Investors weigh legal options after MFS collapse

Private investors affected by the collapse of Market Financial Solutions (MFS) have begun organising to consider joint legal action following the £2 billion failure of the specialist mortgage lender.

MFS, a Mayfair-based provider of bridging finance and buy-to-let mortgages, was placed into administration last week after a High Court judge said “very serious” allegations of fraud required investigation. The claims include that some loans were “double pledged” against property assets and that there was a “significant shortfall” in mortgage collateral.

Mukesh Patel, a creditor with a reported £7.8 million claim, convened a meeting of private investors earlier this week to discuss coordinating their response and appointing legal advisers. He is understood to be linked to a wider group of unsecured creditors owed about £169 million. A message to investors circulated on Patel’s behalf urged affected parties to work together to maximise recoveries. 

MFS raised funding from both private investors – particularly within the British Indian community – and a range of institutional backers in London and New York. It has emerged that Elliott Management, the US hedge fund, is among those with significant exposure.

Elliott is reported to have around £200 million at risk through its majority ownership of Chetwood Bank, a Wrexham-based lender whose loan book is linked to MFS structures. Elliott now bears the associated risk from that exposure. Other institutions named in connection with the situation include Atlas (owned by Apollo), Barclays – which is understood to have exposure of about £600 million – as well as Jefferies, Wells Fargo, Castlelake and Banco Santander. 

Administrators from AlixPartners were appointed to MFS following the High Court hearing. In parallel, there has been a separate move to install alternative insolvency practitioners at a group of companies said to be connected to the case.

Patel had opposed the appointment of AlixPartners and was expected to seek the appointment of Stephen Katz of Begbies Traynor and Nimish Patel of Coots & Boots. Katz and Nimish Patel have since been appointed as administrators to a number of related entities. Begbies Traynor said that the pair were acting for a “number of companies connected with the MFS case.”

According to a Times report, correspondence sent to investors indicated that the group was considering appointing solicitors to represent their collective interests, and that Nimish Patel of Coots & Boots was due to attend the investor meeting. 

For now, the focus of the new insolvency team is on assessing the position of creditors across the wider structure.