BDO CRI (Cayman) Ltd, the Principal Liquidators of Herald Fund SPC, have reached a global settlement agreement with Irving H Picard, Trustee for the Estate of Bernard L Madoff Investment Securities.
The Principal Liquidators were assisted by their US and Cayman Islands legal counsel (respectively, Kirkland & Ellis LLP: led by partners Joseph Serino and David Flugman; and Walkers: led by partner Matthew Goucke).
The settlement agreement, which was made public today in New York through a filing with the US Bankruptcy Court for the Southern District of New York, achieves an allowed customer claim for Herald in the BLMIS estate in the amount of approximately USD1.64 billion free of any subordination or holdback and a full resolution of the Trustee's clawback claims against Herald, originally asserted in the amount of USD578 million. Herald's shareholders will not be required to enter into any due diligence procedures with the Trustee in order to be eligible for distributions in Herald's liquidation.
Under the terms of the settlement, Herald will receive a credit of USD100 million against its clawback liability in connection with a payment made earlier this year by JPMorgan, part of which was in satisfaction of clawback claims asserted against JPMorgan in its capacity as a Herald shareholder. Applying this credit, and other credits of USD10 million, to the amount of the withdrawals made by Herald through its Luxembourg-based custodian, HSBC Securities Services (Luxembourg) SA (HSSL), Herald has agreed to pay the Trustee USD467,701,943 in full satisfaction of the Trustee's claims against Herald.
Herald's customer claim will be allowed in the amount of USD1,639,896,943, calculated by adding 100% of the agreed clawback liability onto the USD1,172,195,000 net loss of invested principal suffered by Herald's investors in the Madoff fraud. This marks the first time in several years that the Trustee has agreed to a full 100% springing claim in a settlement.
Herald will be entitled to a catch-up distribution on its allowed customer claim of USD755 million and the parties have agreed to deduct the full amount of Herald's clawback liability from this catch-up distribution. After subtracting USD29 million which Herald is temporarily advancing on behalf of its largest investor, Primeo Fund (In Official Liquidation) ("Primeo"), to satisfy Primeo's own clawback liability, the Principal Liquidators expect to receive approximately USD260 million in cash in early January 2015.
Assuming a 75% total recovery on Madoff customer claims, Herald expects to receive approximately USD500 million in addition to the money it will receive in catch-up distributions, bringing its ultimate total recovery under this settlement to USD760 million in unencumbered cash available to distribute to its investors. This amount does not include the USD13-USD15 million that Herald expects to receive from the JPMorgan class action settlement, nor does it include the value of Herald's ongoing claim against HSSL in the Luxembourg Courts as well as other potential claims.
Herald will receive a full release from the Trustee and Herald's shareholders will receive a release from any claim that the Trustee may have in connection with those shareholders investments in, or withdrawals from, Herald.
The settlement remains subject to approval by the Grand Court of the Cayman Islands and by the Bankruptcy Court in New York, which hearings have been scheduled to take place before the end of 2014.
The Principal Liquidators consider this to be an excellent result for the Herald's stakeholders and one which has been achieved expeditiously given that Herald's liquidation commenced in July 2013.
