SBC is banking on Icelandic court ruling against appeal

David Paterson
David Paterson

COUNCIL bosses are on tenterhooks this month, awaiting news on a decision by an Icelandic court that could cost the Borders local authority nearly £3million if judges do not dismiss a legal challenge over the billions lost in the Nordic country’s banking collapse of three years ago, writes Mark Entwistle.

Back in 2008, Scottish Borders Council (SBC) had £5million deposited each in Iceland’s Heritable Bank and Landsbanki when the country’s banking sector crashed.

SBC submitted respective claims of £5.042million and £5.127million. To date, SBC has managed to claw back over half its cash from Heritable Bank – and anticipates collecting almost 85 per cent of the lost cash at the end of the day.

No payments have yet been received from Landsbanki, but the local authority has been anticipating getting back nearly 95 per cent of its claim.

The subject came up for discussion at this week’s meeting of the full council during a debate on the statement of accounts for 2010/11.

Councillors were reminded in the chief financial officer’s report that the Scottish Government has allowed SBC to borrow the £1.021million needed to cover the shortfall that would remain if these percentages were indeed recovered.

At the moment, SBC and around 100 other local authorities and organisations in the UK which lost close to £1billion when the Icelandic banking sector went into meltdown are classed as preferential creditors by that country’s courts.

However, the results of a legal appeal against this status, launched earlier this year by a group of non-preferential creditors led by Germany’s mighty Deutsche Bank, are due any time now.

If the Icelandic court upholds the appeal and SBC and the other preferential creditors are stripped of that status, it is expected the Borders authority would have to borrow another £2.9million to cover the increased shortfall between what they would collect in the end and their original £10million in deposits, plus lost interest.

SBC is currently repaying the extra £1.021million at a rate of £4,000 per week over five years. But if it loses preferential creditor status and it needs to borrow almost £3million more, those payments would rocket nearly four-fold.

Councillor David Paterson (Hawick and Hermitage) wanted to know if the council’s financial officers were not being overly optimistic in the levels of lost cash they thought would finally manage to be reclaimed.

“Do we really think we’re going to get all this money back from these Icelandic banks?” he asked.

Council corporate finance manager Paddy Fagan said he had noted the current political row in Iceland over action taken during the banking crisis which had prompted Councillor Paterson’s concern, but pointed out the challenge from the non-preferential creditors was a strictly legal one.

“We still remain confident we will be successful,” said Mr Fagan. However, he pointed out there was little further argument available to support the case put forward by the local government association which represents the preferential creditors.

“We don’t know of any arguments which can be put forward which weren’t put forward the first time round,” he cautioned.

Councillor Paterson responded: “I just think it’s unrealistic to think we’re going to get all this money back.”