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The Winding Up Board and the Proceedings

On 22 November 2010, the Reykjavík District Court ruled that Glitnir hf., Reg. No. 550500-3530, Sóltún 26, Reykjavík ("the bank") was to be wound up as provided for in the general rules of Part B of Chapter XII of Act No. 161/2002, cf. however Points 3 and 4 of Temporary Provision V of the same Act, and with the legal effect arising from Point 2 of the same provision, as amended by Art. 2 of Act No. 132/2010. On 7 October 2008 the Financial Supervisory Authority (FME) had assumed the authority of the shareholders' meeting and appointed a Resolution Committee for the bank. According to an authorisation in Act No. 129/2008, cf. Act No. 21/1991, the bank was granted a moratorium by a ruling of the District Court on 24 November 2008. This moratorium has since then been extended three times, most recently on 13 August until 24 November 2010. Further extension was not authorised by law.

Act No. 44/2009, which entered into force on 22 April 2009, amended the nature and substance of a financial undertaking's moratorium. In accordance with Point 2 of Temporary Provision II of Act No. 44/2009 (Temporary Provision V of Act No. 161/2002), the provisions of the first paragraph of Art. 101, Art. 102, Art. 103 and Art. 103 a of Act No. 161/2002, as amended by the first paragraph of Art. 5 and Articles 6-8 of Act No. 44/2009, apply to the moratorium in the same manner as if the bank had been placed in winding-up proceedings with a court ruling on the date of the entry into force of the Act. It stated, however, that the winding-up proceedings should be referred to as a moratorium as long as this was authorised. Act No. 44/2009 furthermore stated that once such a moratorium expired, the undertaking should automatically, and without a specific court ruling being required, be regarded as being in winding-up proceedings according to general rules. A Winding-up Board was appointed for the bank by a decision of the Reykjavík District Court on 12 May 2009.

An invitation to creditors to lodge claims was published and the time limit for lodging claims was set as 26 November 2009. In addition to the invitation, the advertisement pointed out the time limits which had to be observed. Four meetings have been held on claims lodged and one more scheduled for 31 August 2011. At that meeting, presentation of decisions by the Winding-up Board on recognising claims against the bank is expected to be concluded.

Adoption of Act No. 132/2010, which came into effect on 17 November 2010, amended Act No. 161/2002, to the effect that before an undertaking's authorised moratorium expires, its Resolution Committee and Winding-up Board may jointly request that a court rule that the undertaking be placed in winding-up proceedings under general rules, if in the court's assessment the substantial requirements of Point 3 of the second paragraph of Art. 101 of the Act were satisfied. If such a request were acceded to by the court, those measures taken during the undertaking's moratorium, from the entry into force of Act No. 44/2009, would remain unaltered.

A request for such a ruling was submitted by the Resolution Committee and Winding-up Board and a ruling pronounced on 22 November 2010, on the basis of the Act as amended by Act No. 132/2010. The court found that the conditions of the Act for a ruling on winding-up proceedings were satisfied.

The bank's assets amount to approximately ISK 783 billion (based on the current prospects for recovery and the ISK exchange rate as of 30 September 2010) and its liabilities to approximately ISK 2,838 billion. The bank was therefore insolvent, in the assessment of the court, and its payment difficulties were unlikely to be temporary, cf. Point 3 of the second paragraph of 101. Art. 101 of Act No. 161/2002.

The court's decision furthermore confirms that, as provided for by law, the measures taken during the undertaking's moratorium following the entry into force of Act No. 44/2009, shall remain valid, which means, for instance, that the appointment of the bank's Resolution Committee and Winding-up Board remains in force, together with all those measures taken on the basis of Articles 101-103 and 103 a of Act No. 161/2002, cf. further Point 2 of Temporary Provision V of the Act. The ruling also confirms that the date of the entry into force of Act No. 44/2009, which is 22 April 2009, shall continue to serve as reference for determining priority of claims and other legal effect which is determined by the date a ruling is pronounced on winding-up.

Certain amendments were made to the Act on Financial Undertakings, No. 161/2002 (AFU), with the adoption of Act No. 78/2011 by the Althingi on 10 June 2011. Special attention is drawn to the fact that the Act includes an amendment to Point 3 of Temporary Provision V of the AFU (as adopted by Act No. 44/2009). The amendment will repeal this Point as of 1 January 2012, from which time all the tasks of Resolution Committees will be incumbent upon the Winding-up Boards of the financial undertakings concerned. This amendment will not have a significant impact on the day-to-day activities of Glitnir hf. – in winding-up proceedings


The legal impact of a Composition agreement

A Composition agreement shall be regarded as concluded when the debtor's petition for confirmation of the agreement has been granted by a final court resolution.

