MF Global - Entitlement and the ‘hindsight principle’

MF Global - Entitlement and the ‘hindsight principle’

The financial services "melt down" has raised a number of interesting questions on certain stakeholders and their entitlement to certain assets. The complexity deepens when you have Financial Services "law", such as Chapters 7 and 7A (CASS 7 and 7A) of the Client Assets Sourcebook section of the Financial Services Authority and its interaction with insolvency law and the "waterfall" of payments.

The MF Global case (under administration) raised significant questions regarding an individual’s client money entitlement.

We spoke to Felicity Toube QC at South Square Chambers to explore the issues and look at the ‘hindsight principle’.

What are the key issues of this case?

The main issue arising in the context of the collapse of MF Global was whether an individual’s client money entitlement should be valued as at the date of the primary pooling event (PPE) (in this case administration) by reference to the market value or any mark-to-market valuation on that date, or whether it should be valued at the sum for which it was in fact liquidated. Often (but not always) contingent claims in liquidation are valued by using the value which eventuates. This is referred to as the ‘hindsight principle’. This issue will arise in the context of every collapsed firm, as it will always be necessary to value an individual’s client money entitlement.

Does this case help clarify an individual’s client money entitlement under CASS 7 and 7A?

David Richards J decided (following In re Global Trader Europe Ltd (in l

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