KAUPTHING GUARANTEE - New Perspective

  • jkk
  • 10/10/08 31/05/09
  • a depositor
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Posted: Tue, 20/01/2009 - 14:49

This forum's general opinion concerning the parental guarantee could be summed up as follows:

KSF IoM has the guarantee of Kaupthing hf promising to discharge its liabilities if and when KSFIoM is unable to discharge them by itself. Since Kaupthing hf is presently in receivership, it is unable to discharge even its own liabilities, let alone those of KSFIoM, therefore the guarantee is unenforceable.

HOWEVER, there was a period of about 2 weeks before the banks' collapse, when KSFIoM was sending desperate pleas for cash to its parent company and had received none. That in my view represents a clear case of violation of the parental guarantee, which should be actionable in courts.

Kaupting hf 's lawyers may argue that their bank was experiencing its own cash flow problems at the time, but that contradicts their own legal argument against the British Government. The basic premise of their lawsuit is that Kaupthing hf was a well functioning fully solvent bank, which was brought down by the irresponsible hostile actions of HMG. Well, if that is so, then why did they not discharge the liabilities of their IoM branch when they had the means and it was clearly their legal duty to do so?

Could the legal minds advising our Beloved Leader and His Central Committee and The Assorted Members of His Politburo give Their Learned Opinion if we can bring a court case against Kaupthing hf on the base of the above conjecture? If we can, we may find a lot of allies in unexpected places. I suspect that Messrs Tony Brown, Allan Bell, John Cashen, Donald Gelling, John Aspden, Aidan Doherty et al might be only too happy to help us, just to get themselves off the hook.

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Not a flyer

  • steveservaes
  • 13/10/08 31/05/09
  • unspecified
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  • Tue, 20/01/2009 - 16:34

Sorry mate - it doesn't matter when Khf went belly-up its still belly-up - so when our cause of action arose is not going to assist us.


Legal Eagles to Rescue

  • jkk
  • 10/10/08 31/05/09
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  • Tue, 20/01/2009 - 23:00

That is not the point I was trying to make.

Kaupthing hf was in breach of contract when it refused to discharge the liabilities of KSFIoM pre 9 Oct.

The fact that they are now suing HMG is sufficient proof that they did not cease to be a legal entity despite being bankrupt. And if they remain a legal entity, capable of suing a foreign government, they can be sued as well.

There are apparently tens of billions of pounds of assets to be distributed in the liquidation of Khf. If KSFIoM wins a legal award against them in the court, we may qualify for payment before all unsecured creditors.


Kaupthing hf was in breach of contract

  • ng
  • 11/10/08 31/12/20
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  • Wed, 21/01/2009 - 19:00

Nice thinking. I suggest put it to a poll as to whether there might be a legal case, asking for only experienced folks to respond to the poll. If it looks positive at that stage, need to consider further, i.e. funding legal action or whatever.


Lawsuit against Khf

  • jkk
  • 10/10/08 31/05/09
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  • Wed, 21/01/2009 - 20:34

As I mention in the initial posting, we may find allies, willing to finance the legal action, in unexpected places. IoM Treasury, KSFIoM Board of Directors or FSC might be happy to oblige, just as Iceland's Government eagerly offered to finance Khf's action against HMG.


Legal people's opinion?

  • ng
  • 11/10/08 31/12/20
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  • Thu, 22/01/2009 - 12:09

Waiting for those in the know to give some feedback on this. Elgee has contributed and suggests a slightly different tack. Anyway, we need a "next step".

Please join in here too.


Legal people's opinion?

  • jkk
  • 10/10/08 31/05/09
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  • Thu, 22/01/2009 - 12:41

You have to be careful about elgee's intentions, though. He has a tendency to sidetrack any idea that may bring a positive outcome for all depositors.


Legal people's opinion

  • Anonymous
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  • Thu, 22/01/2009 - 13:22

I was trying to be helpful by explaining the law. As I am not a lawyer, I took the trouble to check it with several people who are before making the posting referred to. I always do this as a matter of course before posting a view on legal matters, unless it is something about which I am quite certain.

Your suggestion that I am intentionally sidetracking is incorrect. If you look back you will find it was me who re-raised the issue (last week) of the parental guarantee after discovering myself that (i) kaupthing hf had substantial assets and (ii) that the proposition that it is a guarantee of last resort is certainly open to question given the words of the guarantee itself.


