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Creditors to Market Financial Solutions, the UK mortgage provider that collapsed suddenly last month amid fraud allegations, are reportedly facing a £1.3 billion shortfall after discovering a network of borrowers linked to its owner.
Creditors alleged in court filings in London that eight companies that were “genuine borrowers” from MFS were in fact “closely linked” to the firm’s owner Paresh Raja.
These MFS borrowers were placed into administration by a court on Tuesday following an urgent application by two creditors, Zircon Bridging Ltd and Amber Bridging Ltd. These two MFS Group entities are already in administration.
The creditors have alleged that their reductions are due to “improper and potentially fraudulent conduct” by MFS, including “making loans to related borrowers and ‘double pledging’ of collateral”. Bloomberg first reported the court filing.
The shortfall reported by creditors is much higher than previously estimated.
Barclays, Jefferies and Apollo’s Atlas SP Partners, its structured credit arm, are among the firms that provided more than £2bn of funding to Market Financial Solutions, which claimed it could “deliver loans as large as £50mn in as little as three days”.
The London-headquartered company had given a loan to a Bangladeshi politician linked to a property scam before it went bankrupt last month. The judge handling the case at the time referred to the allegations of double pledging of collateral and fraud.
Barclays began blocking transactions involving MFS in November after discovering irregularities, before freezing all accounts linked to the firm in early January.
In its filing Zircon and Amber said MFS “has been subject to a well-publicized collapse, which has accelerated significantly over the past two weeks, leaving creditors with an estimated shortfall of more than £1.3 billion”.
The collapse of MFS sent shockwaves through Wall Street amid fears that underwriting standards are lax in the booming market for asset-backed loans. The bankruptcy of MFS follows the successive failures of US companies Tricolor and First Brands Group.
The Bank of England is now one of the first to ask questions to lenders about MFS.
A spokesman for King declined to comment on Tuesday’s hearing.
