Deputy Deemster Andrew Corlett acceded today (Thursday 27^th Nov) to the wish of the Treasury to delay the winding-up of Kaupthing Singer Friedlander Bank (IOM) for a further 60 days.

He agreed to allow more time for either the ‘high level’ meetings, between officials from the IOM, the UK and Iceland to succeed, or a restructuring or sale of all, or part, of the business to have a chance of success.

Making the application for the 60 day adjournment was the Attorney General, John Corlett and Alan Gough, and this was supported by advocates representing the largest number, by value, of creditors of the insolvent bank.

The Attorney General told the court that although the ‘high level’ meetings had not produced any positive results so far the government has not given up on them. He added that the Financial Supervision Commission, who had previously supported the action to wind-up the bank, is now prepared to allow time to explore possible alternatives to liquidation.

He said that the Island authorities believe that the £550 million of KSF (IOM) funds transferred to the UK was in trust and therefore ring-fenced, but that this is disputed by the authorities winding-up the UK division of KSF.

He also explained that the working party, established by the Chief Minister, continues to search for a resolution to the problems faced by the bank. To this end, the Treasury had appointed specialist corporate restructuring consultants, Alix Partners.

Mr Gough took over at this point and summarized, for the benefit of the court, the contents of an affidavit submitted by David Lovett (Alix Partners) in support of the adjournment.

He said that a number of options are being considered, some of which appear to offer a better prospect to creditors, of recovering their money, than a traditional winding-up.

A sale of the business or a recapitalization, including Treasury support, are two options under consideration, as is a restructuring involving other third parties; with a traditional liquidation being the last option. He acknowledged that this last option may be favoured by small investors but doubted it will have widespread support.

He also admitted that preventing damage to the reputation of the IOM is a consideration behind the decision to try to avoid liquidation. In so saying, he said he was confident that creditors will be better off, and get a quicker payout, if one of the alternatives succeeds.

He suggested that under section 132 of the Companies Act creditors will get an opportunity to vote on any proposals brought forward by the Treasury, which will enable them to participate in any decision.

However, he accepted the two month adjournment will delay payouts, and so the Treasury is proposing to go to Tynwald to obtain permission to make a special payout; not that he could anticipate how Tynwald will react to the proposal.

Whilst he could not make any promises that the delay would result in a change to creditors’ prospects he said by winding-up today they would never know if a better result could have been achieved.

It then came as no surprise when he said he would be unable to give too many details of the work to be undertaken by Alix Partners for ‘confidentiality’ and other reasons.

He reminded the court that the government is a creditor to the tune of £10.7 million and along side the government are creditors owed, collectively, £173 million who support the adjournment; but that the creditors opposing the Treasury’s petition are owed less than £1 million.

Deputy Deemster Corlett was not sure that the last figure was correct but did not labour the point.

Mr Gough continued that the court had a discretionary power in respect of the adjournment but His Honour was bound to consider if there was a benefit in ordering the winding-up, for which he said there is a low threshold, but in this case it was not a creditor seeking the winding up but the bank.

Accepting that there had to be a good reason not to order the winding-up he said a balancing act had to take place and there was less objection to granting the adjournment than dismissing the petition. He also quoted the Demaglass Holdings case as the legal guidance for this situation; and that he believed the court had the flexibility to allow some restructuring or other action time to sort out the problem.

In closing he said, if the 60 day adjournment was granted, he would be happy to provide a report to the court on progress 14 days before the next court date.

In reply to a question from His Honour, Mr Gough said he saw no sense in setting a shorter period and repeatedly coming back to court when more productive work could be done.

Mr Cain, representing the provision liquidator, Michael Simpson, said his client retained his neutral stance. He gave an overview on some of the work being undertaken by the liquidator, and some of it involved very complex legal arguments. Although some assets had been recovered and others identified, which totalled over £100million, some of the businesses holding the assets were claiming set-off against debts from other parts of KSF. So at this stage he did not have an accurate indication of the amount recoverable for creditors.

He said that 66 expressions of interest had been lodged in respect of either purchasing the whole of the business or the loan book. 15 had followed this up with further inquiries, some of whom, he said, are now conducting due diligence work.

Mr Cain informed the court that Mr Simpson had held talks in Iceland with the parent bank, but he had come back with little hope that the guarantee would be honoured; albeit he had put the bank on notice.

