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Response to the Global Financial Situation

As of 17th July 2009

THE Isle of Man’s parliament Tynwald has approved a £193 million Government funding package which will bring forward full repayment for more than three-quarters of depositors with Kaupthing Singer & Friedlander IOM.

The money from Isle of Man Government reserves will expedite payments of up to £50,000 per individual depositor under the Island’s Depositors’ Compensation Scheme (DCS). The move follows the failure of the proposed Scheme of Arrangement to gain the necessary levels of support when creditors voted on it in May.

The bank was subsequently placed into liquidation and the DCS activated. Treasury Minister Allan Bell MHK told Tynwald this week that £85 million had already been paid out to depositors under Government’s Early Payments Scheme, providing advance payments of up to £10,000 per depositor.

The new funding package now agreed will allow for full DCS entitlement to be paid out to claimants by early September this year, bringing a 100 per cent return of deposits to more than three-quarters of KSF IOM depositors. Mr Bell explained that the £193 million package comprised £73 million in direct support required from Government under the DCS regulations, plus an interest-free loan of £120 million (£21 million in advance of levies due from banks, and £99 million against future dividends payable by the liquidator).

The current Depositors Compensation Scheme is subject to a ‘sunset clause’ which means that its provisions are due to expire on October 23 this year. Mr Bell gave an assurance in Tynwald that the level of compensation for individual depositors will be maintained at £50,000, at least, in the new amended Scheme that will replace the existing legislation. If the new Scheme is not in place for October 23, he stated, the current arrangements will be extended.

As of 22nd May 2009

Treasury responds to KSF IoM depositors vote

TREASURY Minister Allan Bell MHK has responded to the outcome of voting by depositors with Kaupthing Singer & Friedlander IOM on the Scheme of Arrangement proposed as an alternative to liquidation of the bank.

The majority of votes overall were in support of the proposal and depositors with claims of under £50,000 were overwhelmingly in favour of it. But amongst larger depositors and unsecured creditors the Scheme of Arrangement failed to gain the required level of support for it to be approved.

Said Mr Bell:

‘The majority who clearly supported the Scheme of Arrangement, including the vast majority of small depositors, will be disappointed that it has been vetoed, in effect, by the minority of larger depositors and unsecured creditors. However, we must respect the outcome of the voting, which leaves no alternative but liquidation of the bank and activation of the Depositors Compensation Scheme. The Isle of Man Government will now work to support the liquidation and DCS process with a view to expediting the repayment of depositors. We will seek to achieve a similar outcome for creditors with claims under £50,000 as would have been achieved under the Scheme of Arrangement, to respond to the clear preference expressed by them in voting for the Scheme.’

Mr Bell went on:

‘In the particular circumstances of KSF IOM there was clearly potential for a tailored solution that would be better for depositors than conventional liquidation. Government had a duty to pursue that option and put in a huge amount of work doing so. We continue to believe that developing the Scheme of Arrangement provided the creditors with a viable alternative and was in the best interests of all of the depositors.‘

Notes

Following the voting by KSF IOM creditors the bank was formally placed into liquidation at a sitting of the High Court in Douglas on Wednesday May 27.

The Scheme Manager of the Depositors Compensation Scheme, the Financial Supervision Commission (FSC), will now meet to trigger activation of the Scheme and issue further information for depositors. Details of the Depositors Compensation Scheme are available on the Commission’s website.

Since the beginning of this year, the Isle of Man Government has introduced and funded Early Payment Schemes to provide advance payment of up to £10,000 for depositors. More than £60 million has already been paid out under these schemes, with a further £10 million about to be paid.

As of 24th April 2009

Scheme of Arrangement

THE Isle of Man Government has welcomed new information from the UK arm of Kaupthing Singer & Friedlander which could mean quicker and higher recoveries for depositors with the bank in the Isle of Man. The Scheme of Arrangement has been amended to reflect the latest information from the UK. The revised Scheme and other information are expected to be issued to depositors next week ahead of their vote on the proposal on May 19. If approved, the High Court will be asked to sanction the Scheme on May 27. The full press release can be read in the Downloadable Documents: Improved outlook for Kaupthing Singer & Friedlander IOM depositors - 24 April 2009.

