The primary advocate group for former MF Global customers is undertaking an effort to convert the commodities broker's bankruptcy status to one that allows a more streamlined liquidation process, saying it would preserve more potential payback for customers.
The Commodity Customer Coalition, which represents thousands of customers of the fallen broker, told Reuters on Friday it wants to ask the US Bankruptcy Court to handle the case under Chapter 7 of the bankruptcy code, designed specifically for liquidation of assets.
A spokesman said the coalition has reached out to the Commodity Futures Trading Commission (CFTC), the US futures regulator, in hopes of gathering support for a planned court filing to change the case from Chapter 11, which allows a company to keep operating while it tries to reorganise and negotiate with creditors.
MF Global Holdings Ltd collapsed after it revealed exposure to risky European sovereign debt. With liquidation the only realistic option, the money being spent to keep it afloat in Chapter 11 serves no purpose, coalition spokesman John Roe said on Friday. The cost of the case has drawn harsh criticism, including from US Congressional leaders, amid reports that the trustee managing MF Global's assets in bankruptcy may seek court approval of bonuses for three top executives still on the payroll.
Trustee Louis Freeh said last week he has made no decisions on bonuses. Customers of MF Global's brokerage are missing an estimated $1.6 billion that investigators say was improperly used to cover corporate transactions and is now scattered among MF Global affiliates, banks, exchanges and other parties.
While Chapter 11 includes the option of liquidation if the company cannot renegotiate its debt, Roe said Chapter 7 would allow a more streamlined liquidation with no committee of creditors paid for from the bankrupt company's estate. Chapter 7 would be cheaper and would guarantee that customers of MF Global's brokerage could pursue recoveries from the parent company's estate, an issue currently in dispute.
"Chapter 7 better ensures customer priority if commingled funds are traced to the holding company, and the sooner we get there ensures there will be assets left to pay us," Roe said. According to monthly expense filings, MF Global has spent more than $11 million since filing for bankruptcy on October 31. It is surviving on about $26 million in cash that had been pledged to J.P. Morgan Chase & Co as collateral on loans. Obstacles stand in the coalition's way, not least among them cost. Roe estimated that legal fees associated with a conversion motion would approach $100,000, and said the group has asked for donations from all its members.