Having entered into effect, a Composition agreement shall be binding upon the creditors and their successors and assigns as regards their composition claims. The settlement of claim in accordance with the agreement shall have the same effect as performance of the original obligation.

Icelandic Composition of Creditors General provisions and characteristics of a Composition of creditors under Icelandic law

An entity ("the debtor") requiring a licence to seek a Composition shall have a written declaration of at least 25 per cent of the voting creditors, both by number and by amounts, that they recommend the Composition on the basis of the proposals put forward. A Composition agreement may provide for total relinquishment of debts, proportional relinquishment, deferred dates of payment, changes in form of payment, or all of these arrangements jointly.

The following shall be specified in a Composition proposal:

  • to what extent the debtor offers payment of the Composition claims, and in what form;
  • the date or dates of payment;
  • whether interest, and if so, at what rate, will be paid on the Composition claims from the date a Composition agreement is concluded and to the date of payment, if deferred payment is envisaged;
  • whether security, and if so of what kind, will be placed to secure performance of the Composition agreement.

A Composition proposal may contain a provision to the effect that claims up to a certain amount, which in the absence of such a provision would be counted among Composition claims, will be paid in full, provided the amount in question is deemed insignificant with a view to the debtor's financial situation. However, such a provision may only be included if all the Composition claims will be paid by the same or higher amount.

When a license to seek Composition with creditors has been granted, the District Court judge shall appoint an agent to carry out the preparations for the Composition. The Winding Up Board of Glitnir shall perform the duties normally performed by a Composition agent.

The Composition agent shall issue and have published two times in the Legal Gazette a notice to creditors, calling upon the debtor's creditors who consider themselves in possession of Composition claims, to declare them to the Composition agent within four weeks from when the notice is first published.

Since Glitnir is in winding-up proceedings it is not necessary to issue this notice. If the Winding Up Board decides that voting shall take place on the proposal, it shall convene a particular meeting of the creditors for this purpose. Such a meeting shall however not be held until a creditors' meeting held to discuss the list of stated claims against the bankruptcy estate is held and completed. The right to vote on the debtor's Composition proposal shall be restricted to the voting creditors who have stated their claims to the Composition agent/ Winding Up Board within the period granted for this purpose.

A Composition proposal shall be deemed approved if supported by the same proportion of votes as the proportion of composition claims to be relinquished according to the proposal, provided this reaches 60 per cent at a minimum, by number of voting creditors as well as amounts. If neither proportional nor total relinquishment is proposed, a Composition proposal shall be deemed approved if supported by 60 per cent of all voting creditors by number as well as amounts.

Composition does not affect the following claims against a debtor:

  • claims originating after a court order has been issued granting a debtor license to seek Composition;
  • claims for performance other than payment of money, which can be performed in substance;
  • claims that would be ranked as provided for in Articles 109, 110 or 112;
  • claims secured upon the debtor's assets, to the extent the value of the relevant asset covers the claim;
  • claims that could have been settled by set-off had the debtor been declared bankrupt;
  • any claims particularly exempted from Composition under the terms of the Composition agreement by reason of their full payment.

If the Composition procedure has ended with an approval of the debtor's proposal, the debtor shall submit a written petition for confirmation of the Composition agreement to the district court judge within one week from when this conclusion was announced at a meeting.

Conclusion of winding-up proceedings

Should the Bank's assets be insufficient to pay all claims submitted against the Bank in full, the Winding Up Board may seek a composition with creditors to conclude the winding-up proceedings. Attempts to reach composition with creditors are covered by specific rules of the Bankruptcy Act.

If composition cannot be reached with creditors, the Bank's estate shall be subject to Bankruptcy proceedings at the request of the Winding Up Board. In this eventuality, actions taken by the Winding Up Board during the winding-up proceedings shall remain valid. Bankruptcy shall only be undertaken in the following instances:

  • the Winding Up Board deems evident that there is no basis for seeking composition at any stage of the winding-up proceedings;
  • a proposal for an arrangement with creditors has been rejected by creditors, pursuant to the rules which apply on the approval of and voting on arrangements with creditors;
  • confirmation of an arrangement with creditors is rejected by the courts.

The right of a creditor to demand Bankruptcy proceedings is similar to the obligation of the Winding Up Board. Certain additional conditions apply to such a demand by a creditor, all of which must be satisfied:

  • the creditor in question must hold a recognised claim against the Bank;
  • the creditor in question must demonstrate that legal conditions for composition with creditors are lacking or that such a number of creditors are opposed to such composition that there is no possibility of its approval;
  • the creditor in question must demonstrate that he has lawful interests at stake in demanding the liquidation of the bank rather than its continuing in winding-up proceedings.

