MF Global Holdings Ltd. won final approval of its plan to repay creditors, paving the way for the eighth-largest bankruptcy in U.S. history to wind down under court protection.
U.S. Bankruptcy Judge Martin Glenn in Manhattan today overruled remaining objections to the plan. An outline of its terms was filed in January, and most major objections, including one from JPMorgan Chase & Co., were resolved before today’s hearing.
“The court concludes that requirements for confirmation have been satisfied,” Glenn said, noting that creditors had voted “overwhelmingly” in its favor. His ruling comes a day after the holding company’s trustee, Louis J. Freeh, published a report that said former Chief Executive Jon Corzine and others mismanaged the company and failed to fix risk controls, leading to its demise.
“I do firmly believe that the customers in the case will be made whole, as a result of a lot of good work,” Freeh said in a statement after Glenn’s ruling.
The parent company of brokerage MF Global Inc. filed for bankruptcy on Oct. 31, 2011, after a wrong-way $6.3 billion trade on its own behalf on bonds of some of Europe’s most indebted nations. The company, once run by former New Jersey Governor and Goldman Sachs Group Inc. Co-Chairman Corzine, listed assets of $41 billion and debts of $39.7 billion.
A major hurdle to the plan was overcome in March when a JPMorgan unit resolved a dispute over the plan’s treatment of an intercompany settlement, which it said hadn’t been negotiated at arm’s length.
JPMorgan also reached a $100 million settlement over the New York-based bank’s conduct in the days before and after the brokerage’s collapse. That agreement followed a year of talks and resolved claims against JPMorgan, one of the brokerage’s primary banks and a repository for customer property.
Remaining objections were resolved or overruled at the hearing. Sapere Wealth Management LLC, a former customer of the MF Global brokerage, had argued that customer claims should come ahead of other creditor claims. Glenn overruled the argument, saying it was resolved by an agreement between the holding company trustee and the trustee overseeing the brokerage’s wind- down.
The U.S. Trustee, an arm of the Justice Department that oversees bankruptcies, had said the plan shouldn’t pay attorneys’ fees for creditors who initially proposed the plan. Glenn deferred the issue of fees.
The Trustee had also objected to what it said were overly broad protections for third parties against future lawsuits. The U.S. Attorney for the Southern District of New York had joined in that objection. Both parties withdrew their objections after the wording of the plan was changed slightly to resolve their concerns.
“We believe the plan is the most efficient way to administer funds to the creditors,” said Irena Goldstein, a lawyer for creditors. The plan “increases distributions to creditors by limiting the administrative costs” of the bankruptcy and allows the largest creditors to elect directors to oversee MF Global’s liquidation, a committee of creditors said in court papers supporting the plan. They noted that “hundreds of claimants holdings billions of dollars in claims voted in favor of the plan, while only four votes representing less than $350,000 rejected the plan.”
The plan “went through several iterations” and was proposed “with honesty and good intentions,” Freeh said in court filings supporting the plan.
The plan, filed in January, would pay unsecured creditors as much as 41.5 cents on the dollar. Citigroup Global Markets Inc., Blue Mountain Timberline Ltd., Cyrus Capital Partners LP, Deutsche Bank Securities Inc., Silver Point Capital LP and Waterstone Capital Management LP were among the plan’s backers, according to court filings.
James Giddens, overseeing a separate wind-down of the brokerage unit under the Securities Investor Protection Act, has projected that former domestic customers will recover more than 93 cents on the dollar. Remaining shortfalls may be repaid through other litigation or distributions of unallocated property, Giddens has said.
The holding company’s Chapter 11 case is In re MF Global Holdings Ltd., 11-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The liquidation of the broker is In re MF Global Inc., 11-02790, in the same court.