Creditors of collapsed MFS declare £1.3bn shortfall | USAEMALL.com

Stay informed with free updates

Simply sign up to the Financial services myFT Digest — delivered directly to your inbox.

Creditors to Market Financial Solutions, the UK mortgage provider that collapsed suddenly last month amid allegations of fraud, are facing an alleged shortfall of £1.3bn after discovering a network of borrowers seemingly tied to its owner, with more than a quarter of a billion pounds unaccounted for.

Creditors alleged in court filings in London that eight companies that were supposedly “genuine borrowers” from MFS were in fact “closely connected” to the firm’s owner, Paresh Raja.

These borrowers from MFS were placed into administration by a court on Tuesday following an urgent application by two creditors, Zircon Bridging Limited and Amber Bridging Limited. These two MFS group entities are already in administration and were represented by US law firm Paul Weiss in Tuesday’s hearing.

Most of the money lent via mortgages provided by Amber Bridging Limited and Zircon Bridging “has been diverted to unknown bank accounts”, the creditors have alleged, adding that the whereabouts of as much as £238mn is “unknown”.

Creditors have claimed that their shortfall is “due to improper and likely fraudulent conduct” by MFS, including “lending to connected borrowers and the ‘double pledging’ of collateral”. Bloomberg first reported on the court filing.

In their filing, Zircon and Amber said that MFS “has been subject to a well-publicised collapse, which has accelerated markedly in the last two weeks, revealing an estimated shortfall to creditors in excess of £1.3bn”.

The shortfall cited by the creditors is larger than that previously forecast.

MFS’s collapse sent reverberations across Wall Street amid fears that underwriting standards in the booming market for asset-backed lending have been lax. MFS’s insolvency comes after the back-to-back failures of US companies Tricolor and First Brands Group.

The Bank of England is among those now asking questions of lenders about MFS.

The companies that the creditors allege are related are listed on filings made to Companies House as sharing an address at 134 Buckingham Palace Road, London, which was the address of MFS before it entered administration.

Three men allegedly linked to Raja — Khemanand Hurhangee, Dipeshkumar Patel and Dipendra Amin — are listed as the directors and shareholders of companies that have borrowed from MFS.

Creditors alleged that Hurhangee and Amin have a “material connection” to Magus Accounting Limited — as a director and shareholder, respectively — which acted as the MFS Group’s accountants and also acted as auditor for certain group entities. Patel is the director of 64 companies with a registered address at 134 Buckingham Palace Road.

Magus did not immediately respond to a request for comment. Patel could not be reached for comment.

Mishcon de Reya, legal counsel to Raja, said in a statement: “These are not sham companies. They are part of a larger group which are beneficially held for MFS and its associated lenders. The directors are in the process of placing these companies into administration and are fully co-operating with the office holders.”

Firms including Barclays, Jefferies and Apollo’s Atlas SP Partners, its structured credit arm, are among firms that extended more than £2bn of financing to MFS, which claimed it could “deliver loans as large as £50mn in as little as three days”.

The London-headquartered firm previously lent to a Bangladeshi politician tied to a property scandal before its collapse into insolvency last month. The judge handling the case referenced accusations of “double pledging” of collateral and fraud.

Barclays began blocking transactions linked to MFS in November after detecting irregularities, before freezing all accounts tied to the firm in early January.

Creditors claimed that Barclays’ freezing of the accounts had had a “paralysing effect” on the MFS Group, which became unable to carry on business.

“Whilst the applicants’ joint administrators do not know why Barclays took this drastic step, they infer that Barclays must have had serious concerns regarding money-laundering, corruption or other criminality” at the company, creditors said in the court filings.