The different governmental initiatives and judicial procedures, aiming at solving the financial crisis, have reduced the customers of the Icelandic banks to creditors that are put on a list in order to receive a part of their money.

What happened and what are the governments doing?

Due to liquidity problems Landsbankinn, Glitnir and Kaupthing, even though they had strong assets and a strong position in a long-term perspective, and due to the fact that there was no funding to be found in international markets to meet their short-term debt, the Iceland authorities intervened to ensure their domestic operations.

As it has been wide spread in the newspapers the Financial Supervisory Authority of Iceland (FME) has proceeded to take over the board activities and management of Landsbanki Íslands hf., Glitnir banki hf. and Kaupthing banki hf. to ensure continued commercial bank operations in Iceland. The FME could do so based on new legislation, which was adopted by the Althingi (Iceland parliament) on 6 October 2008 and which entered into force immediately after.

The FME appointed a Winding-up Committee taking control over the banks and dismissing the Board of the banks. The fact that FME proceeded to take over board activities and management of Landsbankinn, Glitnir and Kaupthing, does not mean that these banks are bankrupt. The FME's actions only aim at ensuring that Icelandic homes and companies can have access to a necessary service and operation by banks. Meanwhile the FME has been working out solutions for the Icelandic banks.

Based on this new legislation it is possible for the FME to take further steps as it deems necessary to ensure financial stability under the circumstances, which have developed in the financial markets. But measures taken by the FME do not have any cross border effect, except in case the foreign authorities recognize it as such.

But the Iceland government did not have to ask other countries to act as other countries were taking measures against the Icelandic banks and their branches or subsidiaries. Individuals, government organizations and charities in various other European countries were feeling the effects of the Icelandic financial meltdown. Since early October this year, customers of the Icelandic banks were unable to withdraw their funds.

Reactions of the different governments have been expedient in order to avoid a complete crumble of trust in the banking system. Account holders were able to turn to domestic deposit insurance systems. Several European authorities have enlarged their existing protections systems for account holders up to 100.000 EUR (whereas it was first only guaranteed up to 20.000 EUR). Also in most countries deposit holders of the Icelandic banks are requested to fill out a form in order to claim the Governmental deposit guarantee.

But in some cases governmental actions were driven by popular politics or revenge. On 8 October, the UK Government applied the Anti-Terrorism Crime and Security Act of 2001 against the Icelandic bank Landsbanki with the issuing of the "Landsbanki Freezing Order 2008" by the UK Ministry of Finance. The decision to use the UK Anti-Terrorism legislation against the Icelandic bank Landsbanki undermined confidence in Iceland's remaining and strongest bank Kaupthing. The seizure by the UK Financial Services Authority of Kaupthing's subsidiary, Singer & Friedlander, on 8 October led to the situation whereby the Icelandic Government was forced to take Kaupthing bank into administration on 9 October.

Governments and Central Banks have worked with the Icelandic Banks to solve the problems posed by the international financial crisis in a careful and considered manner. Consultations with authorities in the Nordic countries, Germany, Belgium and Luxembourg have already been successful. Iceland is conducting talks with the UK and the Netherlands, and stands ready for similar talks with other countries, as needed.

Where do you stand as a creditor of an Icelandic bank in this financial turmoil?

Faced with rapid changing circumstances a creditor of an Icelandic bank can easily get lost. His situation is depending at which bank he was a customer and in which country he was a customer of that bank. Issues on jurisdiction and applicable law always create discussions amongst legislators and lawyers.

But there is one most essential consequence of all these different measures taken against the Icelandic banks: all individual actions of creditors (or iura vigilantibus) against the Icelandic banks are halted. Therefore creditors are faced with a legal moratorium of all individual actions against the Icelandic banks and with a small chance on recovery (paritas creditorum).

At this point there is no one who can really give an answer except await the course of the procedure initiated by the respective governments or central banks. Even when in these procedure flaws are being detected, neither governments nor courts will allow any gain from it by separate or individual creditors outside the present installed procedures. Allowing such to happen would only cause new chaos on the financial markets, which are working hard on a stabilisation.

Individual creditors need to join the pending procedures of liquidation or management control. In principle all creditors will automatically be contacted by the proper authorities and will be asked to join proceedings. For this matter no real private counselling will be necessary. Private counselling will get useful if a solution is offered for the amounts of individual claims, which are not covered by the governmental guarantees. Individual account holders who had an account above 100.000 EUR will most likely have this problem. Counsellors of such creditors should be able to do more than just register with the liquidation procedures or fill in the claim or guarantee forms.

This is where East-West Debt comes in to assist you finding a solution by attaching assets worldwide, which are not covered by the above mentioned legal procedures, and to pressure the Icelandic debtor in cooperating to reach a decent settlement with its creditors.

East-West Debt is able to help you built up your file against any Icelandic bank debtor, look for hidden accounts or assets, assist you with legal procedures and advise you on how to get the best deal for your claim in particular.

December 2006 News
East-West Debt

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