlement scenario for the CMP as the proposed settlement crystallises the outcome of the CMP.
B. A proposed third party agreement which will set off a House Estate asset with a CMP liability of $12.8 million requires adjustment between the estates.
C. As a mechanic of the proposed settlement agreement the assignment of all affiliate receivables and all other receivables and unrealised assets owned by the CMP
are made to the House Estate. The credits given to the House Estate in respect of netting in the third party settlement and in relation to the proposed affiliate
settlements, assume that those settlements will in fact be signed and/or that the netting will be achieved in some other way. In the event that there is no such
netting, or the netting is in a lesser amount, the House Estate will make a payment to the CMP to put the estates in the position they would have been in if no credit
or a reduced credit (as appropriate) had been taken into account in the settlement calculation.
D. The House Estate will pay $31,029,303 to the CMP in discharge of all tracing and other claims against the House Estate.
E. The figure agreed for the CMP costs contribution to closure of the CMP was based on an estimate of costs from 1 May 2014 up to closure on 30 November 2014.
However, the figure is fixed, so the CMP will not have to pay any further contribution to costs for the period 1 May 2014 to closure of the CMP, even if the CMP
remains open beyond 30 November 2014 (the pre 1 May costs need to be finalised and paid separately).
F. Any amounts set-off are excluded from the assets and liabilities figures to arrive at these amounts. These net amounts are used for the calculation of distributable
percentages to participating clients.
© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
13
Illustrative financial outcome
House Estate – summary of illustrative financial outcome
Illustrative financial outcome
(1)
As at 31 December 2013
As at 31 March 2014 (Settlement Scenario)
Narrative
Low
High
Low
High
1,085
1,085
1,082
1,082
239
239
238
238
Transfer from the Client Money Pool relating to a third party settlement
8
8
8
8
A
Transfer to the Client Money Pool relating to affiliate debtors
-
-
(18)
(18)
B
Affiliates Debtors – CMP
-
-
17
19
£m
House estate
Amount under the control of the administrators
Amounts collected by virtue of set off
Transfer to the Client Money Pool relating to failure to segregate
-
-
(19)
(19)
Affiliates Debtors – House Estate
9
11
6
6
C
9
84
7
79
1,348
1,426
1,319
1,394
(48)
(36)
(41)
(29)
D
4
4
4
4
E
17
13
4
4
E
(7)
(34)
(7)
(26)
(12)
(45)
(7)
(28)
D
1,314
1,401
1,274
1,366
Creditor liabilities
(952)
(905)
(958)
(915)
Amount settled by way of client asset claim
(116)
(116)
(115)
(115)
Amount settled by virtue of set off
(231)
(231)
(230)
(230)
(3)
(3)
-
-
F
(96)
(1,398)
(90)
(1,346)
(60)
(1,362)
(60)
(1,320)
G
(84)
55
(89)
46
I
Third party receivables
Priority claimants/costs of the administration
Contingency for costs
Costs recovered from Client Money Pool – to 30 April 2014
Costs recovered from Client Money Pool – 1 May to 30 November 2014
General contingency
Funds available for creditors
Liabilities
Shortfall claims (yet to be determined)
Parallel claims (Deficiency from Client Money Pool)
Total claims
Illustrative financial outcome to creditors
Funds available – excluding set-off amounts
Total claims – excluding set-off amounts
Illustrative financial outcome – excluding set-off amounts
962
1,048
921
1,014
H
(1,046)
(993)
(1,010)
(968)
H
(84)
55
(89)
46
I
Notes:
(1) This illustrative financial outcome as at 31 March 2014 whilst in draft format is for illustrative purposes only and is based on the information available to the JSAs at the time of disclosure. No reliance should be placed on the values contained within the summary or
the illustrative financial outcome to creditors.
Source:
JSAs records
© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
14
Illustrative financial outcome
House Estate – summary of illustrative financial outcome (cont.)
Narrative
A. A proposed third party agreement which will set off a House Estate asset with a CMP liability of $12.8 million requires adjustment between the estates.
B. It will also be in exchange for an assignment of all affiliate receivables and all other receivables and unrealised assets owned by the CMP. The credits given to the
House Estate in respect of netting in the third party settlement and in relation to the proposed affiliate settlements, assume that those settlements will in fact be
signed and/or that the netting will be achieved in some other way. In the event that there is no such netting, or the netting is in a lesser amount, the House Estate
will make a payment to the CMP to put the estates in the position they would have been in if no credit or a reduced credit (as appropriate) had been taken into
account in the settlement calculation.
