MF Global UK Services Limited (in administration) Report to creditors pursuant to Rule 2.47 of the Insolvency Rules 1986 (as amended) 29 May 2014
Notice: About this Report This Report has been prepared by Blair Carnegie Nimmo, Richard Heis, Michael Robert Pink and Richard Dixon Fleming, the Joint Administrators of MF Global UK Services Limited, solely to comply with their statutory duty under the Insolvency Rules 1986 to provide creditors with an update on the progress of the administration, and for no other purpose. It is not suitable to be relied upon by any other person, or for any other purpose, or in any other context. This Report has not been prepared in contemplation of 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 MF Global UK Services Limited or other companies in the same group. Any estimated outcomes for creditors included in this Report are illustrative only and cannot be relied upon as guidance as to the actual outcomes for creditors. Any person that chooses to reply on this Report for any other purpose or in any context other than under the Insolvency Rules 1986 does so at its own risk. To the fullest extent permitted by law, the Joint Administrators do not assume any responsibility and will not accept any liability in respect of this Report to any such person. Blair Carnegie Nimmo is authorised to act as an insolvency practitioner by the Institute of Chartered Accountants of Scotland. Richard Heis and Michael Robert Pink are authorised to act as insolvency practitioners by the Institute of Chartered Accountants in England and Wales. Richard Dixon Fleming is authorised to act as an insolvency practitioner by the Insolvency Practitioners Association. The Joint Administrators act as agents for MF Global UK Services Limited and contract without personal liability. The appointments of the Joint Administrators 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 Report or the conduct of the administration. 1
Glossary of terms Administrators Company/MFG Services Directors Group HMRC Memery MFGUK PPF Blair Carnegie Nimmo, Richard Heis, Michael Robert Pink and Richard Dixon Fleming of KPMG LLP MF Global UK Services Limited Aislinn Marion Shaw (resigned 9 February 2012), Richard Warren Moore (resigned 31 January 2012) and Simon William Gardiner (resigned 31 January 2012) MF Global Holdings Limited and subsidiaries HM Revenue and Customs Memery Crystal LLP MF Global UK Limited (in special administration) The Pension Protection Fund Proposals The Administrators Statement of Proposals under Paragraph 49 of Schedule B1 of the Insolvency Act 1986 Report Fifth progress report prepared by the Administrators pursuant to Rule 2.47 of the Rules for the period 31 October 2013 to 30 April 2014 RPO Weil Redundancy Payments Office Weil, Gotshal & Manges The references in this Report to Sections, Paragraphs or Rules are to the Insolvency Act 1986, Schedule B1 of the Insolvency Act 1986 and the Insolvency Rules 1986 (as amended) respectively. 2
Contents Page Executive summary 4 Administrators Proposals and purpose of the administration 6 Progress of the administration 8 Estimated outcome for creditors 12 Future strategy of the administration 14 Appendices 1. Statutory information 2. Administrators time and cost analysis, including schedule of charge out rates 3. Receipts and payments account 4. Schedule of expenses 16 18 22 24 3
Executive summary
Executive summary This Report provides creditors with an update of the progress of the Company s administration for the period from 31 October 2013 to 30 April 2014. The Company and the Administrators continue to work closely with MFGUK in relation to its staffing needs. See page 9 for further information. Preferential creditors of the Company have now been paid in full. The distribution to preferential creditors totalled 170,876 and was paid on 29 January 2014. MFG Services liability to bear a share of the costs of the recent settlement with the Trustees of the Pension Scheme (reported previously) is subject to an unresolved dispute with MFGUK. The ultimate liability for MFG Services could potentially range between nil and c 10 million depending on the point of law at dispute. In an attempt to accelerate a solution and minimise costs, both parties have agreed to undertake a consensual application to Court for directions on agreed facts. Details are set out on page 9. Notwithstanding the outcome of the directions hearing, based on the expected level of realisations there will be funds available for unsecured creditors. As set out on page 9, realisations in this administration, and accordingly the timing and quantum of distributions to unsecured creditors, are dependent on the timing and quantum of a