Interesting point jkk, So in

  • expatfrance1
  • 15/10/08 31/05/09
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  • Wed, 21/01/2009 - 13:15

Interesting point jkk,

So in effect you are proposing that Khf had already broken the terms of the parental guarantee prior to KSFIOM being placed into provisional liquidation and that the IOM FCS and Treasury should be going after for them for that.

Sounds good to me. It would be interesting to hear what any legal 'experts' would say to that.


Legal Action Against Khf

  • jkk
  • 10/10/08 31/05/09
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  • Wed, 21/01/2009 - 18:30

That is exactly what I am saying. Please re-read those two quotes from Doherty's affidavit:

"(...) I asked KB Hf to transfer urgently sufficient funds to meet the Company's immediate liquidity requirements (...)"

"(...) Mr Adalsteinsson subsequently informed me (...) that KB Hf was not able to provide the Company with any funding either as requested or at all."

He is saying quite clearly that Khf has failed to discharge the liabilities of KSFIoM when KSFIoM was unable to discharge them out of its own assets, which means that Khf has broken the provisions of the guarantee when the banks were still solvent.

FSC should have taken legal action against Khf right then on 9 October, since they knew the terms of the guarantee all along.


Legal Action Against Khf

  • Anonymous
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  • Thu, 22/01/2009 - 09:54

What you have set out above is *evidence" of the bank not being able to meet its liabilities. It is not a breach of the guarantee itself nor is it on its own an event sufficient to give rise to a claim under the guarantee. For the latter, there must be an event in which the bank has failed to meet its liabilities - the request by the bank and the refusal by the parent is not such an event.

However, I think there are many such events that do give rise to a claim under the guarantee since the bank collapsed - eg. any attempt by a depositor to withdraw money which failed and any cheque that was bounced seems to me to qualify.


Legal Action Against Khf

  • Anonymous
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  • Wed, 21/01/2009 - 20:18

I take your point, although I think it is arguable whether or not the event you describe would be considered a default capable of creating a claim under the guarantee.

Perhaps more strongly arguable is the proposition that in failing to permit any of us to withdraw our deposits since that time, defaults have since occured that would enable individual depositors to claim the benefit of the guarantee.

Still more strongly arguable is the proposition that a depositor who sought to withdraw his money today, failed and subsequently issued proceedings and obtained a judgment of a court (noting the words of the guarantee, in any jurisdiction) against the bank, would then be able to claim the benefit of the guarantee and, if that claim were not to be met, should be able to get a judgment against Kolapsing hf in the same jurisdiction.


dcs same

  • Anonymous
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  • Thu, 22/01/2009 - 00:26

The same could be said for the dcs. Our bank has defaulted. I am unable to access my deposit. I should be able to claim under the dcs. I don't think it is necessary for the whole bank to go bust, or for the bank to be wound up.

But this whole argument gets us nowt at all. Legal claims are expensive, lengthy, require commitment, and if they have any value, are probably already under investigation by the liquidator provisionally.


dcs same

  • Anonymous
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  • Thu, 22/01/2009 - 09:49

No, it is not the same. In the case of the DCS, the meaning of what constitutes a default is defined in the regulations themselves. So is the mechanism of activating the scheme. This is not so with the guarantee.


Legal Action Against Khf

  • jkk
  • 10/10/08 31/05/09
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  • Wed, 21/01/2009 - 20:21

The guarantee is very brief and straightforward. It contains no exceptions or disclaimers. Therefore any violation of its terms automatically creates a valid claim against the guarantor.


parental guarantee

  • Anonymous
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  • Thu, 22/01/2009 - 00:28

Because the parental guarantee is so loose and free, it will be difficult to pin down the guarantor.


parental guarantee

  • Anonymous
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  • Thu, 22/01/2009 - 09:46

I do not think it will be so "difficult tp pin down the guarantor". What matters most is the words that appear in the guarantee, rather than those that should have appeared but do not.


unsecured creditors?

  • steveservaes
  • 13/10/08 31/05/09
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  • Wed, 21/01/2009 - 11:49

Two points :-

KSFIOM does have a claim - but only as an unsecured creditor, so no priority over others
Kaupthing hf is under a moratorium in Iceland - so no enforcement there - I don't know whether other countries would respect the moratorium in respect of assets there


Legal Action Against Kaupthing hf

  • jkk
  • 10/10/08 31/05/09
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  • Wed, 21/01/2009 - 13:04

Steve, you are missing the point. You seem to be referring to the paltry £10m deposit that KSFIoM might have a claim on.

