There had been a bitter argument between creditors in favour of the Chapter 7 route, including VR Global and Inter Financial Services, who accused Refco of misrepresenting how it would treat cash and securities in customer accounts, and a number of other creditors, including Bank of America and Wells Fargo, representing investors for whom they acted in providing finance to the unit, who opposed the conversion, as did Refco itself.

However the preliminary ruling will not take effect for at least 45 days, giving creditors time to work towards a consensual liquidation plan. Under the Chapter 7 procedure, assets would be sold and the proceeds distributed first to customers and then to other creditors.

Refco filed for Chapter 11 protection from creditors on October 17th, one week after the firm said former chief executive Phillip Bennett had hidden $430 million of bad debt. The company is now selling assets to pay creditors that claim they are owed up to $16.8 billion. Bennett has pleaded not guilty to eight counts of conspiracy, fraud, and other charges.

Refco itself appeared happy with the ruling. "I don't think this ruling presents any problems. Pressure for everyone to act quickly is good," said chief executive Harrison Goldin to Reuters.

In another recent Refco development, Bloomberg reports that the company may have held offshore accounts with as much as $525 million in fake bonds at its Bermuda-based unit.

The bonds appear to have been owned by six companies incorporated in Anguilla, which were in turn owned by a fund called Liquid Opportunity and Bawag, (the Bank für Arbeit und Wirtschaft) the Austrian bank which provided the fatal loan to Philip Bennett. The six companies, named for islands in the South Pacific and regions of Argentina, were incorporated on July 26, 2004, by a local agent, and were initially listed as Refco creditors with a combined claim of $543 million.

However, none of the companies filed any papers as creditors, and Refco has since dropped four of the six from its list of creditors, says Bloomberg. Neither Liquid Opportunity nor Bawag has been accused of any impropriety in the Refco affair. Indeed, the bank, owned by Austrian trade unions, is suing Refco in a Manhattan court, saying that Bennett had fraudulently asked for extension of the $421m loan which led to his downfall.

The US federal prosecutor in Manhattan and the Securities and Exchange Commission are said to be trying to find out where the bonds originated and how they were valued. The precise roles of the bonds and the various players in the affair are very unclear at this stage.