dividend from MFGUK in relation to MFG Services inter-company claim. More significantly, the quantum is additionally dependent on the outcome of the legal dispute over the pension settlement liability. Based on current information the dividend payable to MFG Services unsecured creditors is estimated to be in the range of 20p in to 90p in. The Administrators have commenced the adjudication of unsecured creditor claims in order to expedite payment of a dividend to the Company s unsecured creditors once the above matters have been determined and we receive a dividend from MFGUK. As set out on page 13, in view of the number of claims and the requirement for former employees to mitigate their claims for pay in lieu of notice, this process will take some time. We anticipate that these claims will be agreed prior to the legal dispute reaching its conclusion. Once adjudication of the unsecured creditor claims has been finalised, MFG Services will revise its claim against MFGUK. An estimated claim has already been submitted. All figures in this Report and its appendices are shown net of VAT, unless otherwise stated. The relevant statutory and supporting information is set out in the Appendices of this Report. Blair Nimmo Administrator 5
Administrators Proposals and purpose of the administration
Administrators Proposals and purpose of the administration The Administrators Proposals were approved without modification at the meeting of creditors held on 5 January 2012. As reported in the Proposals, the Company was placed into administration so that its assets could be realised as advantageously as possible by providing ongoing employee services to MFGUK and seeking to realise value for the inter-company debt, with a view to achieving a better result for the Company s creditors as a whole than would be likely if the Company were wound up (without first being in administration). As previously advised, following an application to the Court, the administration period has been extended to 30 April 2015. During the next reporting period, it will become clearer if a further extension will be required in order to resolve the legal dispute and pay a dividend to the unsecured creditors before the administration is concluded. 7
Progress of the administration
Progress of the administration Strategy update In accordance with an agreement entered into with MFGUK, we continue to work closely with MFGUK in relation to its staffing needs. The Company currently employs 13 staff who have been retained under retention contracts, this will reduce down to eight on 1 June 2014. Management Agreement The Company has now received the final 250,000 instalment, bringing the total contribution from MFGUK to 1 million in accordance with the Management Agreement. This represents payment in advance for services provided to 30 October 2014, when it is expected that the Management Agreement will come to a end. Inter-company claim As advised in our previous report we submitted an initial estimated claim into the MFGUK estate for c 57 million. Due to the pension settlement, which removed the largest creditor ( 35.23 million) from the MFG Services administration, this claim was reduced to c 22 million. The quantum of the inter company claim remains an estimate and is dependent on the claims that MFG Services admits in its administration (mainly employee contractual claims) which it will pass on to MFGUK. This adjudication process is underway and statements have been sent out to employees. To date MFGUK has distributed 76p in the to its unsecured creditors with agreed claims. A further distribution is anticipated. We understand MFG Services claim has been provided for and the Company will be eligible for dividends declared by MFGUK to its unsecured creditors once we are in a position to submit our final inter-company claim for adjudication by MFGUK. Defined benefit pension scheme As previously reported, MFG Services contribution to the pension settlement has been funded by MFGUK by way of a limited recourse loan. This contribution was expected to be deducted from any dividend payable by MFGUK to MFG Services. However, the Administrators have sought legal advice on MFG Services position to challenge whether this 10 million contribution is appropriate. On the basis of the legal opinion received, we concluded it was appropriate to take legal action against MFGUK. Following an attempt by MFG Services to negotiate a settlement, which was rejected by MFGUK, it was agreed by both parties to seek court directions on a consensual basis on a set of agreed facts. An initial draft statement of facts have been sent to the solicitors acting for MFGUK. The outcome of this legal decision will have a material effect on the administration. If we are successful, not having to pay the 10m contribution towards the pension settlement will have a significant impact on the funds available for distribution to the unsecured creditors. For this reason our estimated outcome for unsecured creditors is presently within the range of approximately 20p in to a potential 90p in. Unfortunately, as in all legal actions, we would not expect a decision from the judge for a number of months. Tax compliance We continue to liaise with and provide returns/make payments to HMRC. There are no outstanding issues. 9