THE Isle of Man Government has welcomed the decision of the High Court in Douglas today (Thursday April 9, 2009) to allow depositors with Kaupthing Singer & Friedlander Isle of Man to vote on the Scheme of Arrangement (SOA) proposed for the bank. The full press release can be read in the Downloadable Documents: Depositors to vote on KSF IOM Scheme of Arrangement - 9 April 2009.

Further information on the proposed Scheme of Arrangement will be available from the Provisional Liquidator, PriceWaterhouseCoopers. The following helplines will be available from Tuesday 14 April 2009: Telephone: +44 1624 699 340 (09:00 to 17:00 GMT Monday to Friday) Fax: +44 1624 699 200 or +44 1624 699 202

Early Payment Scheme 2 for KSF IOM Account Holders

New (22nd April): Treasury has announced that the last date for eligible depositors to make an application to the Kaupthing Singer & Friedlander (Isle of Man) Limited Early Payment (No. 2) Scheme will be 22 May 2009. The full press release can be read in the Downloadable Documents: Final date set for applications to KSF IOM Early Payment Scheme - 22 April 2009.

To view the Formal Notice of Final Date for Applications please view the document by that name.

On 17th February 2009 Tynwald approved the second Early Payment Scheme which provides for up to £10,000 per account holder. This is up to an additional £9,000 for those account holders who have already received the first £1,000 early payment.

This second early payment scheme will be financed from Isle of Man Government reserves up to a total of £94 million.

Account holders will be required to make a claim for the enhanced early payment. Application packs will be posted out to all account holders, mailing commenced on 27th February 2009.

Account holders who applied for the first early payment of up to £1,000 will receive a personalised application pack with a unique identifying number which will assist with the processing of their claim for the second payment. For this reason account holders who have already applied are asked to use the mailed form rather than download it from the website.

In addition to mailing the application form to all account holders, the form will also be available to download here from 10th March 2009.

Account holders are asked not to submit a claim for the second early payment using documentation from the first scheme. New documentation is required as the Application Form and Memorandum of Assignment from the first scheme relate only to the original Early Payment Scheme and refer to payments of up to £1,000.

For further details and an application form please use the links below:-

Account holders are requested to complete both the Account Holder Information Form and the Application form and return all pages of both documents to the following address:-

KSF Early Payment Scheme,
PO Box 211
Douglas, Isle of Man,
IM99 3RX

Documents sent by courier service should be addressed to:-

KSF Early Payment Scheme,
Government Office,
Bucks Road, Isle of Man,
British Isles, IM1 3PU

The KSF Early Payment Scheme helpline may be contacted by Telephone +44  1624 685858 (09.00 to 17.00 GMT Monday to Friday) or by e-mail ksfdepositors@gov.im

Chief Minister Tony Brown MHK, together with Chief Executive of the Financial Supervision Commission and the Chief Financial Officer, appeared before the House of Commons' Treasury Select Committee on Tuesday 3rd February 2009. The Isle of Man Government's written submission to the Committee is now available to download.

An increased early payment of up to £10,000 per account holder with Kaupthing Singer & Friedlander Isle of Man – enabling the refunding in full of around 40 per cent of all eligible depositors – is to be proposed by Treasury at the February sitting of Tynwald.

The High Court in Douglas has further adjourned consideration of a winding-up order for KSF IOM. The Court adjourned the matter until February 19 for further information to be provided on the Scheme of Arrangement proposed by Treasury as an alternative to liquidation and activation of the Depositors Compensation Scheme (DCS).

The full press release can be read in the Downloadable Documents: £10,000 Early Payment Proposed for KSF IOM Depositors - 29 February 2009.

Update on Early Payment Scheme for KSF IOM Account Holders

On 20 January 2009 Tynwald approved the Kaupthing Singer and Friedlander (Isle of Man) Limited Early Payment Scheme. This was developed by the Isle of Man Treasury following Tynwald approval in principle for such a scheme in December 2008.