Apparently 38 people remain employed by KSF (IOM) and Mr Simpson is very pleased with the professional way they have conducted themselves, even though they face an uncertain future.

Mr Cain said Mr Simpson wants to get the best deal he can for creditors and that includes making an early payout.

Mr Wild, appearing for the FSC, said his client thought the Treasury are trying to improve the position of the creditors and would therefore support the petition. He also confirmed, at the request of the Deputy Deemster, the FSC would not be seeking to recover their costs from the creditors’ pot; and would only be doing what they were statutorily required to do in this matter.

Mr Clucas, appearing for KSF (IOM), said, on the one hand, the board remained of the opinion they could not meet their obligations, so the bank should be wound-up; but they noted the information provided by the provisional liquidator and the possibility of an improvement in the position.

Perhaps any balancing had to give greater weight to the creditors but he remained of the view any proposals from Treasury had to be firmed up sooner rather than later.

His Honour then called on Mr Morris, who he suggested probably represented the biggest, in value, creditor group - including several insurance companies - and perhaps, unsurprisingly Mr Morris said they supported the adjournment.

Countering the view of the majority heard so far, was Mr Wright, who said he represented a number of individuals, and the action group formed by approximately 2000 ‘small’ creditors, who collectively are owed about £40 million.

He argued that more information should be provided first before a decision was taken on the adjournment. He sought a delay of 14 days to allow time for a number of questions, posed by the creditors, but as of yet unanswered, to be dealt with so that he could properly advise his clients so they could make informed decisions.

He claimed, for example, that people were being “very precious” about the terms of the parent company guarantee that today the court had been informed was “worthless”.

He said he didn’t think the delay would prevent Alix Partners from getting on with their work; and stated that he did not think providing answers to the questions, which were neither seeking commercially confidential nor significant information, could assist all parties.

An individual creditor, Mr Hughes then addressed the court very passionately and eloquently.

He began by saying he believed the provisional liquidator, at an earlier sitting, had mislead the court regarding taxation issues and the appointment of a joint liquidator.

He then stated that he had been “shocked” when he discovered the terms of the parent company guarantee and that he feared it could not be called upon. He pointed out that it allowed Kaupthing Bank to dispose of it shareholding, and by doing so the guarantee then fell. Therefore, the winding-up order should be issued immediately to prevent KB (HF) manoeuvring itself out of the guarantee.

He said that the FSC knew the bank was insolvent but was supporting the adjournment, despite no evidence to support their position, so their opinion should be disregarded.

He also believed that as Alix Partners could offer no assurance of improving the situation then a decision had to be made now to wind-up the bank. He added this would not stop Tynwald approving a special resolution to give support to creditors.

His Honour inquired of the Attorney General if he had a view on the 14 day delay.

The A. G. was not in favour but offered a further insight into the thinking behind the ‘special scheme’ to allow a “payment on account.” He said this may be from money already recovered by the liquidator provisional or by indemnity of the Treasury. He suggested if the proposal is to be brought to the December Tynwald it would be under the provisions of the Finance Act; and that the special scheme could perhaps either use half of the £150 million already voted through by Tynwald or even ‘new’ money.

Whatever, they would need to move pretty quickly and he hoped it might allay some of Mr Wright’s concerns; not that he wanted to get “bogged down” in answering Mr Wright’s questions.

Mr Corlett then offered to make sure all the parties are kept advised of any progress.

Mr Gough then chucked in his two penny worth on the delay. He said it would be a waste of time and that there are far more important things to progress. He pointed out that it is planned to publish some Q&A’s on the website soon; and hoped that would be satisfactory.

Making his decision His Honour said, taking into account the Demaglass case, he would accept the arguments put forward by the Treasury, and others, for the 60 day adjournment.

He added it was open to Mr Wright, if necessary, to come to court to seek directions on how the liquidator provisional should provide answers to his questions.

He then turned to some of the issues raised by Mr Hughes and he was concerned that the court had perhaps not been properly informed when making its decision on the appointment of the joint liquidator.

Mr Wright said that all his clients want is an end to the “obsessive secrecy” and greater openness and transparency; which he said is necessary if creditors are to retain confidence in the process.

Mr Cain apologised for any previous oversight and assured the court that no mischief was intended. He was of the opinion that Mr Simpson is trying to be as open and transparent as the situation allows him to be.

Noting what had been said by the parties, His Honour cautioned everybody that “considerable care” should be taken when presenting affidavits; but took the matter no further.