Progress of the administration (cont.) Group personal pension scheme Employer contributions to this AEGON operated scheme are continuing for retained employees. Other pension schemes Individual policies have now been assigned to the members of the GNI Group Money Purchase Pension Plan. There is expected to be a refund payable back to the Company once the final stages of the wind-up process has been completed. The Company also participated in a group life scheme, which is continuing for retained employees. The Company will remain the sole Trustee to the Scheme and a committee has been established to determine who the life benefits should be paid to. Receipts, payments and expenses for the period Receipts and payments made in this period are set out in the attached receipts and payments account (see Appendix 3). In addition to the final instalment of 250,000 from MFGUK, we have also received a contribution from MFGUK towards legal fees. The schedule of expenses attached as Appendix 4 details the costs incurred, whether paid or unpaid, relating specifically to this reporting period. Any additional information regarding office holders remuneration and/or other expenses charged for the period is available from the office holder upon request by any secured creditor or any unsecured creditor(s) with at least 5% in value of the unsecured debt in accordance with Rule 2.48A. This request must be made within 21 days of receipt of the Report. In addition, creditors are reminded that the quantum can be challenged by any secured creditor or any unsecured creditors with at least 10% in value (including that creditor's claim) of the unsecured debt by making an application to Court in accordance with Rule 2.109 within eight weeks of receipt of this Report. The full text of these rules can be provided upon request. Legal fees We continue to engage two separate lawyers to advise us on legal matters arising in this administration. Weil is providing general administration advice and Memery is providing advice specifically relating to the Management Agreement, inter-company claim with MFGUK, the pension settlement and the legal dispute. 63,498 has been paid in legal costs during this period, 31,749 of this expense has been paid by MFGUK under the terms of the Management Agreement. Further legal costs incurred in this period, but unpaid to date, are in the region of 25,000 for Weil and 50,000 for Memery. 50% of the non pension dispute costs will be paid by MFGUK in accordance with the Management Agreement. Wages and salaries All wages and salaries and related costs to date have been met by MFGUK under the terms of the Management Agreement. MFGUK will continue to meet these costs. 10
Progress of the administration (cont.) Administrators remuneration The statutory reference provisions relating to remuneration are set out in Rule 2.106. Further information is given in the Association of Business Recovery Professionals publication 'A Creditors Guide to Administrators Fees', a copy of which can be obtained at: http://www.r3.org.uk/media/documents/technical_library/sips/sip9_ew_remuneration_of_insolvency_office_holders.pdf. However, if you are unable to access this guide and would like a copy please contact Giuseppe Parla on 020 7311 8730. Attached as Appendix 2 is a detailed analysis of time spent, and charge out rates, for each grade of staff for the various areas of work carried out from 31 October 2013 to 30 April 2014, as required by the Association of Business Recovery Professionals Statement of Insolvency Practice No. 9. In the period from 31 October 2013 to 30 April 2014, the Administrators and their staff have incurred time costs of 290,608 representing 693 hours at an average hourly rate of 420. These costs include a high proportion of time incurred by senior staff due to the nature of the work undertaken, as explained in this and previous report. Time cost include work undertaken in respect to tax, VAT, employee, pensions and health and safety advice from KPMG LLP in-house specialists. The basis of the Administrators remuneration was approved by a resolution of creditors at the initial