Nicholls & Co
Nicholls & Co Ltd. Registered office: 52 Blucher St, Birmingham B1 1QU. Company no. 7191575.
Authorised and regulated by the Solicitors Regulation Authority (SRA no. 534500) http://www.sra.org.uk/consumers/consumers.page
MF GLOBAL CLIENTS’ INFORMATION
This page is for clients and creditors of MF Global UK and will be regularly updated.
Link to Financial Times article 15 March 2012:
“MF Global clients angry as details appear”
MF Global UK Limited Creditors’ Meeting (07.02.12)
At the time and shortly afterwards I was critical of the debacle that was the meeting
of creditors of MF Global UK Limited (“MFG”). My criticism, however, was in the
form of the odd Tweet on Twitter and a few telephone conversations with various clients.
This may have come across as nit-
There are many aspects of the meeting that reflected poorly on the Administrators from KPMG and, possibly, their legal advisers. Some of them are much more important than others and I would categorise them as follows:
Matters of competence, practicality, planning and organisational skills
Matters of conduct and law of a less serious nature
Matters of great importance and relevance to all involved.
Matters of competence, practicality, planning and organisational skills
We were met at the Barbican Business Centre by a “bright eyed and bushy tailed” young man from KPMG. When I was at KPMG in the early 1990s, these young trainee auditors were referred to as “bunnies” and there were dozens bunnies all bobbing around directing the attendees as they arrived to the desks where more senior KPMG personnel sat with their laptops.
We were representing seven clients and claims forms had been submitted for all of them and those claims had been as “clients”. The claims had been submitted as “clients” for the simple reason that they were clients. KPMG had, however, categorised these claims as “unsecured creditor” and accordingly we were given pink voting slips which were the ones for ordinary unsecured creditors. Clients who were classified as “Clients” were given yellow voting slips.
When we questioned this categorisation we were told “not to worry” and “ it would have no effect on anything and would not prejudice our claims.” We were given a piece of paper that confirmed this. Looking around and listening in on many other conversations that were going on at the time, this issue seemed to be fairly common and so I explained to my clients that other than for voting purposes this did not matter very much. And let’s face it, no one wants to cause trouble at the very beginning of the day about what, probably, would turn out to be a trivial issue. On this issue, though, more later.
The meeting was meant to start at 11.00 hrs and everyone had been warned to arrive early. Even so the meeting did not formally start for another hour because of the numbers of people attending. Were KPMG surprised at the numbers who attended in spite of receiving notices and proxies for most of them?
The presentation by Richard Heis as the lead Administrator went fine and was not particularly controversial. But, where were the directors? They should have been required to attend.
The questions and answers session was one of the worst I have ever seen and I have been attending these kinds of meetings for 20 years. It appeared that there was no planning of the kind of questions that might be raised, there was no systematic way the questions were chosen, many attendees including us were unable to ask a question and the meeting soon ran out of time. This was disgraceful and it all required was some planning. The Administrators could have easily asked for attendees to email in their questions. They could then have categorised them – because many would have covered the same ground – and they could have dealt with them in the following ways:
1. Prepared a note to hand out addressing the common questions about clients’ own accounts;
2. Answered in person the top five questions about their own conduct of the Administration;
3. Refused to answer but explain why and when might be answered.
4. Then asked for further questions from the floor.
If the Q&A session had been dealt with in this way or something like it then there would have been many less disgruntled clients and creditors.
The problem with the Q&A session running on in the way it did , i.e. randomly, meant that there was less time for setting up the Creditors Committee and a large number of attendees left and started to leave the meeting.
The way the creditors committee was voted upon was ludicrous, a farce and disgraceful bearing in mind this is KPMG (one of the largest and supposedly best businesses in the World) and Weil Gotshal (one of the largest and supposedly best law firms in the World). This issue is covered more below, though, because it has serious legal implications.
When the employee of MFG, Dmitry Nedvetsky, stood up and put some very good questions to the Administrators it took them completely by surprise and a few points stood out.
Mr Nedvetsky asked about where the statement of affairs was – a good question and
one still of relevance since it still has not been produced. A statement of affairs
is a sworn declaration from the directors showing the assets and liabilities of the
company – it does not have to be penny-
The other issues raised by Mr Nedvetsky which could have really done with more explanation from the Administrators were:
JP Morgan
Closing Prices – what is being done to get the prices at which positions were closed out at the various exchanges?
