Manx Herald 24 June 09: KSF (IOM) DAG unhappy with delay in judgment on SoA costs

Tue, 23/06/2009

Isle of Man legal system has conspired with the Isle of Man Government to continue the agony for KSFIOM depositors. When will the authorities on the Isle of Man recognise that every court hearing, every adjournment and every delay in this process is costing depositors financially and emotionally?

The Depositors Action Group has voiced their dismay at the delay in finding out if their application to have the costs, regarding the failed Scheme of Arrangement, paid by the Treasury, rather than out of the ‘liquidation pot’, is to be up held.

On top of the delay depositors have already faced in receiving any substantial pay out from the failed bank this latest matter is seen as adding insult to injury.

At the end of the short court hearing, on Tuesday (23rd June), Deputy Deemster Corlett expressed regret in not being able to come to a decision, but stated the matters discussed were a bit more complex than he had originally imagined they would be; so he was reserving judgement. He also said he wanted to be sure that the wording of the Order he makes is clear to whoever may need to take action in respect of his decision.

The main argument had been between Mr Chambers, representing DAG, and Alan Gough representing the Treasury; with bit parts played by Seth Caine acting for the joint liquidators; and Mr Clucas appearing for the Company.

Essentially the argument propounded by Mr Chambers was the Treasury were the main promoters of the SoA, and because it failed they should pay DAG’s costs, right back from November 2008, and also, unusually, the costs of the joint liquidators. They believe it would be unfair for the DAG to have ‘won’ but effectively to have their costs met from their own funds; and also have to pick up the tab, run-up by the provisional liquidators, in putting the Treasury’s SoA to creditors.

They relied on an English case to bolster their position but Mr Gough argued they had misinterpreted the judgment; and as the Treasury hadn’t acted in bad faith or frivolously in promoting the SoA, they couldn’t be made to pay all the costs. However, his Honour appeared to favour Mr Chamber’s reading of the judgment to Mr Gough’s.

Mr Gough also tried to argue DAG had not needed to take specialist advice; but His Honour countered this himself by pointing out the Treasury had, so why shouldn’t DAG.

He said the SoA was a long and complex proposal, in fact incredibly difficult to understand and apparently with gobbledygook in places.

Mr Gough limply retorted that Treasury had paid for their specialist advice themselves; but conceded their costs should be paid – but from the Company’s assets.

He also tried arguing DAG’s costs should only be paid from 9th April 2009 as they had gone along with the adjournments to allow the SoA to be formulated; and in fact had engaged in horse trading to try to get more money put into it. His Honour thought that quite reasonable of DAG, so Mr Gough didn’t seem to be on a winner on that line of attack.

Mr Gough then tried influencing his Honour by declaring if he went with DAG it would be the “kiss of death” for any other attempts in the future to promote a SoA as who would take the risk if the costs fell on them if it was rejected. It would be liquidation and nothing else.

He rather shot himself in the foot on this as well, as his Honour - admirably assisted by Mr Caine with the date a working party was set up in 1994 to review the law - pointed out insolvency laws in the IOM are not up to the job and was it not the responsibility of Treasury. A chided Mr Gough said he would pass on his Honour’s comments to his client.

Mr Caine attempted to argue some of DAG’s members must have voted in favour of the scheme so perhaps DAG didn’t have such a strong argument; but this was roundly rejected by Mr Chambers who stated the Committee was representing the majority view; and it was quite normal for a group to work in this way.

Mr Caine also seemed to be siding with Treasury on a number of other issues but all parties appeared to agree the winding up costs and the SoA cost were essentially interlinked.

Mr Clucas briefly stated the Company had been a passenger in all of the proceedings and that nobody appeared to be objecting to their costs being paid out of the assets.

Mr Chambers, in responding to Mr Caine and Mr Gough stated who pays the costs has nothing to do with misconduct it basically comes down to who lost, and in this case it was Treasury, as the SoA failed; and so they should pay as otherwise it would be unfair on the creditors.

The Treasury could have made the SoA more attractive to creditors, but they chose not to, he said; plus nobody else, including the provisional liquidators, had any control over what the Treasury decided to offer.

He suggested the provisional liquidators costs are likely to be quite large (estimated to be circa £1m) and even if they had not asked for this cost to be picked up by Treasury; he suggested to his Honour he should use his power to order that they were; as this, he claimed, will be in the best interest of the creditors.

Mr Caine intervened and said although the liquidator is entitled to its costs they would leave it to his Honour to use his discretion in deciding who should pay.

And decision is likely in the next couple of weeks.

The full text of the DAG press release is carried below:

Indecisiveness rules the day - yet more frustration for KSFIOM depositors
The IOM Deputy Deemster today deferred his decision on the issue of the costs incurred by and on behalf of depositors involved with the Isle of Man Treasury's much-flawed Scheme of Arrangement (SoA) that was overwhelmingly by creditors rejected last month.

In doing so, the Isle of Man legal system has conspired with the Isle of Man Government to continue the agony for KSFIOM depositors. When will the authorities on the Isle of Man recognise that every court hearing, every adjournment and every delay in this process is costing depositors financially and emotionally? Depositors have now been denied access to their life savings and retirement provision for 8 months. In that time, all that the endless discussion and prevarication by the Isle of Man authorities has achieved is a reduction in the net amount available to them from the collapsed bank.

Depositors believe that, as would happen in England, the IOM Treasury (IOMT) should pay the substantial legal costs involved in analysing and defeating the SoA and also the time that this politically-inspired scheme required from PwC - the KSFIOM liquidator.

Not only has this ridiculous debacle apparently cost the Isle of Man taxpayer almost a million pounds in fees and costs directly incurred by the IOMT and its advisers, if the IOMT gets its way, this debacle will also cost depositors dear as they will have to meet both their own considerable legal costs and also to pay indirectly for the time PwC spent on their behalf on the SoA, which will ultimately come out of any potential return they may receive from the bank.

The most frustrating thing for depositors is that they told IOMT back in January that the scheme was not appropriate and that anything that prevented future legal actions against the parties involved in this debacle would never be accepted by depositors. But IOMT decided to ignore this advice and pursued their scheme at all and any cost. Hardly actions that indicate any great concern for the financial destitution they have brought to so many by their incompetence and self-interest.

It appears that the Isle of Man is no longer fit for purpose - it cannot manage its own regulatory authority and is prepared to put the liquidation of a bank on the island down to others' actions when it supported the move to transfer the KSFIOM assets to its sister bank in the UK without any possible recourse in times of trouble. Without that single action the livelihoods of over 10,000 individual depsoitors would not have been ripped apart, chewed up and trodden on in the way that they have during the last eight months.

And now to compound everything else that has gone before, IOMT has the audacity to go to court and argue that despite all the advice it received to the contrary and despite the fact that it always knew that just a single vote in one of the three classes of creditors that had to approve the SoA had the power to defeat the scheme (as it did), the risk was worth taking and now should be paid for heavily by depositors themselves. It seems little has been learnt by the Isle of Man authorities regarding calculating and managing risk.

It is clear that the Isle of Man operates a parochial and incestuous culture in all its political, legal and business activities and is incapable of existing independently in accordance with crown dependancy requirements. The UK Ministry of Justice needs to step in and preserve the integrity of this territory immediately. This farce and level of suffering by innocent depositors and creditors cannot be allowed to continue.

Let this be a stark warning to anybody seeking fairness and transparency under the financial or legal systems on the Isle of Man. Current and potential depositors beware.

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