meeting of creditors and fixed by reference to time properly given by the Administrators and their staff in attending to matters arising in the administration. Additionally a resolution was sought allowing the Administrators to draw category 2 disbursements should they arise. These are costs that are directly referable to the appointment in question but not to a payment to an independent third party. They may include shared or allocated costs that can be allocated to the appointment on a proper and reasonable basis, for example, business mileage. A full explanation of these disbursements is set out in the Creditors Guide to Administrators Fees referred to above. Remuneration of 287,174 plus VAT was paid to the Administrators during this period, covering time costs incurred from 1 July 2013 to 31 December 2013. In accordance with the Management Agreement payment was made by MFGUK. 11
Estimated outcome for creditors
Estimated outcome for creditors Preferential creditors Preferential creditors were paid in full on 29 January 2014, totalling 170,876. This was primarily made up of unpaid pension contributions for October 2011 and also holiday or arrears of wages for some employees. Unsecured creditors As explained earlier in the Report, as well as being dependent on the Company s total liabilities, the outcome of the administration for unsecured creditors is also dependent on whether or not the Company is required to make a contribution towards the pension settlement and the amount received by way of a dividend from the special administration of MFGUK in relation to the inter-company claim. As set out on page 9, now that a pension settlement has been reached we have submitted a revised estimated claim in the special administration of MFGUK, however this claim remains an estimate until such time as we have agreed all employee claims against MFG Services. The timing of distributions by the Company will be closely linked to receipt of any distribution from MFGUK. To date MFGUK has distributed 76p in the to its agreed unsecured creditors and we understand a further distribution is anticipated. MFG Services will only be eligible for this dividend once it can submit a final claim to MFGUK for its consideration. More information on the dividend from MFGUK can be found in the Special Administrators latest progress report, available on the MFGUK website www.kpmg.co.uk/mfglobaluk. We have commenced the adjudication of employee unsecured claims. Due to the number of former employees and the requirement for employees to mitigate their claims for pay in lieu of notice we expect it will take some time to conclude this process. Based on current information employees claims are expected to be in the region of 6 million with other claims, including HMRC, expected to be c 7 million. We anticipate that unsecured creditors will receive a dividend in the range of 20p to 90p in. The result of this is wholly dependant on the outcome of the legal dispute. At the appropriate time we will apply to Court for an Order providing us with the requisite authority to distribute funds to the unsecured creditors. 13
Future strategy of the administration
Future strategy and extension of the administration Future strategy It is proposed that the Administrators will continue to manage the affairs, business and property of the Company in order to achieve the purpose of the administration. This will include progression of the ongoing matters in this administration, which as explained in this Report will take time to conclude. These include: finalising the Company s share of the pension settlement allocated to it once the Court has reached a decision; reaching an agreement with MFGUK in relation to the Company s inter-company position and, in due course, receiving a dividend from MFGUK; finalising the pension scheme positions; adhering to the terms of the Management Agreement with MFGUK and consider its staffing requirements beyond June 2014; completing the adjudication of the claims of the unsecured creditors, seeking court approval to make the distributions and then complete the distributions themselves; finalising the administration, including payment of all administration liabilities; and dealing with statutory and compliance obligations. The Administrators hope to achieve the purpose of the administration and resolve all outstanding issues by the extended administration end date of 30 April 2015, however, if the remaining matters cannot be concluded prior to the expiry of the administration, at the appropriate time we will apply to Court seeking a further extension. Exit from administration Once all matters in the administration have been concluded, the Administrators will take the necessary steps to deal with the Company appropriately. This is likely to be via dissolution of the Company, unless liquidation is considered appropriate. Future reporting In accordance with Rule 2.47, the Administrators will issue their next progress report within one month of 30 October 2014. 15
