Manx Herald 14 May 09: KSF (IOM) depositors confused, bemused and not amused at SoA ‘road-show’

Wed, 13/05/2009

It came across loud and clear the provisional liquidators have no real clue at all; as they do not seem to be able to reconcile what funds were sent to London - although the figure of £550 million was used at one point by Mr Simpson - and what has happened to them.

A small handful of Kaupthing Singer & Friedlander (IOM) depositors turned out yesterday (Wed 13th May) to listen to a presentation, held in the Villa Marina in Douglas, on the Treasury’s proposed Scheme of Arrangement (SoA).

Making the presentation were Mike Simpson and James Ferris, from PWC, Seth Caine, advocate representing the provisional liquidator and Joe Bannister of Lovells, the London firm of solicitors involved in putting the SoA together.

Mr Simpson commenced proceedings by giving a quick run through the background to the provisional liquidation of the bank and said depositors were left with two options: liquidation and Depositors Compensation Scheme (DCS) or a SoA.

He briefly explained the mechanics of the two options; emphasizing the liquidation/DCS option would involve payments pari passu with funding from the banks, for the DCS, capped at £10million a year.

He described the SoA as a “compromise between the company and its creditors under section 152 of the Companies Act 1931”.

However, the Manx Herald doubts many people will have fully grasped the intricacies of the system; especially the complicated explanation on how, and when, the Treasury recovers the ‘top-up’ payments from the scheme.

Even now, following further attempts at clarification, there appear to be doubts in the minds of depositors about who does or does not ‘forgo’ dividend payments whilst the Treasury catches up on recovering its funding of the top-up to the scheme.

Many questions related to the amount of money sent to KSF in London and how much of it will be recovered. Professor Davidson said they had spent 7 months looking at the figures, and are, therefore, best placed to make any judgement, yet he found it totally unsatisfactory they could not offer a "best estimate" of recovery.

It came across loud and clear the provisional liquidators have no real clue at all; as they do not seem to be able to reconcile what funds were sent to London - although the figure of £550 million was used at one point by Mr Simpson - and what has happened to them.

One depositor suggested, from the figures being touted from the platform, KSF (UK) had effectively ‘lost’ half of its assets and wanted to know how they had disappeared, had the bank been trading whilst insolvent, and, if so, for how long; and who had allowed the situation to happen. He didn’t get any satisfactory answers.

The latest set of figures, published by the provisional liquidator, suggest the net position between the two ‘sister’ banks is only £241million in favour of the IOM; with a mere 50% recovery expected.

No wonder depositors are unhappy, especially when figures in excess of £600 million of deposits were bandied about in the early days of the bank’s collapse.

The Manx Herald has received emails from concerned depositors wondering how £128 million has ‘disappeared’ from the last set of figures; but we can not provide a satisfactory explanation either.

One significant point not brought to the attention of the meeting yesterday, by Mr Simpson, is that depositors have been given the opportunity to recast their vote, if already sent, in light of the revised figures. They now have until 27th May to do so, which is also the final date for original forms to be returned - if you have faxed or emailed a copy - and the date of the court hearing.

Depositors are saying this is nonsense, how can the vote be carrying on to the date of the court hearing: as they need time to prepare any arguments for the court, depending on the outcome of the vote, but how can they do that if they do not know what the result of the vote is.

The Manx Herald agrees and thinks the whole thing is dissolving into a farce and a shambles.

In response to a question if any legal action was being taken, or contemplated, by the administrators or the UK bank which may result in more for KSF (IOM); Mr Simpson replied he was not aware of any, but he wouldn’t expect them to share privileged information with him.

When questioned further about the assets/deposits held in London, and the chances of recovery, Mr Simpson explained that as a result of the KSF (UK) ceasing to trade, certain hedging and repo transactions were cancelled at that point. Large balances were owed and security was taken, in the form of shares, but apparently they are not worth any where near what is recorded on the balance sheet.

Accusations were made that employees of KSF (IOM) were tipping off friends, since the summer, not to put money in the bank; whilst at the same time the bank was pushing high interest rates to attract more business.

Some wanted to know why, if they didn’t get all their money back, they could not have the £50k ‘compensation’ on top of any dividend they received. They were told it just doesn’t work like that; the DCS is just devised so you get up to £50k back; but this clearly demonstrates that some people misunderstand how the ‘compensation’ scheme works.

Mr Simpson said, even if he had the power under the SoA, he would not be borrowing money to help pay depositors their money back quicker. He sees it as a “relatively risky” option; and would incur interest costs – although it was pointed out if Treasury took on the loan book it could be an interest free loan.

The issue of the ‘parental guarantee’ was queried. Mr Caine stated they had received an opinion that the SoA would not affect the guarantee, because the scheme did not amount to a compromise and thus would not affect the liability of the parent company. The only loss would be the right to take an action against KSF (IOM).

The Manx Herald pressed Mr Caine on this point after the meeting. Whilst he said a categorical assurance couldn’t be given that the guarantee will be preserved, the advice received was a “very strong legal opinion” that it will be. However, he emphasized it was an unsecured guarantee, so only a proportion of any accepted claim, under the guarantee, would be paid, if any dividend was declared by Kaupthing Bank to creditors.

He was adamant a claim for £550 million has been lodged with Iceland, but this will of course be adjusted once the shortfall is known on any payout to KSF (IOM) depositors.

DAG members still maintain their advice doubts the preservation of the guarantee, and consider this to be a significant factor in deciding whether to support the scheme.

Many depositors, we have spoken to, just do not trust what they have been told by the ‘promoters’ of the scheme; and remain to be convinced it is in their best interests to vote yes.

The Manx Herald asked Mr Simpson what pivotal piece of information caused him to change his mind, from suggesting liquidation may be preferable, to supporting the SoA.

Before he could answer, Mr Bannister interjected that the provisional liquidator had always remained ‘neutral’ (which we think is disputable) and it wasn’t until mid March, when they received further information - at which point, apparently, an intensive amount of work was carried out - were they in a position to evaluate the two options.

Mr Simpson added, it is for him to get the best outcome for creditors and, based on the information he now has, he believes the SoA is the right option.

Ultimately, it is for depositors to decide whether they feel they should put their trust in his judgement or rely on their own instincts, and experience, so far, in this unhappy and, pretty shabby, affair.

Meanwhile, The Manx Herald has finally received a comment from the Chief Minister on the email that was circulating among depositors from Mark Todd MP.

The email suggested if an approach was made to the UK, by the IOM, for assistance, he and others would probably press for assistance to be given.

However, the Chief Minister’s response is as follows:

In response to your email to the Chief Minister below, I have been asked that you be advised that the position of the Isle of Man Government was made clear when the Chief Minister gave evidence to the Treasury Select Committee. The Isle of Man is financially and fiscally autonomous and does not expect any financial assistance from the United Kingdom.”

So there you have it, the UK isn’t going to offer support, the IOM isn’t going to ask for it; so KSF (IOM) depositors, stuck in the middle of a political stalemate, will have to pay the penalty. Doesn’t it make you proud to be British or Manx?

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