C. The House Estate will pay $31.0 million (£18.6 million) to the CMP in discharge of all tracing and other claims against the House Estate.
D. The proportion of costs allocated to the House Estate is now higher than previously illustrated, as a term of the proposed settlement agreement is that the CMP
should only bear a portion of costs to 30 November 2014. As the CMP is required to be crystallised in the proposed settlement scenario the full cost provision is
now included in the House Estate. This provision has been reduced in the High Case scenario by around one third.
E. The figure agreed for the CMP costs contribution to closure of the CMP was based on an estimate of costs from 1 May 2014 up to closure on 30 November 2014.
However, the figure is fixed, so the CMP will not have to pay any further contribution to costs for the period 1 May 2014 to closure of the CMP, even if the CMP
remains open beyond 30 November 2014 (although the pre 1 May costs still need to be finalised and paid separately). Original estimates based on the allocation of
costs between the estates on the proportion of assets of each estate, but there was a risk that this could be challenged by the CMP.
F. Shortfall clams (yet to be determined) were included in prior iterations of the illustrative financial outcome as a potential claim on behalf of decreasing claimants for
the Failure to Segregate. These are no longer required in the proposed settlement scenario as the liability relating to the House Estates failure to segregate is
extinguished as part of the proposed settlement.
G. Parallel claims reflect the deficiency from the CMP. Parallel claims are not crystallised until the CMP is closed, and therefore the final level of parallel claims are
subject to fluctuations in relation to the conversion of a clients claim into GBP, and in relation to whether their contractual claims are increasing or decreasing.
H. Any amounts set-off are excluded from the assets and liabilities figures to arrive at these amounts, which allow calculation of the illustrative distribution percentages
from each estate in each scenario.
I.
For the purposes of comparison, the illustrative outcomes as at 31 March 2014 excluding the impact of the proposed settlement, as discussed on page 5, are:
i.
Low Case Outcome: A deficiency of £92 million.
ii.
High Case Outcome: A surplus of £44 million.
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15
Client Money Pool – post
settlement estimate of funds
available for distribution
Illustrative financial outcome
Client Money Pool – post settlement estimate of funds available for distribution
CMP distribution calculation
$m
CMP cash (includes amounts already distributed)
Costs – to 30 April 2014
As at 31 Dec 13
As at 31 Mar 14 (Settlement Scenario)
918
929
Narrative
(5)
(6)
A
Costs – 1 May 2014 onwards
(43)
(7)
A
Provision for unagreed claims (contingency)
(10)
-
B
Terms of the settlement:
- Amount to be transferred to the House Estate
(13)
(13)
C
- Affiliate recoveries
0
31
D
- Transfer from the House Estate relating to failure to segregate
0
30
E
847
964
Adjustment for assets set-off
Estimated funds available for distribution
Low-case client claims
Adjustment for client claims set-off
Estimated participating client claims
Estimated incremental distribution
Distributions previously declared
Source:
(7)
(7)
840
957
1,079
1,079
(22)
(22)
1,057
1,057
8.5 cents in the $
12.0 cents in the $
70.0 cents in the $
78.5 cents in the $
78.5 cents in the dollar
90.5 cents in the dollar
F
JSAs records
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17
Illustrative financial outcome
Detailed assumptions and narrative
Narrative
A. The figure agreed for the CMP costs contribution to closure of the CMP was based on an projection of costs from 1 May 2014 up to closure on 30 November 2014.
However, as part of the settlement the figure is fixed, so the CMP will not have to pay any further contribution to costs for the period 1 May 2014 to closure of the
CMP, even if the CMP remains open beyond 30 November 2014 (although the pre 1 May costs still need to be finalised and paid separately).
B. A provision for general uncertainties previously included can be released following the proposed settlement being agreed.
C. A proposed third party agreement which will set off a House Estate asset with a CMP liability of $12.8 million requires adjustment between the estates.
D. This represents the amount to be paid to the CMP relating to the transfer of the CMP Affiliate debtors, as set out earlier in this report.
E. The House Estate will pay $31.0 million (£18.6 million) to the CMP in discharge of all tracing and other claims against the House Estate.
