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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: shades who wrote (60139)	5/2/2006 3:30:57 PM
From: shades	Read Replies (1) \| Respond to of 110194

Bid To Convert Refco LLC To Chapter 11 Denied >RFXCQ . By Tiffany Kary Of DOW JONES NEWSWIRES WASHINGTON (Dow Jones)--Parties seeking to move Refco Inc.'s (RFXCQ) cash-rich former flagship unit, Refco LLC, into Chapter 11 bankruptcy lost their bid Tuesday in a hearing that sided with the U.S. government and a former U.S. Trustee who recently resigned. Favoring arguments that more customer claims could materialize and deplete estimated assets of around $800 million, Judge Robert Drain of the U.S. Bankruptcy Court in Manhattan ruled the case will stay in Chapter 7 bankruptcy. He rejected claims that proceeding under Chapter 7 is more costly and inefficient. Drain left open the possibility that another request to convert to Chapter 11 could be made, after it becomes clear that more claims won't "come out of the woodwork" and the estate is solvent. He also suggested that the LLC unit could pay dividends to its parent unit, lessening the interest on its debt. Last November, Refco placed Refco LCC in Chapter 7 after agreeing to sell most of the futures business to a unit of London's Man Group PLC (EMG.LN) The initiation of Chapter 7 proceedings for Refco LLC was a condition of the sale to Man. After obtaining proceeds from the sale to Man, Refco moved in February to bring the unit back under the control of its Chapter 11 case. Under a Chapter 11 reorganization, the company would have been able to forgo having a court-appointed trustee liquidate its assets to pay off creditors, and have more control over the bankruptcy process. Objectors to the move into Chapter 11 say Congress intended commodities brokers to go through Chapter 7 liquidation in order to properly protect both customers and commodity markets and Refco's conversion would set a bad precedent. The court-appointed trustee now overseeing Refco LLC's affairs, Albert Togut, set a July 17 deadline for the filing of claims against the unit. The trustee has said he's amassed $810 million in assets, much of which will be distributed to creditors. Refco creditors and representatives of Refco Capital Markets had argued for a conversion to Chapter 11 by saying that it has enough resources and expertise to handle the Refco LLC case on its own, in part because its new chief executive, Harrison Goldin, is a prominent restructuring expert. The parties also said the conversion would result in "more efficient administration of the estate." But in response to those claims, Drain said there are "too many chefs in the kitchen." Drain said there was no reason to have "one chef for the appetizer and another for the main course." Many groups have tried to thwart the conversion to Chapter 11. For instance, the Rogers funds, two investment funds launched by the renowned commodities trader Jim Rogers, have complained that a conversion would be improper, and said Refco LLC must remain in a Chapter 7 proceeding until the Rogers funds' customer claims have been paid in full. A lawyer speaking on behalf of Rogers Funds said any conversion should at least be held off until the claims allowance deadline. A conversion to Chapter 11 would in essence give creditors preference over customers, as it removes special protections for customers that are designed to keep property recovered under avoidance powers in the hands of customers rather than creditors. Avoidance powers are complex rules under which trustees can recover property transferred before the bankruptcy. Refco has also run into opposition from federal regulators over its bid to reassert control over Refco LLC by moving it into Chapter 11. The Commodity Futures Trading Commission opposed the move, saying the company hadn't completed the steps required under Chapter 7 rules of the U.S. Bankruptcy Code. "Refco's proposal would allow commodity brokers to short-circuit the liquidation process by filing, perhaps transferring accounts, and then abandoning all remaining steps" required by Congress, the CFTC said in court papers. Former U.S. Trustee Deirdre A. Martini, who presided over New York, Connecticut, and Vermont, also opposed the conversion, saying it would set a bad precedent, as it would mean every other commodity broker was immediately eligible for Chapter 11 relief. She also said in court papers that administrative efficiency shouldn't run roughshod over legal requirements. Martini resigned from her position in April after saying Drain had "usurped" her powers in the case. -By Tiffany Kary, 201-938-4292; Tiffany.Kary@dowjones.com (END) Dow Jones Newswires May 02, 2006 13:31 ET (17:31 GMT) Copyright (c) 2006 Dow Jones & Company, Inc.- - 01 31 PM EDT 05-02-06