After the voting for the committee and the voting on the proposals it was about 16.00 hrs and most people had left. One creditors representative valiantly suggested to the Administrators that the meeting should be reconvened but the response was that the meeting had already been closed and most people had already gone.
Matters of conduct and law of a less serious nature
The law of insolvency is well documented and well reported and there is no lack of guidance on it and yet there were minor errors in procedure at the meeting which undermined the confidence we ought to feel in KPMG and Weil Gotshal.
The Creditors Committee – “Does it really matter?” The answer to that question depends quite a lot on who you are and how cynical you are. My answer from the cynical creditors point of view is “sadly, not much”. If you really wanted to, you could get all excited about the constitution of the committee and spend a great deal of money – hundreds of thousands at least – to challenge how it was created and who is on it. In the final analysis, however, it is probably almost completely irrelevant from our point of view. Do not expect KPMG to agree to this though. They will say it has a very important role in monitoring what they do and overseeing etc. and approving their fees i.e. it is incredibly important from KPMG’s point of view.
It sounds exciting and it sounds powerful but unfortunately the Creditors Committee has a very tightly confined role. It can be highly influential, however, if good people are on it who get to understand their leverage and this can put pressure on the Administrators to do a better job.
The voting for the creation of the Creditors Committee was invalid. How so?
Firstly and perhaps morally and ethically rather than legally -
Ignoring that one for a moment though, the way votes were allocated to attendees
means that the whole process was invalid. What happened with votes at the meeting
was that KPMG got confused as to how to class attendees. For these purposes there
were two types of attendees i.e. clients and unsecured creditors. Clients are, well,
clients of MFG and whether they were retail or professional or segregated or non-
What actually happened, evidenced by the colour of the voting slips, was that attendees were categorised by the kind of claim they would eventually have – an easy mistake to make but not one when you are being paid £20m and your solicitor £3.5m. Thus, many clients were given voting slips for unsecured claims and accordingly were deprived of their vote for the client representatives on the committee. Similarly the unsecured creditors at the meeting would have found that their category was flooded by all these clients wrongly thus categorised.
Effectively then there cannot have been a valid vote for the Committee. What the Administrators would argue, if anyone could be bothered to take this to Court, is that no one was prejudiced by this mess up because firstly the vote was stitched up beforehand by large votes and secondly it would not have made any difference to the outcome even if everything had been done properly.
Matters of great importance and relevance to all involved.
A couple of really important things were slipped into the meeting and I would like KPMG and Weil Gotshal to know that they were spotted and that they will be wheeled out when it is convenient for my clients. At the moment I do not want to do anything to delay or reduce the first dividend.
Firstly the voting for the meeting was all messed up and that applies also to the supposed voting on the proposals. Again, though, I would surmise that the Administrators had already received enough votes by proxy to approve the meeting’s resolutions. Alternatively many creditors at these meetings nominate the Chairman to vote on their behalf if they do not attend or if they leave early (and many did leave early).
More importantly, though, the resolutions were improperly put to the meeting. There is general principle in company and creditors meetings that where resolutions are to be voted upon they should be set out in such a way that those entitled to vote can show their approval or disapproval against the individual resolutions. In the case of MFG we had proposals that were so bland and unobjectionable that no reasonable person could have disapproved of them and in any case the resolutions were not set out as resolutions but were set out as Summary Proposals. Also most of the proposals were unnecessary because the Administrators had the requisite powers without any such resolutions. Sneaked in at No. 9 was the “blank cheque” resolution as follows: “That the Special Administrators be authorised to draw fees, by reference to time properly incurred, and all costs from the assets of the Company … etc”.
Firstly the law and rules on how Administrators (and such like) can draw their fees are extensive and over the years there have been many challenges. Essentially “someone” independent of the Administrators must be found to approve the fees – costs and disbursements are less controversial for obvious reasons. This someone can be the creditors committee, the Court or a meeting of creditors or a combination of them or in some circumstances the stakeholder who ultimately bears the fees (eg. A bank or HMRC). The rules, however, include certain constraints on how Administrators can be renumerated.