"The SoA Present A False Image"

Posted 07/05/2009 - 22:13 by steveejeb

Manx Herald Article

Members of the Kaupthing Singer & Friedlander (IOM) Depositors Action Group (DAG) are roundly criticizing the Scheme of Arrangement, propounded by the Treasury and its consultants, and say it is unacceptable.

These members claim that some of the information provided in the ‘Explanatory Statement’ is misleading and that a true comparison with liquidation, and a triggering of the Depositors Compensation Scheme (DCS), has not been made.

They say how can they decide which option is better for them when they are being denied the information they need to make a fair comparison.

Furthermore accusations are now being made that the provisional liquidator, Mike Simpson of PWC, and the administrators of the DCS are holding ‘secret’ discussions and withholding information from creditors about how the DCS would function in comparison to the SoA.

The suspicion is that figures are being deliberately manipulated to present the SoA option as a more ‘favourable’ option to creditors than going down the traditional liquidation and DCS route. Why this is so nobody seems to know or understand; or if, on the ‘government’ side, they do, they are not telling anyone.

Contained within the ‘Explanatory Statement’ are a number of working examples of how much money, based on a number of (questionably valid) assumptions, it is thought depositors, with varying amounts at stake, will get back under the SoA or liquidation/DCS.

Opponents to the SoA say they present a false image, in that one of the assumptions made is that payments, under either option, will always occur on the same date with the same interval between payments.

They say this can not be correct as is it would be possible for liquidation payments to be made in advance of the SoA dates, and possibly, based on the rate of recovery of assets, above the level envisaged by the SoA. Therefore, the graphs - which always show payments received by creditors under the SoA as better or matching liquidation/DCS - present the SoA as generally more favourable.

It is also being suggested that within the initial two payments, displayed in the accompanying graphs, in the liquidation/DCS scenario the DCS ‘top-up’ contributions are being rolled into one ‘delayed’ payment and made with the second ‘dividend’ payment; thus making the SoA look more attractive, particularly, to smaller creditors.

If this is correct then it is pretty despicable but unfortunately the payment dates, under the DCS, are discretionary and therefore open to manipulation.

Another claimed downside - mostly for larger depositors and the non-protected creditors - of the SoA over liquidation/DCS is the time creditors will have to wait before receiving further dividend payments once they have recovered 70% of their money. At that point the government starts recovering its ‘top-up’ payments and not until it has also recovered 70% of its ‘liability’ will the bank’s customers start to receive further dividend payments. That they say could be quite a considerable time period depending on asset realization. Whereas under liquidation/DCS, although dividend payments would include payments to the DCS, and thus slightly lower initially, they would at least be recovering some of their funds each time a dividend payment is made; and with no long drawn out gap towards the later stages.

Obviously if 70% recovery is not achieved, which appears highly unlikely given the information provided by the administrators, Ernst & Young, of KSF (UK), and then the SoA could be slightly advantageous to customers in that particular situation; and, conversely, bad news for the taxpayer.

However, one of the biggest sticking points at the moment is the issue of the ‘parental guarantee’; and whether the SoA truly preserves the right to pursue this option if the SoA is unable to realize 100% recovery.

The doubt is that the SoA could be viewed as a form of settlement thus releasing the parent bank in Iceland of any responsibility. This doubt is reinforced by the knowledge that a moratorium exists, under Icelandic law, which effectively prohibits any claims from being accepted, let alone approved, prior to some time in the autumn this year.

Therefore, members of DAG consider these type of valid concerns need to be addressed, and clear and unequivocal answers provided before creditors should be required to vote.

However, even if creditors do receive the information they seek, and want to vote, it appears that many have not yet received voting papers and, in an unknown number of cases, will not have time to return the forms to meet the deadline for proxy votes.

Not only that, it appears confusion has been spread – as a result of apparent poor decision making and dissemination of information by the scheme ‘promoters’ - amongst creditors - who have recovered their capital under the early payment scheme, but not the interest due - that they still retain a right to vote.

If the government is counting on apathy, hindrance, ignorance, or the indifference of this group of creditors, to help reduce the number of voters who may vote ‘no’, then they are obviously doing well in this respect.

The Manx Herald is also becoming less and less convinced that the SoA offers any clear-cut advantages over liquidation/DCS; and we have been attempting to contact various officials, so far unsuccessfully, to see if we can discover why the Treasury is so keen to ‘sell’ the SoA to creditors – or, conversely, are so afraid of liquidation/DCS. If we are given the answer we will let you know what it is as soon as we get it.

In a separate development, Treasury Minister Allan Bell has revealed, in a written answer to a parliamentary question, no extra support will be offered, by Treasury, to guarantee charities that they will recover 100% of their funds. He says he thinks the support already on offer is sufficient. It will be interesting to see if this decision will come back at a later date to haunt him.

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