Account holders may apply to receive a payment of up to £1,000. For further details and an application form please use the links below:

Tynwald has approved the principle of the development of an Early Payment Scheme to defined depositors of KSFIOM not exceeding the sum of £1,000 for individual customers. The full press release can be read in the Downloadable Documents: Tynwald approves principle of Early Payment Scheme for KSF IOM Depositors - 17 December 2008.

A press release concerning the Government's proposed Early Payment Scheme for KSFIOM depositors, which will be moved for approval in Tynwald this week. The full press release can be read in the Downloadable Documents: Early Payment Scheme Proposed for KSF IOM Depositors - 16 December 2008.

Following an application from the Treasury, the Isle of Man High Court has today (Thursday 27th November) agreed to adjourn consideration of a winding-up order until 29 January 2009 so that alternatives can be further explored. The full press release can be read in the Downloadable Documents: Treasury Minister welcomes more time to progress KSF IOM solution - 27 November 2008. Please also see the new Question and Answer section below.

Isle of Man Government news releases concerning Kaupthing Singer & Friedlander can be found by clicking on the following link: https://cf1.gov.im/lib/news/fsc/kaupthingsingerf1.xml (as at 20 March) and there is further information at: https://cf1.gov.im/fsc/ViewNews.gov?page=lib/news/fsc/kaupthingupdate2.xml

Updates from the liquidator can be found at: http://www.kaupthingsingers.co.uk/Pages/3990

Senior officials from Isle of Man Government to meet the UK Treasury and Financial Services Authority on Friday 24th October. The full press release can be read in the Downloadable Documents: Isle of Man Government in bank meeting with UK Treasury - 23 October 2008.

Discussions with the United Kingdom are to continue following today’s (24th October) meeting in London over Kaupthing Singer & Friedlander (Isle of Man) Limited. A senior officer delegation from the Isle of Man Government met with the United Kingdom Treasury and the UK Financial Services Authority, along with representatives of the Ministry of Justice, to set out the Island’s position in the matter.

The Chief Minister has written to the Chairman of the Treasury Committee John McFall MP to assure Mr McFall that the Isle of Man is doing everything possible to resolve the current banking situation in the best interests of the Kaupthing Singer Friedlander (IOM) depositors. The full press release can be read in the Downloadable Documents: Chief Minister and Lord Chancellor to discuss UK – Isle of Man relationship - 7 November 2008.

On 13th November the Chief Minister had a postive meeting with UK Lord Chancellor, Rt Hon Jack Straw MP, following recent comments by the Chancellor of the Exchequer, Rt Hon Alistair Darling MP. The full press release can be read in the Downloadable Documents: ‘Positive’ meeting with Lord Chancellor - 14 November 2008.

Questions & Answers following Decision by Isle of Man High Court 27 November 2008

Why is the Isle of Man Government getting involved?

The Isle of Man Government (the Government) is committed to protecting the interests of the depositors, the creditors and the reputation of the Island in the difficulties being experienced with Kaupthing Singer & Friedlander (Isle of Man) Limited (KSFIOM). By our actions we are demonstrating that the Island is a responsible International Finance Centre and we take this matter seriously.

As you will be aware, the Government has already committed significant financial resources to support the payout of up to £150 million in case the bank is unable to meet its obligations.

The Government believes, given the evidence that we have at present, that the depositors could be better off under the alternative plans being considered. However, much further work is required in this respect which is why we have requested an extension.

What has the Isle of Man Government been doing since the last adjournment?

Treasury has appointed AlixPartners (Financial Advisors) to identify and develop an alternative plan for KSFIOM so that depositors could be better off than if the court simply made a traditional winding up order.

An alternative plan for KSFIOM will seek to achieve the following objectives:

  1. Preserving part of KSFIOM as a going concern and thereby enhancing the value for depositors;
  2. Orderly and timely realisation of KSFIOM assets in the ordinary course;
  3. Fast-tracking claims through a single channel and expediting payments to depositors;
  4. Supplementing KSFIOM recoveries with Treasury and/or third party funds to provide recoveries sooner than might be available under the Depositors Compensation Scheme (DCS).

