Acting Deemster Andrew Corlett acceded yesterday (Friday 24^th Oct) to the petition, lodged by the Treasury, to delay the winding-up of Kaupthing Singer Friedlander (IOM) Ltd for another month to allow time for attempts to save the bank to work.

In a packed number 1 Court, His Honour heard representations from a number of parties, including individual investors, before deciding to grant the stay of execution on the bank.

Peter Clucas, appearing for KSF (IOM) went through a number of procedural issues before explaining that Managing Director Aidan Doherty’s second affidavit, which had been authorised by the Board, ‘fleshed out’ of the earlier one presented at the initial hearing on the 9^th October.

Mr Clucas then read out the affidavit, at the request of His Honour, which contained the claim that the bank had no prior knowledge of the UK administrator’s decision to transfer funds, from the UK division of the bank, to ING Direct.

This action, it was claimed, denied the IOM division access to funds in order to meet the withdrawals, which had been running at a rate of £30 - £40 million a day, in the days prior to the 9^th October.

The Board had taken the view that the rate of withdrawals was likely to continue the following week, and possibly increase; so, without access to the funds to satisfy the demand, a decision had been taken [in conjunction with the Financial Supervision Commission (FSC)], to cease trading.

The affidavit referred to the written guarantee, issued by the parent bank on the 17^th September, and that a call had been made to Iceland to make funds available, but that on the 8^th October the parent bank had been wound-up.

Referring to Mr Gudni Adalsteinsson, Chief Treasurer of Kaupthing HF, he stated that he couldn’t do anything to help the situation as his efforts had been overtaken by events in Iceland.

The result is that £557 million of the IOM division’s assets have been ‘locked-up’ in London and another £195 million in Iceland; and without access to these funds it was not possible to continue as a ‘going concern’.

In summarizing the bank’s ‘standpoint’, Mr Clucas said that it remained of the opinion that it could not continue to meet its liabilities and that the Board’s previous position remained “relevant and unchanged”.

However, he understood that other parties wished to make representations on this point and he would therefore wait and see what they had to say before coming to a final decision.

Jeremy Callin, representing the FSC (‘Failed’ Supervision Commission), stated that their position remained unchanged; but acknowledged that they had received a large number of representations, by phone and email, from small creditors of which the majority had expressed the view that there should be a delay in the winding up.

Government Advocate, Stephen Harding, representing the Treasury (who had a silent Attorney General sat beside him) said that the Treasury’s position was that an adjournment of not less than 28 days should be granted; and that he would wish to address the court in detail on this matter.

Having been invited to make his submission by Acting Deemster Corlett, Mr Harding explained that the ‘Manx’ bank was a subsidiary of an Icelandic bank, Kaupthing Bank hf, and had been caught up in the difficulties of that company and at “no fault of its own.”

He explained how the constitutional relationship between the IOM, UK and Iceland was relevant to the current situation, and that the UK has agreed to represent the interests of the IOM in negotiations with the Icelandic authorities.

He said that the main issues for discussion were the ‘guarantee’ from the parent bank and the release, by the UK administrators, of assets frozen in the UK to the ‘Manx’ bank.

In respect of the ‘guarantee’, as the Icelandic government now ‘owns’ Kaupthing Bank hf the Treasury is expecting the Icelandic government to ‘honour’ the guarantee.

He advised the court that a delegation from the IOM, including the Chief Secretary and officials from the Treasury and FSC, was due to hold ‘high-level’ meetings with the Financial Service Authority in the UK to discuss the situation and to see if funds could be released.

He pointed out that the IOM government is a substantial creditor of the bank, with £10.7 million of taxpayers’ money at stake.

His Honour wondered if Mr Harding was suggesting that if funds were released the bank would no longer be insolvent.

Without actually answering the question, Mr Harding stated that a bit more time was needed to see if the negotiations were successful, and that the ‘high-level’ meetings should be allowed to continue. Winding up the bank, he said, would be “premature” and time was needed to see if “the fruits of the negotiations” removed the necessity to wind-up the bank.

Next to speak was Mr Cain, representing the provisional liquidator, Mike Simpson, who said that he was adopting a ‘neutral stance’ and would rely on the discretion of the court in making any discretion on an adjournment.