Appendix 1 Statutory information
Appendix 1 Statutory information Company name MF Global UK Services Limited Company number 06233208 Date of incorporation 1 May 2007 Registered office 8 Salisbury Square, London, EC4Y 8BB Previous address 5 Churchill Place, Canary Wharf, E14 5HU Court High Court of Justice Court reference 9526 of 2011 EC regulation on insolvency proceedings The EC regulation applies and these proceedings are the main proceedings as defined in Article 3 of the EC Regulations Administrators Blair Carnegie Nimmo, Richard Heis, Michael Robert Pink and Richard Dixon Fleming Date of appointment 31 October 2011 Appointer Directors Para 100(2) statement In accordance with paragraph 100(2) all functions or acts to be carried out by the Administrators are to be exercised by all or any one or more of the persons for the time being holding that office Directors Aislinn Marion Shaw (resigned 9 February 2012), Richard Warren Moore (resigned 31 January 2012) and Simon William Gardiner (resigned 31 January 2012) Secretary Vicki Kong (resigned 31 January 2012) Details of share holdings The Company is a wholly owned subsidiary of MF Global Holdings Europe Limited, and is an indirectly, wholly owned subsidiary of MF Global Holdings Limited 17
Appendix 2 Administrators time and cost analysis, including schedule of charge out rates
Appendix 2 Administrators time and cost analysis (from 31 October 2013 to 30 April 2014) MF Global UK Services Limited Partner / Director Manager Administrator Support Total hours Time cost Average hourly rate Administration & planning Cashiering General (Cashiering) 3.40 3.40 1,016.00 298.82 General Fees and WIP 0.90 8.90 9.80 3,343.00 341.12 Statutory and compliance Checklist & reviews 2.30 2.30 736.00 320.00 Pre-appointment checks 0.35 0.35 43.75 125.00 Statutory receipts and payments accounts 0.80 0.80 256.00 320.00 Strategy documents 0.30 3.50 3.80 2,154.50 566.97 Tax Post appointment VAT 0.10 0.10 32.00 320.00 Creditors Creditors and claims Agreement of preferential claims 1.20 37.40 38.60 12,628.00 327.15 Agreement of unsecured claims 53.10 226.00 279.10 97,906.00 350.79 General correspondence 0.90 6.50 7.40 2,476.00 334.59 Statutory reports 3.00 15.00 12.90 0.50 31.40 14,435.50 459.73 Employees Correspondence 11.90 57.00 68.90 23,476.00 340.73 DTI redundancy payments service 0.10 6.10 6.20 1,996.00 321.94 Pension funds 12.90 12.90 7,095.00 550.00 Pensions reviews 1.20 1.20 660.00 550.00 19
Appendix 2 Administrators time and cost analysis (from 31 October 2013 to 30 April 2014) MF Global UK Services Limited (cont.) Partner / Director Manager Administrator Support Total hours Time cost Average hourly rate General analysis Trading HR 220.80 220.80 121,440.00 550.00 Investigation Investigations Mail redirection 4.50 4.50 562.50 125.00 Realisation of assets Asset Realisation Freehold property 0.90 0.90 288.00 320.00 Leasehold property 0.20 0.20 64.00 320.00 Total in period 692.65 290,608.25 419.56 Note: Source: All staff who have worked on this assignment, including cashiers and secretarial staff, have charged time directly to the assignment and are included in the analysis of time spent. The cost of staff employed in central administration function is not charged directly to the assignment but is reflected in the level of charge out rates. Administrators records. 20
Appendix 2 Summary of charge out rates in operation during the course of the administration Summary of charge out rates in operation during the course of the administration 31 October 2013 to 30 April 2014 Restructuring, Tax, Pensions and Forensics Partner 765 Director 670 Senior Manager 550 Manager 440 Senior Administrator/Assistant Manager/Consultant 320 Administrator 240 Support staff 125 Source: KPMG LLP records. Summary of disbursements Land registry searches 11.00 Total 11.00 Source: KPMG LLP records. 21
Appendix 3 Receipts and payments account