A number of potential options are being considered. These range from a sale of the business by the Liquidator Provisional to a restructuring plan. These options aim to deliver the objectives set out above.

More time is required to progress discussions with third parties and to fully consider and plan for these options.

What about the assets held in the UK? Have you given up on them?

Absolutely not. The Liquidator Provisional is still actively pursuing them and is regularly talking to Ernst & Young, the Administrators of Kaupthing Singer and Friedlander (UK), about the assets held in the UK.

Despite the ongoing uncertainty of the payout from the assets held by Kaupthing in the UK and the value of the guarantee made by Kaupthing hf, Government wishes to ensure that any solution preserves the depositors’ and creditors’ access to recoveries from these two sources.

How much will the depositors receive under any alternative plan?

The Isle of Man Government is looking at ways to increase payout and guarantees to depositors and creditors as well as ensuring funding arrangements are in place to expedite payments to depositors in an orderly manner.

Just as in any subsequent liquidation the final outcome is materially dependent on recoveries from the UK and the orderly realisation of other assets of the bank. At this point, the Liquidator Provisional has been unable to obtain any quantification of the asset recovery from the UK.

The KSFIOM loan book is likely to produce a better outcome if it is managed, as far as possible, as a banking and refinancing activity rather than a distressed sale or winding up exercise.

Is this just an attempt to avoid responsibilities under the proposed liquidation or the DCS?

No. All parties are committed to fulfilling their responsibilities for the benefit of the depositors. All depositors and creditors will have their rights protected and improved if possible.

Why not just go straight to liquidation? At least depositors will be paid out more quickly.

Traditional bank liquidations can stretch over many years, and can be costly. It is also unclear how promptly the DCS would pay out. If there is an approach which can deliver a more speedy and cost effective solution for creditors, then it seems most desirable to pursue this.

What about those people who may be suffering financial hardship?

We are acutely aware of this problem. A Payment on Account approach to recognise this problem is being worked on.

What exactly is the UK Government doing to represent the Island in its negotiations with the Icelandic Government?

We have been advised that the UK Government is actively pursuing the Isle of Man’s claim with the Icelandic Government but no additional information can be provided at this time.

What might this mean for Life Company policyholders whose policies are linked to deposits in KSFIOM?

If the arrangement is approved by the Courts, it may provide more timely and/or increased distributions to depositors, including Life Companies, than a traditional liquidation would achieve. Life Companies will be treated equally with other depositors in any distribution. This means the distribution of available liquidated assets to individual accounts held by Life Companies (including policyholder-linked accounts) will be determined pro-rata by the value that such accounts represent in proportion to the total value of deposits. The individual policyholders would need to refer to the specific terms of their policy to confirm this treatment.

Depositors Compensation Scheme

On 20th October 2008 the Chief Minister announced that an extension to the Island’s Depositors Compensation Scheme to extend enhanced protection to more depositors will be presented for Tynwald approval this week. The scheme will restore protection to all the categories of non-individual depositor previously covered under the 1991 Scheme – including charities and businesses – but to a maximum increased from £15,000 to £20,000.  The full press release can be read in the Downloadable Documents: Further strengthening of depositor protection - 20 October 2008.

On 23rd October 2008 Tynwald approved the reinforced Depositors Compensation Scheme. A news release which includes a copy of the Compensation of Depositors (Amendment) Regulations 2008. The full press release can be read in the Downloadable Documents: Tynwald approves reinforced depositor protection scheme - 23 October 2008.

Review of Crown Dependencies and Overseas Territories

The Chief Minister has welcomed the review of Britain’s Crown Dependencies and Overseas Territories announced by Chancellor of the Exchequer Alistair Darling in his pre-Budget statement today (November 24, 2008). The review will include such matters as financial supervision and transparency; fiscal arrangements; financial crisis management and resolution arrangements; and international cooperation; but it will not consider changes to the constitutional relationship. The full press release can be read in the Downloadable Documents: Chief Minister welcomes review of Crown Dependencies and Overseas Territories - 24 November 2008.

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