He put it to His Honour that employees are already facing uncertainty over their future and that any delay would add to that uncertainty; and that this should be taken in to account when deciding the length of an adjournment if granted.

He also reminded the court that some interest had been shown in parts of the business and the liquidator did not want to loose any momentum in making a sale through the granting of an adjournment. He said the liquidator believed any sale shouldn’t be put on hold.

Mr Halsall, representing an individual with a mortgage and deposits with the bank, expressed the concern that his client, and others in a similar position who had probably not yet recognised the potential prejudice they faced, may be left in the unenviable position, if a sale of the loan book was allowed, of owing money to another institution but with no funds to service the debt. He pointed out that if KSF (IOM) was wound-up then his mortgage would be offset against the deposit, which would be far more favourable to his client.

He was therefore seeking to protect his client by asking for the court, if it granted an adjournment, to amend the terms of reference for the liquidator to prevent him selling the loan book without the approval of the court.

Mr Halsall said it appeared that he was the only person objecting to the adjournment, and hoped the acting Deemster would take his client’s concerns, who is living in a “climate of fear”, on board.

Mr Halsall also pointed out that all the evidence before the court demonstrated that the bank was insolvent and that he had expected the Treasury to provide some form of evidence to support its call for an adjournment. He added that he objected to the FSC seeking costs as that will reduce the pot from which creditors are paid.

The advocate appearing for the Kaupthing Bank and other individual creditors, one of whom said he has £200k invested in a bond with the bank, said they supported the adjournment.

Another creditor, Mr Roper wasn’t sure why 28 days was needed, but his main beef was with the FSC being allowed joint status with KSF as ‘petitioner’; and commented that many people in the IOM view the FSC “as part of the problem and not the solution”.

His Honour then inquired if anybody else in the court wished to speak, even if they hadn’t given notice, but nobody took up the offer.

Mr Clucas was then given the opportunity to respond.

He said a delay in making the winding up order would delay any payout by the liquidator; albeit he acknowledged that he was “at the start of the road of collecting assets and not sitting on them ready to make a payout”.

That being said, the evidence before the court was that the bank was insolvent and unable to continue as a going concern.

However, taking into account the ‘high-level meetings’ and the possibility of these baring fruit and bringing in assets for the liquidator, and taking into account the wider world, the adjournment may not be so critical. So although his client would not support the adjournment they were prepared to leave the decision to His Honour.

Mr Callin, in not wishing to appear to be passing the buck back to His Honour, said he would support what Mr Clucas had said; his client would not support the adjournment but neither would they object to it.

Mr Harding noting the criticism of not having filed supporting evidence with the petition explained that all the Treasury officers that could have sworn an affidavit were ‘off-island’ and that the A.G.’s chambers had only been instructed on Wednesday evening. In fact he had only been asked by the A. G. to represent the Treasury on Thursday morning.

He continued that if it was considered necessary it could be filed later but he didn’t think it was strictly necessary.

A discussion then took place between His Honour and Mr Harding on whether 28 days was actually needed. It was finally agreed that a ‘realistic’ period should be allowed and that if became apparent that negotiations were going nowhere, or were going to get bogged down in litigation, parties could come back to court sooner.

In moving towards making his decision, His Honour was reminded by Mr Halsall about his client’s concern. His Honour allowed Mr Cain a few moments to consult with Mr Simpson out side of the court, after which Mr Cain said the liquidator had no objection to Mr Cain’s request.

Mr Halsall pressed Mr Cain and His Honour to clarify that it would need both the FSC’s and the courts approval of a sale of the loan book, and this he said was a very important point.

His Honour agreed but said it was adding in an extra safeguard; although he suggested that if a sale was of benefit to the creditors the court probably would approve the sale.

In summing up His Honour said that he accepted what the government advocate had to say, not withstanding the lack of a supporting affidavit, and that there was overwhelming support for an adjournment. He was therefore adjourning proceedings until 10.00am on 27^th November.

He said he wanted creditors to be kept informed of any developments and any new affidavits to be sent in plenty of time to noticed parties. He also agreed to amend the provisional liquidator’s remit so that he needs the court’s approval of a sale of any part of the bank.