F. Any incremental distribution from the CMP is dependent on:
–
Approval of the proposed settlement; and
–
Granting of a modification from the CASS rules by the FCA in relation to the treatment of unclaimed client balances.
■ The above table provides an estimate of the next incremental distribution to Clients which will become available on the completion of the settlement. We expect this
distribution to be made before 30 November 2014 assuming that we receive Court and FCA sanction of the settlement and distribution process in accordance with
the time table on page 8.
■ This illustrative financial outcome is for illustrative purposes only and is based on the information available to the JSAs at the time of disclosure. No reliance should
be placed on the values contained within the summary or the illustrative financial outcome to clients and creditors. The quantum and timing of any distributions
ultimately declared will be determined by the level of available funds and client and creditor claims at the point of declaration of those distributions having taken
account of any contingencies that the JSAs consider appropriate to be reserved for on a prudent basis.
© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
18
House Estate – estimate of
funds available for
distribution post closure of
the CMP
Illustrative financial outcome
House Estate – estimate of funds available for distribution post closure of the CMP
The summary table below should be read in conjunction with the underlying assumptions and the narrative detailed on the following page.
House Estate distribution calculation
£m
As at 31 Dec 13
As at 31 Mar 14 (Settlement Scenario)
Narrative
1,085
1,082
(43)
(45)
(6)
(6)
A
Holdback
(17)
(7)
B
Reserve for assets already transferred
(27)
0
Assets available for distribution
Amount currently under the control of the administrators
Provision for future costs
General contingency
Terms of the settlement:
■
Transfer from the CMP relating to a third party settlement
8
8
C
■
Transfer to the Client Money Pool relating to affiliate debtors
0
(18)
D
■
Transfer from the House Estate relating to failure to segregate
0
(19)
E
Adjustment for set-off items
Estimated funds available for distribution
1,000
995
(116)
(115)
884
880
(952)
(958)
(99)
(60)
Estimated Participating claims
Low case – House Estate liabilities
CMP deficiency
Provision for unagreed claims
Adjustment for set-off items
Estimated participating claims
(100)
(75)
(1,151)
(1,093)
0
8
(1,151)
(1,085)
Estimated incremental distribution
11.0 pence in the £
5.0 pence in the £
Distributions previously declared
65.0 pence in the £
76.0 pence in the £
76.0 pence in the £
81.0 pence in the £
Source:
F
G&H
JSAs records
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20
Illustrative financial outcome
Detailed assumptions and narrative
Narrative
A. General contingency.
B. Cash balances ring fenced as collateral for operational purposes.
C. A proposed third party agreement which will set off a House Estate asset with a CMP liability of $12.8 million requires adjustment between the estates.
D. This represents the amount to be paid to the CMP relating to the transfer of the CMP Affiliate debtors, as set out earlier in this report.
E. The House Estate will pay $31.0 million (£18.6 million) to the CMP in discharge of all tracing and other claims against the House Estate.
F. The JSAs are required to reserve in full for all claims that have not been accepted or rejected. This balance reflects the difference between claimed amounts and
amounts recognised by MFGUK in relation to unagreed claims.
G. The ultimate return for an individual creditor will be dependent on a number of factors including the treatment of the parallel claim, the effect of transfers, and
foreign exchange movements due to the timing of conversion and payment.
H. The estimated incremental distribution presented here would be distributable shortly after the proposed settlement is completed, and the CMP is closed.
■ This illustrative financial outcome is for illustrative purposes only and is based on the information available to the JSAs at the time of disclosure. No reliance should
be placed on the values contained within the summary or the illustrative financial outcome to clients and creditors. The quantum of distributions ultimately declared
will be determined by the level of available funds and client and creditor claims at the point of declaration of those distributions having taken account of any
contingencies that the JSAs consider appropriate to be reserved for on a prudent basis.
© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
21
The information contained herein is of a general nature and is not intended
to address the circumstances of any particular individual or entity. Although
we endeavour to provide accurate and timely information, there can be no
guarantee that such information is accurate as of the date it is received or
that it will continue to be accurate in the future. No one should act on such
information without appropriate professional advice after a thorough
examination of the particular situation.
© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of
KPMG Europe LLP and a member firm of the KPMG network of
independent member firms affiliated with KPMG International
Cooperative, a Swiss entity. All rights reserved.
The KPMG name, logo and “cutting through complexity” are registered
trademarks or trademarks of KPMG International.