Post 8 Oct 2008 Interest issues
As has been noted elsewhere, detailed information was posted on the bank website on 9 August 2016 regarding the (agonisingly slow) progression of the Court proceedings to determine how interest for the period from 9 October 2008 should be calculated:
Having just returned from a welcome internet-free holiday, I am only now beginning to get to grips with the various documents, which include a general description of the present situation, copies of Simpson's Application to the Court for directions made on 22 June 2016 with his associated witness statement dated 20 June, a preliminary Court Order made on 8 July 2016 and a Letter to Unsecured Creditors (as required by the Court Order) dated 9 August 2016.
Basically, 3 alternative arguments are being put forward as to the correct method of calculating and paying interest out of the (limited) available surplus assets (currently estimated to be approximately £15m):
- in accordance with the provisions of Section 23(4) of the IOM Bankruptcy Code 1892 (yes – that’s not a typo!), simple interest at 4% pa to be calculated on a day to day basis until the surplus runs out (likely to be around 150 days from the start of the liquidation on 9 Oct 2008); this is the argument proposed by the Liquidator & his legal advisors
- section 23(4) applies as above, but simple interest to be calculated at 4% pa from 9 Oct 2008 to the current date, with the available surplus distributed pro-rata
- section 23(4) does not apply and KSFIOM (having paid 100% of the admitted claims in the liquidation) should now be treated as solvent (even though there are wholly insufficient assets to pay contractual interest in full up to the present date) and interest should therefore be calculated according to the various and varied contractual interest entitlements of individual creditors.
Arguments for these 3 alternatives will be presented to the Court by 3 separate Counsel, to whom any particular points you wish to raise can be forwarded via the Liquidator’s office at no cost to yourself. Unsecured creditors can also request to become a party to the application (for example, because you wish to advance a fourth alternative), although this will involve costs and – given the relatively small sums involved - seems (to me) to be most unlikely to be cost-effective.
In response to a query by Golightly on another thread, I made some preliminary observations: http://chat.ksfiomdepositors.org/forum-topic/some-thoughts-sls-6-monthly...
For convenience, I am recopying them here and suggest that further comments specific to this topic be made here and not (or not only) in Gordon’s thread relating to the July Progress Report to Creditors.
The table provided in paragraph 20 of Mike Simpson's witness statement dated 20 June suggests that, under his preferred scenario (KSFIOM remains insolvent and post 8 Oct 2008 interest is calculated on a day-by-day basis until the surplus runs out), we could expect to receive between about 1.24 p/£ and 1.39 p/£ (in addition to any deferred pre 8 0ct 2008 interest that resulted from the 5% cap that was applied to uncapitalised interest, which is payable in priority and will differ between depositors). However, in the Letter of 9 August, it is stated that, due to recent exchange rate fluctuations following the Brexit vote, the likely surplus is now estimated at around £15m (compared with the previous estimate of between £11.2m & £12.6m). If confirmed, this would suggest we might receive around 1.65 p/£.
It is clear, however, that should the Court rule that KSFIOM should now be treated as solvent (which seems crazy to me, but Manx law on this is a mess and who knows what will be decided), the cost of dealing with the much more complex issues arising "will inevitably reduce the amount of the surplus assets available for its creditors" (see points 16 & 17 of the witness statement).
It seems to me, although I think it is not explicitly stated, that the other alternative - that KSFIOM remains insolvent but interest is calculated over the whole period since the liquidation began and then distributed pro-rata - would also be likely to incur a certain (though smaller) additional cost, thus also reducing - albeit to a lesser extent - the available surplus and thus the outcome for all unsecured creditors (to no-one's material benefit since, for a fixed total sum available for distribution, the p/£ would - unless I am much mistaken - be no different from the first alternative).
I have however other concerns regarding the position of the DCS (or rather the FSC as Scheme Manager) & the IOM Treasury in all this, as I suspect they may be defending the latter alternative in order to be able to claim a share of the interest that they will receive in relation to the rights that were assigned to them (paragraph 10 of the witness statement) - to the obvious detriment of DCS claimants. I expect to have more to say on this when I have had a little more time to reflect.