Kaupthing Guarantee

Posted 25/04/2009 - 15:36 by Bill

Kaupthing Guarantee

From the Kaupthing.com website:
“According to the Icelandic legislative act 125/2008, deposits to private individuals and corporates are priority claims. Whether the legislation applies to depositors depends on which entity in the Kaupthing Group they were banked with. The legislation only applies to Icelandic financial undertakings. The Resolution Committee of Kaupthing Bank hf. anticipates that Kaupthing Bank hf. will be able to pay back its deposits which have been defined as priority claims, made at the headquarters and in branches belonging to the headquarters.

Subsidiaries of Kaupthing Bank hf. and their branches are directly responsible for the deposits made with them……..The rights of depositors regarding deposits made with a subsidiary of Kaupthing Bank hf. will be determined by the law applicable to the subsidiary or the branch of the subsidiary.”

The 125/2008 Act was an emergency measure passed by Iceland 6th October, 2008. In addition to the above stated measures, a resolution committee (effectively receivers), were appointed to deal with Kaupthing hf’s creditors and this was accompanied by a moratorium on payments to creditors until 13 November, 2009. The Icelandic Financial Supervisory Authority (FME) guaranteed all domestic deposits in the Icelandic banks and, as mentioned above, prioritised claims from branches of Kaupthing hf. An example of that is the recent undertaking to pay back depositors of the German branch; that is why they will paid in full and we will not – they are a branch, we are a subsidiary.

Therefore subsidiaries such as KSF IoM are left to themselves and the local laws that apply.
Questions raised:

(1) The Kaupthing guarantee, signed by the then CEO, states that Kaupthing hf will discharge any liabilities that KSF IoM is unable to discharge from its assets itself. But what does this really mean?

(2) Fundamentally – does the Resolution Committee accept that, under the Guarantee, KSF IoM is a legitimate creditor of Kaupthing hf based on the Guarantee document?

(3) If the answer to (2) is yes (and I can see no reason why it should be ‘no’), to be able to establish what KSF IoM is owed, there is first a need to establish liabilities. That has not been possible due to uncertainty of KSF IoM’s realizable assets. The Resolution Committee can argue that until it is clear what the actual return on assets will be they cannot assess their liability toward KSF IoM as a creditor.

(4) Where does KSF IoM rank as creditor of Kaupthing hf? Is it secured or unsecured? Since if it is unsecured (which it should not be) it will presumably have to get in line with all the other creditors and get piece of what is left in the Kaupthing pot.

(5) So the really important questions are (a) what weight does the Guarantee really carry? and (b) what priority does the Guarantee have for pay out?

Question 5 probably depends largely on the vigour and tenaciousness that the position of KSF IoM depositors is negotiated and especially the arguments put forward that the Guarantee should be fully acknowledged and given high priority and secure status. These negotiations are being undertaken, we hear, by HMG. So a few other observations are worth noting:

The Icelandic courts approved a request from Kaupthing Resolution Committee to put a moratorium in place until November 2009 meaning that it is protected from creditor’s claims until that time. Despite this, Iceland agreed to repay UK savers in Landsbanki Icesave accounts in accordance with EU rules after the UK put pressure on Iceland. There is a case that the Kaupthing Guarantee to IoM depositors is a binding commitment and must be honoured in full – just as Iceland is obliged to honour its obligations under the EU arrangements.

The IoM has made quite a deal about the representation of KSF IoM by HMG in Iceland but we have no news of anything that HMG has done but we do have evidence that HMG has been very effective in getting things done in the case of Landsbanki. So why not KSF IoM - what is the status of the negotiations on behalf of KSF IoM depositors?

Also, I have raised questions in the past about the IoMG’s delegation that went to Iceland a while ago, which is puzzling since apparently they have no role to play in the international arena:

“On 10 October the IoM authorities sought confirmation from the UK that, in accordance with the constitutional relationship, the UK would represent the Isle of Man in negotiations with the Icelandic Government. The UK Government confirmed that, in line with usual constitutional arrangements, it would represent the Crown Dependencies in its negotiations with the Icelandic authorities.

The Crown Dependencies have no international legal personality. They are part of an indivisible Crown and the UK Government in right of the Queen is responsible for any external relations. This means in practice that the Isle of Man could not negotiate and agree anything with the Icelandic Government which would have any force in international law.”

And clearly with IoMG’s visit nothing was achieved; nor, on the basis of the above, could be it achieved – so why did they go?

Write to Ministry of Justice – Lord Bach and Jack Straw pressing them to get their weight behind the Guarantee negotiations.

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