Appendix 3 Administrators abstract of receipt and payments Administrators abstract of receipt and payments Asset realisations Statement of Affairs Estimated to realise (a) 31 October 2013 to 30 April 2014 Total 31 October 2011 to 30 April 2014 Inter-company receivables - MFGUK Uncertain - - Legal contribution from MF Global UK Ltd 31,749.04 266,411.90 Cash at bank Uncertain - 652,091.92 Management fees 250,000.00 1,000,000.00 Staff loans and advances Uncertain - - Corporation tax Uncertain - - 281,749.04 1,918,503.82 Other realisations Gross interest 2,557.99 9,363.12 Sundry refunds (b) 13,746.86 23,167.94 Dividend income 106.20 106.20 16,411.05 32,637.26 Cost of realisations Legal fees (63,498.07) (542,568.65) Professional fees (67.45) (67.45) Irrecoverable VAT (3,140.62) (26,901.19) Statutory advertising - (990.90) Bank charges (75.00) (275.00) (66,781.14) (570,803.19) Preferential creditor dividend (170,875.92) (170,875.92) 60,503.03 1,209,461.97 Represented by Floating ch. VAT receivable 81,813.45 Floating charge current 1,202,976.44 Floating ch. VAT control (75,249.53) 1,209,461.97 Note: The Administrators have received remuneration of 287,174 in the period covered by this Report. Total remuneration received from MFGUK for this engagement is 1,924,133. This remuneration was paid by MFGUK in accordance with the Management Agreement and is therefore not reflected in the Company s receipts and payments account. Note: (a) There are no estimated to realise figures as the directors had detailed all assets as uncertain per their Statement of Affairs. (b) 11,752.12 of sundry refunds relates to funds received by MFG Services in error from Friends Life and paid back to MFGUK post the reporting period end, on 6 May 2014. The balance of 1,994.74 relates to a further receipt received in error from Bupa and paid back to MFGUK post the reporting period end, on 13 May 2014. Source: Administrators records. 23
Appendix 4 Schedule of expenses
Schedule of expenses Schedule of expenses 31 October 2013 to 30 April 2014 Paid Accrued Total for period Cost of realisations Legal fees - 75,000 75,000 Administrators remuneration - 212,365 212,365 Administrators disbursements - 11 11 Irrecoverable VAT 3,141-3,141 Bank charges 75-75 Professional fees 67-67 Total 3,283 287,376 290,659 Source: Notes Administrators records. The figures in the paid column above relate to costs incurred and paid in the period. Accordingly these figures do not include payments made in the period that relate to accruals notified in previous reports. Administrators remuneration The Administrators remuneration was approved at a meeting of creditors held on 5 January 2012, in accordance with Rule 2.106. Details of the Administrators' time costs incurred in this period are set out in the attached Report, supported by an analysis of time costs and expenses included at Appendix 2. The accrual above shows time costs incurred to 30 April 2014 that have not yet been paid. As already stated, in accordance with the terms of the Management Agreement, the Administrators remuneration is being paid by MFGUK. KPMG Restructuring policy for the recovery of disbursements Where funds permit the officeholder will look to recover both category 1 and category 2 disbursements from the estate. For the avoidance of doubt, such expenses are defined within SIP 9 as follows: Category 1 disbursements: These are costs where there is specific expenditure directly referable both to the appointment in question and a payment to an independent third party. These may include, for example, advertising, room hire, storage, postage, telephone charges, travel expenses, and equivalent costs reimbursed to the officeholder or his or her staff. Category 2 disbursements: These are costs that are directly referable to the appointment in question but not to a payment to an independent third party. They may include shared or allocated costs that can be allocated to the appointment on a proper and reasonable basis, for example, business mileage. Any disbursements paid from the estate are disclosed within the attached summary of disbursements. Category 2 disbursements charged by KPMG Restructuring include mileage, this is calculated as follows: Mileage claims fall into three categories: - Use of privately-owned vehicle or car cash alternative 45p per mile - Use of company car 60p per mile - Use of partner s car 60p per mile Creditors request for further information Creditors are advised that any additional information regarding other expenses charged for the period is available from the Administrators upon request by any Secured Creditor or any unsecured creditor(s) with at least 5% in value of the unsecured debt in accordance with Rule 2.48A. This request must be made within 21 days of receipt of the attached Report. In addition creditors are reminded that the quantum can be challenged by any Secured Creditor or any unsecured creditor(s) with at least 10% in value (including that creditor s claim) of the unsecured debt by making an application to Court in accordance with Rule 2.109 within eight weeks of receipt of the attached Report. The full text of these rules can be provided upon request. 25
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