I am talking about the breach of contract which occurred when Khf failed to discharge the liabilities of KSFIoM on or before October the 8th, when both banks were still operating. Aidan Doherty writes in his sworn affidavit of 24 October the following:

"On behalf of the Company I asked KB Hf to transfer urgently sufficient funds to meet the Company's immediate liquidity requirements to enable the Company in the first instance to meet it (sic) potential liabilities to banking customers for the 9th and 10th October 2008, and thereafter, to enable the Company to continue trading the following week. It is my understanding that Mr Adalsteinsson was discussing the Company's requests for urgent funding with senior members of the board of directors of KB Hf. Notwithstanding initial statements indicating that KB Hf would fully support the Company, Mr Adalsteinsson subsequently informed me and my fellow directors of the Company after close of business on the 8th October 2008 that KB Hf was not able to provide the Company with any funding either as requested or at all."

Mr Doherty mentions only his requests of 8 October, but judging by the volume of attempted withdrawals in the first week of October, which strangely have never left the bank, and by the fact that he is talking about "requests" in plural, there must have been earlier requests to get funds from Kaupthing hf under the provisions of parent guarantee.


Thanks jkk for reigniting this issue.

  • 9-10
  • 12/10/08 31/05/09
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  • Wed, 21/01/2009 - 22:56

A couple more points in the mix :)

bloomberg 25 march 2008 .......

"Policy makers [in iceland] also said that lenders [ ie. kaupthing bank ] will no longer need to include obligations at foreign branches when setting reserve levels and that they will issue transferable certificates of deposit, raising liquidity."

http://www.bloomberg.com/apps/news?pid=20601085&sid=aP_9lyHK6A3k

Point 1.... in march it appears that the icelandic domestic situation began to take precedence over foreign holdings.
Point 2..... upstreaming from our bank to iceland was stopped , then routed to ksfuk, in spring ( i think ).

Was the icelandic policy decision the event that triggered concern to the fsa and fsc ?
Or was upstreaming to the parent already restricted ( maybe other bank group members doing the same ) before the policy change ?
Thus causing parent bank instability in the first place .
Anyway our concern is that the 2 points above meant that the parental guarantee from spring onwards was hanging on a thread -
potentially leaving the iom sub more exposed than other bank members ( no guarantor of last resort ).

Anybody else here besides me, who was enticed to ksf by this very guarantee throughout last summer, after the above events ?
Can Dag members see where this argument is leading ?

also 2 links to read in relation to the event .........

http://www.thisisguernsey.com/2009/01/08/landsbanki-clients-see-their-mo...
http://www.moneysupermarket.com/community/forums/post/landsbanki-guernse...


Maybe

  • SgKZ
  • 10/10/08 31/05/09
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  • Wed, 21/01/2009 - 14:51

Maybe Iceland told IOM to get some of the 550 million back from the UK if they were desperate?


Why would he ask Iceland for

  • vikingvictim
  • 11/10/08 31/05/09
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  • Wed, 21/01/2009 - 16:54

Why would he ask Iceland for money, when he had 550 million in KSFUK?


Why Khf not KSFUK

  • jkk
  • 10/10/08 31/05/09
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  • Wed, 21/01/2009 - 17:27

On the 8th Oct KSFUK was already in administration and our funds frozen.


Does anyone know...

  • brokefirefly
  • 12/10/08 31/05/09
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  • Tue, 20/01/2009 - 23:41

...if this is something that Mike Simpson should be pursuing? If it is, can we ask him at the call what he is doing to ensure that KSFIOM has a claim in the liquidation of Kaupthing hf?


Parental Guarantee

  • jkk
  • 10/10/08 31/05/09
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  • Wed, 21/01/2009 - 01:30

We may put that question to Mike Simpson but, clearly, the only person who really should know all about it is Aidan Doherty, KSFIoM Manager.


Parental Guarantee

  • poppytwo
  • 06/11/08 31/05/09
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  • Wed, 21/01/2009 - 08:33

Should we all individually be filling in a creditors claim form for Kaupthing hf or has Mike Simpson done this?