The High Court in London has ruled that the appointment of administrators to oversee MF Global’s UK operations did not automatically trigger an event of default under a repurchase agreement entered into with US affiliate MF Global Inc., as it was not equivalent to the appointment of a liquidator for the purposes of the agreement. The effect of the ruling would allow MFG UK, rather than MF Global US, to be the non-defaulting party under the GMRA between the parties, and thus to be the party which has the right under the GMRA to determine how much it owes or is owed by its affiliate. Since the sides are apart by a considerable sum in their valuations under the agreement (MF Global Inc. has suggested that it is owed more than £286 million under the arrangements, whereas the UK administrators maintain that the sum outstanding should only amount to around £37 million), the ability to value the claim under the GMRA appears to have considerable worth.
Lofchie Comment: As if the unwind of Lehman were not proof enough, this case is indicative of how much potential benefit there would be to the U.S. and the U.K. devising some common approach to the liquidation of affiliates in the two jurisdictions in the case of an insolvent financial institution. Beyond that, it seems rather remarkable, and not in a good way, that the right to determine valuations under the GMRA, in a transaction between two affiliates both of whom were going to fail regardless of who failed first, should be worth approximately £250 million to the winning party.