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Landsbanki Guernsey Limited in Compulsory Liquidation update 31 October 2011

Update on Icelandic Proceedings

Further to the Joint Liquidators’ update on the Icelandic Legal Proceedings provided to creditors in April and August 2011, the Icelandic Supreme Court has now handed down its verdict in relation to the various cases to which Landsbanki Guernsey Limited (in Compulsory Liquidation) (“LGL”) has been party.
As previously advised, the Joint Liquidators had argued a case, on behalf of LGL and its creditors, in respect of the following matters:

  • Wholesale deposits - LGL, amongst a group of other ordinary unsecured creditors, challenged the decision of the Landsbanki Islands hf (“LIHF”) Winding Up Board to award these wholesale depositors priority on the basis that (1) the Emergency Law was invalid; (2) wholesale 'deposits' did not fall within the scope of the enhanced protection provided for deposits by the Emergency Law; and
  • Icesave Cases - Again, LGL amongst a group of other ordinary unsecured creditors of LIHF, had disputed the priority treatment accorded to this claim on the same basis as above.
  • Notwithstanding, any priority should in any event be limited to the maximum payable pursuant to the Icelandic Depositor Protection Scheme (i.e. €20,867).

The Joint Liquidators regret to announce that the Supreme Court of Iceland has ruled that LGL (and other plaintiffs seeking to reduce the priority claimants) have been unsuccessful in their appeals following the rulings released last Friday (28th October 2011).

A detailed appendix of the rulings is attached to this announcement should creditors wish to understand the rulings in more detail. Click here for a link to this document.

One Supreme Court Justice had a dissenting view, concluding that Art. 6 of the Emergency Act no. 125/2008, cf. Art. 102 (3) of Act no. 161/2002 on Financial Undertakings, was a violation of the Icelandic Constitution, and therefore deposits should not be granted priority.

No legal fees were awarded, neither for the proceedings before the District Court of Reykjavik nor for the proceedings before the Supreme Court of Iceland.

Given how long it took the Supreme Court to come to its decision, the fact that there is a dissenting view in favour of LGL and other Plaintiffs and the fact that no legal fees are awarded does, in the Joint Liquidators’ view, indicate that the ruling was in no way a foregone conclusion and thereby reflects the merit of appealing as the cost thereof is rather insignificant measured against the potential gain should LGL have prevailed.

It should be noted that, following the decision of the Supreme Court, it is likely that the LIHF Winding Up Board will make a distribution to LIHF priority claimants.  Whilst other creditors may seek to take their claim to the European Courts, this would not result in a delay in this distribution payment as any claim thereafter would be against the Icelandic Government rather than LIHF given the ruling by the Supreme Court.

The Joint Liquidators will consider, together with the ICC and the Guernsey Court whether they should continue with any further litigation in respect of the above matters but do expect to continue to consider the Alternative Claim (see below).

Update on the “Alternative claim”

Further to the Joint Administrators’ fourth report to creditors, the “Alternative Claim” is also still being investigated and considered by the Joint Liquidators’ Icelandic legal representatives.  This claim, if successful, could result in LGL achieving a 100% return (subject to repatriation issues) on its claims as all deposits transferred to New Landsbanki were guaranteed by the Icelandic government.  It is, all the same, only fair to point out that the Icelandic Counsel do believe this to be an up-hill battle.

The Joint Liquidators‘ Icelandic Counsel have advised that the Joint Liquidators should wait for a decision in respect of a similar claim brought in the administration of another of the failed Icelandic banks. This decision, together with those rulings already made, is expected to provide further guidance in relation to the criteria that would be used by the Icelandic courts in relation to the definition of “deposit” under the relevant Icelandic laws.

Icelandic Counsel advise that there is a four year statute of limitation period applicable to these types of claims in Iceland (running from October 2008), and that there is nothing that the Joint Liquidators need or should do to protect LGL’s position at this stage.

It should be noted that, in the opinion of the Icelandic Counsel, the Alternative Claim should not be impacted by the verdicts noted above and the rumoured intention of LIHF to make a distribution to priority claimants in the winding up of LIHF as this claim would be made against Landsbankinn hf. (New Landsbanki) and the Icelandic Financial Supervisory Authority and/or the Icelandic State, and not LIHF.

Guarantee claim

As a result of the decisions made by the Icelandic Supreme Court noted above, the (unsigned) guarantee provided by LIHF to LGL depositors is expected to be valueless on the basis that there will be no assets available to pay out under the guarantee once all preferential creditors have been paid. As such depositors are not expected to have a viable recourse to LIHF.

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