24 MARCH 2011

Parental Guarantee

I can confirm that, after consultation with legal advisors and the Committee of Inspection, we have lodged an appeal to the Supreme Court of Iceland in respect of the ruling handed down by the Reykjavik District Court which rejected the validity of the parental guarantee.

It has always been the view of the Joint Liquidators that KSFIOM benefited from an enforceable Parental Guarantee issued by Kaupthing Bank hf. This view is shared by the directors of KSFIOM, a number of former senior members of staff at Kaupthing Bank hf ( including the former Group Treasurer) and most, if not all, creditors of KSFIOM. A guarantee dated 17 September 2007 was issued by Kaupthing Bank hf and signed by Ingolfur Helgason, the CEO of the bank in Iceland. It provides expressly that, as the parent company of KSFIOM, Kaupthing Bank hf ,

"...guarantees to discharge the liabilities of [its subsidiary KSFIOM] insofar as [KSFIOM] is unable to discharge such liabilities as have been validly asserted out of it's own assets...".

In reliance upon the enforceability of the guarantee the Joint Liquidators, on behalf of KSFIOM, lodged a "shortfall claim" against Kaupthing Bank hf. This claim was not accepted by the Kaupthing Bank hf Resolution Committee who referred the claim to the District Court in Reykjavik.

Given the significance of the guarantee and after taking Icelandic legal advice the Joint Liquidators sought an order that the guarantee was binding on Kaupthing Bank hf for the full amount of the claim lodged by KSFIOM. Alternatively, if it was determined that the guarantee was signed with insufficient authority to be binding, a claim was made for damages against Kaupthing Bank hf for the loss caused by its employee Ingolfur Helgason.

Unfortunately the District Court in Reykjavik has rejected both of the claims made by KSFIOM. In a ruling dated 10 March 2011, the Court held, in summary, that Ingolfur Helgason did not have the authority necessary to bind the board without the board being separately advised of and approving the guarantee. The Court further held that the evidence indicated that the Board was not aware of the guarantee. Secondly the Court held that KSFIOM could not succeed in its damages claim. They held that KSFIOM may have understood that Kaupthing Bank hf board approval was required before the guarantee would be binding and that in addition there was no reason to accept that it should be liable to compensate for losses allegedly due to Ingolfur Helgason's lack of authorisation in signing the guarantee.

The Joint Liquidators are very disappointed by the Court's ruling and in particular with certain factual findings upon which the ruling appears to have been based. Having taken further Icelandic legal advice and discussed the matter with the Committee of Inspection an appeal has been lodged with the Icelandic Supreme Court.

It is not possible to provide further details of the appeal process at this stage but a further update will be provided as soon as possible including an indication of the likely time frame within which the appeal will be heard.

Contacts

The best way to make contact is to write to the bank or email branch@singers.co.im. If you need to telephone the bank, please use the main switchboard number +44 1624 699222.

 

Mike Simpson

Joint Liquidator