Council could face £8 million losses in one Icelandic bank (From Times Series)

Barnet Council could face £8 million losses in one Icelandic bank after not being granted priority status by winding-up board of Glitnir Bank

10:57am Tuesday 22nd December 2009 in News By Kevin Bradford

FINANCE bosses have been handed a blow with the news that Barnet Council will not be granted priority status on deposits placed in one of the Icelandic banks.

It means they face losing millions in the frozen account, despite only weeks ago remaining confident they would be able to reclaim all of the £12.4 million.

The winding-up board of Glitnir Bank has said creditors must be treated equally, which could mean authorities receive less than 30 per cent of their money back.

The announcement is contrary to previous guidance and to the decision of another Icelandic bank, Landsbanki, which granted councils priority status, meaning they should get almost all of their money back from it.

All this comes after a report on treasury management activity up to September, presented to a cabinet resources committee on December 8, stated: “Information received to date indicates the council will regain 100 per cent of the monies deposited with Glitnir.

“The council will revise impairment calculations should further formal guidance be issued.

“The council expect to have a more definitive statement from Iceland on the position towards the end of financial year 2009/10.”

But Steinunn Gudbjartsdottir, chairman of the winding-up board of Glitnir Bank, has been quoted as saying: “It is a general principle of insolvency law that creditors should enjoy equal treatment.

“The winding-up board is of the opinion that there is sufficient doubt as to the priority right of the claims to refuse them priority."

Council bosses reacted by saying they are working alongside about 100 public bodies and the Local Government Association to “make the strongest possible representations to the bank’s board”.

In a statement, the council said: “This proposal runs counter to the decision of Landsbanki and indeed counter to Glitner Bank’s own advice.

“That advice saw the local authorities of England given preferred depositor status.”

A further £15 million was deposited with Landsbanki, which along with the other Icelandic banks collapsed towards the end of last year.

The council committee report said the council can expect to lose 17 per cent from that account, and stated it may have to consider cuts to the Housing Revenue Account and the Pension Fund to apportion any losses to the £27.4 million that was deposited.