Landsbanki Guernsey Limited in Compulsory Liquidation update 24 August 2011
Update on Icelandic Proceedings
Further to the Joint Liquidators’ update on the Icelandic Legal Proceedings provided to creditors in April 2011, further information is now available and the Joint Liquidators provide below an update of the current position on the cases:
Wholesale deposit cases – Validity of Emergency Act
A series of three two day hearings is due to take place in September in the Supreme Court of Iceland in relation to the first two 'sets' of proceedings to which LGL is party and were described in the website update in April. These proceedings relate to the claims of the British and Dutch Depositor Compensation Schemes and the British and Dutch Wholesale Depositors, all of whom have been granted a priority in the winding up of LIHF and to the validity of the so-called Emergency Act, on which inter alia the priority is based. Should LGL be successful in these appeal proceedings, the direct benefit to LGL could be approximately £5 million, which equates to approximately 4p/£ for each of LGL's unsecured creditors. These proceedings are also expected to have some precedent value and may result in the resolution of other of the Icelandic Proceedings without the need for further significant expenditure.
As creditors may recall, the so-called 'Alternative Claim', whereby LGL will claim that its deposit with LIHF should have been transferred to 'New Landsbanki' as a "domestic deposit" pursuant to the terms of a direction of the Icelandic financial regulatory authority in the early days of the Icelandic banking collapse, has the potential to realise LGL's deposit with LIHF at full value, subject to potential difficulties of repatriation, of some £14.7 million (12p/£) should it be successful. At present, the Joint Liquidators are progressing this claim in accordance with Icelandic legal advice, although are not in a position to report any progress to date. The Joint Liquidators have been made aware of similar claims being brought by a creditor of another of the failed Icelandic banks and are watching progress of this claim through the Courts with interest, hoping that it will serve as a clear guideline.
Once the appeal proceedings above have been determined, the Joint Liquidators will be able to better assess whether there is any merit in proceeding with the balance of the proceedings to which LGL is a party.
Current Costs Position
Currently, the Joint Liquidators have incurred costs in the amount of £207,000 in respect of the Icelandic Proceedings. Broadly, these costs have been expended by the Joint Liquidators Icelandic Legal Counsel on:
- Filing claims with the Winding Up Board of LIHF on behalf of LGL;
- Corresponding with the Winding Up Board and its legal representatives in respect of LGL's claims; and
- Drafting Court documents and attending and presenting oral arguments at Court hearings.
The Joint Liquidators are satisfied that all expenditure to date is justified.
Explanation of cost overruns
Initial estimates of the costs of the Icelandic Proceedings, as previously advised, were in the range of £100,000 to £160,000. It should, however, be kept in mind that the scope of assignment has increased greatly through the process and subsequent to the estimates being given. The estimate only related to the validity of the Emergency Act and dispute relating to the wholesale deposits. In addition to that, the Joint Liquidators have been advised that the underlying and general explanation for increased cost in the Icelandic Proceedings is the extraordinary and unprecedented nature of the situation in Iceland following the collapse of its banking system in 2008. Specifically, the banking collapse resulted in the Icelandic parliament and government passing and implementing a number of measures (such as the Emergency Act) very urgently to deal with the immediate effects of the collapse. Perhaps unsurprisingly, this has led to a large number of disputes for which there is no precedent or guiding principles which the parties to those disputes, and the presiding Courts, could rely upon in attempting to resolve those disputes. Added to this is the sheer scale of the disputes, which has involved a diverse range of very well resourced plaintiffs and defendants, together with the Icelandic Government, which is crucially interested in maintaining Iceland's economic stability throughout this process. For example, LGL is now party to some 181 proceedings in which it is seeking to challenge the priority accorded to other creditors or challenge the validity of the Emergency Law (together with a number of other claimants). Should any one of these claims be successful there could be significant benefit to LGL in terms of a recovery from the winding up of LIHF. The Icelandic Courts have taken some measures to determine these claims in the most efficient manner possible (such as grouping certain classes of proceedings involving similar circumstances), whilst staying the majority of claims, however inevitably court documents have needed to be prepared and filed in respect of each claim.
Whilst, in general, these issues were, to a degree, anticipated by the Joint Liquidators’ Icelandic Counsel, these factors have, understandably and somewhat inevitably, rendered any cost estimates relatively speculative. The degree to which these circumstances have increased costs beyond that which may have reasonably been estimated cannot be overstated. For example, we are advised that matters of the kind LGL is involved in on appeal are, as a rule, only based on written submissions on appeal. Prior to the financial crisis there were almost no exceptions to the rule. The Supreme Court has, however, decided to hear oral arguments. In addition to that, the Court has reserved 6 days for the hearings, whereas most cases are dealt with in a matter of 2-3 hours. There are, however, a number of matters specific to LGL's claims in the Icelandic Proceedings that have caused the cost of those claims to overrun and were, to a large degree, unable to be anticipated and therefore were not included in the original estimate.
Current Costs Estimates
The Joint Liquidators have discussed the historic and future cost position with the ICC. The ICC unanimously supports the Joint Liquidators decision to continue to pursue the Icelandic Proceedings.
The Joint Liquidators expect to provide creditors with a further update later in the year which will also include an update on the loan realisations to date and will provide an up to date Statement of Affairs. The Joint Liquidators expect that they will be in a better position to report on the loans position at that time given discussions currently in progress. This update will be placed on the website as for previous updates.