Role of the Winding Up Board

The Winding Up Board must issue and have published twice in the Legal Gazette a notice to creditors on the winding-up. The following considerations apply to the notice of creditors and the time limit for submitting claims:

  • the time limit for submitting claims is determined by the Winding Up Board, but it can be from two to six months from the date of the publication of the advertisement;
  • in addition to its publication in the Legal Gazette, notice is sent to all known creditors of the bank abroad;
  • claims received after the expiration of the time limit cannot be considered, except in exceptional cases. If such exceptions do not apply, the claims not properly submitted are void against the bank;
  • the notice to creditors must state the location and time of a creditors meeting to review the list of claims submitted to the Winding Up Board. Such a meeting must be held within a month of the expiry of the time limit for submission of claims. At this same meeting the Resolution Committee must submit a report on its assessment of the bank's assets.

Following the expiration of the time limit for submission of claims, the Bank must compile a list of the claims submitted. At the same time, the Winding Up Board must make decisions on recognising individual claims and report on these decisions in the list of claims. Various rules are provided for in the Bankruptcy Act;

  • if a claim is rejected by the Winding Up Board, the creditor must be verifiably notified of such rejection at least one week prior to the creditors' meeting. Further explanation of the Winding Up Board's grounds for rejection shall be provided at the meeting;
  • a copy of the Winding Up Board's list of claims must be available and accessible to creditors who have submitted claims against the bank a week prior to the meeting;
  • a creditor unwilling to accept the decision of the Winding Up Board on his claim must state his objections at the meeting or in a letter which must be received by the Winding Up Board no later than the time of the meeting. An account must be provided of the objections of the creditor concerned at the meeting. Furthermore, others entitled to attend the meeting may oppose the decision of the Winding Up Board on individual claims;
  • a decision by the Winding Up Board on a claim, which is not opposed at the meeting shall be deemed to be final;
  • if it proves impossible to conclude decisions on all claims submitted, due to the scope and number of claims, prior to the creditors' meeting, to convene a follow-up meeting, to conclude the process of deciding on recognition of claims.

Following the creditors' meeting held by the Winding Up Board in accordance with the above, the Winding Up Board is authorised to pay the claims recognised in part or in full. This is subject to certain conditions:

  • only recognised claims may be paid;
    it must be ensured that the bank's assets are sufficient to pay all equally ranked creditors an equal proportion of their outstanding claims;
  • if a dispute on a claim which could be entitled to payment has not been finally resolved, assets must be set aside to enable its payment later if it is recognised;
  • despite the above condition, individual creditors may be paid in advance if they offer to waive their claims in return for partial payment, provided that it definitely comprises a lower amount than would be disbursed to the claim at a later stage given its ranking.

The ranking of claims against the bank is in the main as follows:

  • assets and interests in the possession of the bank shall be delivered to a third party if the third party proves his entitlement;
  • claims on the estate resulting from a contract concluded after the entry into force of the Act or claims arising after the reference date as a result of measures approved by the Appointee;
  • claims secured by a collateral or other security interest in the bank's assets, to the extent they can be settled by means of the proceeds from sale of the relevant assets and any income derived from them;
  • priority claims, including various wage claims and claims on deposits;
  • unsecured claims, i.e. all other debts not included in the above categories;
  • deferred claims.

The Act's entry into force, 22 April 2009 will set a cut-off point for interest and cost on priority claims and unsecured claims. Accordingly, interest and cost on such claims accruing after the entry into force of the Act will be deferred claims.

The appointment of a Winding Up Board will have an impact upon other committees and working parties currently within Glitnir:

  • the Netting Committee will disband and its role will be assumed by the Winding Up Board;
  • various aspects of the role of the Settlement Committee (e.g. assessments of claims subject to set-off) will be assumed by the Winding Up Board.

The Winding-Up Board

The members of the Winding Up Board are:

  • Steinunn Guðbjartsdóttir, Supreme Court Attorney
  • Páll Eiríksson, District Court Attorney

The Winding-up proceedings

The Bill has new rules about the winding-up proceedings of financial institutions. The rules are similar to the rules on insolvency proceedings according to the Bankruptcy Act. As a result of a temporary provision in the Bill, all the principal rules of the winding-up proceedings in the Bill apply to the banks whether the Moratorium is in effect or not. In the case of the three banks, there are several derogations from the general rules of the Bill on winding-up proceedings. These derogations are described in the temporary provisions. The principal derogations are:

  • The provisions on appointing a provisional Board of Directors for a financial undertaking do not apply as a Resolution Committee has already been appointed;
  • Provisions on the initiation of winding-up proceedings do not apply, because the three banks will automatically enter winding-up proceedings without a court ruling once the moratorium concludes;
  • The provisions on reference dates do not apply to the three banks. The reference date for the three banks is 15 November 2008.

On the Agenda

Creditors meeting – 3 March 2015