On 21 November 2008 Glitnir banki hf ("Old Glitnir") applied to a District Court Judge in Iceland for a Moratorium, pursuant to the Icelandic Act on Financial Undertakings. This Moratorium was granted on 24 November 2008.
Apart from the effects of the Moratorium described below, the legal status of Old Glitnir is not affected. Old Glitnir will continue to be licensed and supervised by the Financial Supervisory Authority in Iceland to the extent necessary to enable it to continue its day to day operations and to manage and dispose of its assets. The Moratorium is neither a winding-up of Old Glitnir nor a formal insolvency procedure under the Bankruptcy Act in Iceland.
The principal effect of the Moratorium is that creditors are prohibited from bringing legal proceedings in respect of any claim they may have against Old Glitnir. There are certain limited exceptions to this principal which are set out below. Any existing legal proceedings that have already been brought against Old Glitnir will be postponed until the Moratorium comes to an end. Whilst in Moratorium, the disposal of assets by Old Glitnir is generally prohibited unless necessary for its day to day operations as discussed below or to achieve a reorganisation of Old Glitnir's finances.
The Moratorium provides Old Glitnir with breathing space to enable its assets to be collected, managed and disposed of in a way which provides the greatest value to creditors of Old Glitnir as a whole. It therefore gives Old Glitnir time to consider all strategic alternatives to provide the best return for the creditors. Without the Moratorium, there is a risk of hostile litigation and seizure of assets by individual creditors making it increasingly difficult for Old Glitnir to collect and manage its assets. Whilst such action might benefit certain individual creditors, it is likely to destroy asset value for the majority of the creditors of Old Glitnir.
The Moratorium will be effective for an initial period of 12 weeks. The Judge may subsequently agree to an extension of the Moratorium for successive periods not exceeding nine months provided that the Moratorium may not extend beyond two years from the date the original order was made. Steinunn Guðbjartsdóttir, a supreme court attorney and former member of the Resolution Committee has been appointed the Moratorium assistant.
Creditors have an active role in the Moratorium. Following the initial order issuing the Moratorium, a creditors' meeting must be held to allow creditors to express their views concerning Old Glitnir's plans during the Moratorium. Creditors are also entitled to attend all hearings of the District Court in respect of any application to extend the Moratorium period. At such hearings, creditors may seek to oppose an extension of the Moratorium if they so wish. Creditors can also seek to challenge the Moratorium by making a motion to the District Court asserting that the legal grounds for the Moratorium no longer exist.
The assistant is appointed by the court to have an oversight role over Old Glitnir during the period of the Moratorium. The Resolution Committee will continue to have day to day responsibility for Old Glitnir and the management and collection of its assets. The consent of the assistant is however required before any material transactions can be entered into by the Resolution Committee including the disposal of assets. In practice, the assistant is likely to permit the Resolution Committee to enter into transactions and dispose of assets in the ordinary course of business subject to a specified de minimis threshold. The assistant will act as a fiduciary to the estate of Old Glitnir.
Subject to the supervision of the assistant referred to in above, Old Glitnir will be able to continue with its normal day to day operations in relation to its business whilst it formulates a strategy for the best way to collect, manage and dispose of its assets for the benefit of creditors. Individual customers of Old Glitnir should therefore be able to deal with Old Glitnir in the same way they did before the Moratorium came into effect.
The Moratorium will prevent creditors from taking action in Icelandic courts to enforce any security rights granted by Old Glitnir. In relation to other jurisdictions within the EEA, the EU Directive provides that the Moratorium will not affect the rights of creditors in relation to liens, mortgages or similar rights created over assets of Old Glitnir located in such jurisdiction at the time the Moratorium becomes effective. The rights of creditors holding security over such assets are therefore unaffected by the Moratorium.
Under Icelandic law, a creditor may continue to exercise contractual rights of set-off against Old Glitnir. Although it is not possible for the creditor to enforce such set-off rights in the Icelandic courts during the period of the Moratorium, if Old Glitnir seeks to initiate a judgment against a creditor during this time, the creditor may assert set-off as a defense. In addition, the EU Directive expressly provides that the rights of creditors to demand the set-off of their claims against the claims of Old Glitnir will not be affected by the Moratorium where such set-off is permitted by the law applicable to such claims.
For the avoidance of doubt, New Glitnir Banki hf, which assumed the domestic Icelandic operations of Old Glitnir on October 15, 2008 is not affected by the Moratorium.
The Moratorium only applies to Old Glitnir and not its subsidiaries. Such subsidiaries and the rights of their respective creditors will therefore be unaffected by the Moratorium.
The Moratorium is granted and has effect in Iceland. In addition, because Iceland is a member of the European Economic Area ("EEA") and is a credit institution within the meaning of the EC Directive on Reorganisation and Winding-Up of Credit Institutions (the "EU Directive"), the Moratorium will be automatically recognised as a "reorganisation measure" throughout the European Union and the three additional EEA states (Iceland, Norway and Liechtenstein). This means that the courts in such member states are, subject to certain exceptions including in relation to employment contracts and certain security and set-off rights discussed below, required to give effect to the Moratorium and apply the prohibition on creditors bringing legal proceedings against Old Glitnir including postponing any existing creditor actions. Similarly, neither creditors nor the authorities in such member states are permitted to apply to put Old Glitnir into local insolvency, bankruptcy, administration, winding-up or similar proceedings.
In relation to jurisdictions outside of the EEA where it has material assets, Old Glitnir will take the necessary action to seek recognition of the Moratorium.
