STROUD District Council’s fight to recover £3million of taxpayers’ money invested in an Icelandic bank has hit a major hurdle after a surprise decision by administrators.
Gloucestershire County Council, which has £8.9 in Glitnir bank, has also been hit by the decision to offer local authorities only 20 to 30 per cent of deposits rather than 100 per cent. Both councils are involved in a legal challenge, led by the Local Government Association, to get the ruling changed without costly court action.
Speaking to the SNJ, Nigel Cooper, SDC's cabinet member for finance, said: "I was surprised by this decision.
"But I remain cautiously optimistic we will get all the money back because I feel we have got a very strong case.
"We are not going to give up on this."
A GCC spokesman added: "It is disappointing to hear of this setback but it is just another step in the legal process.
"We are confident the LGA and its lawyers will continue to pursue this strongly and do everything they can to recover the funds."
SDC deposited £3million in Glitnir early in 2008 when it was A-rated for credit worthiness.
GCC invested £12million in three Icelandic banks, including £8.9million in Glitnir, more than two years ago when the institutions had top credit ratings.
After the banks went into administration in October 2007, local authorities made claims to be ‘preferential’ creditors, meaning they would recoup all the money.
But the Glitnir Winding-up Board – the Icelandic equivalent of a board of administrators – ruled that only former employees would have the status and cash deposits would be ‘general unsecured’ claims.
Councils would thus only recoup an equal pro rata share of the remaining assets after the former employees have been reimbursed. The LGA has officially objected and has pledged a challenge in the Icelandic courts later this year if this fails.
Stephen Jones, director of finance at the LGA, told the SNJ the decision was inconsistent with the ruling over another Icelandic bank, Landsbanki, and against Icelandic law.
"We are extremely confident the case will have a successful outcome," he said.
The unsuccessful party would probably lodge an appeal, which would last six to eight months before the final decision is reached.
The LGA has appointed solicitors on behalf of affected councils and the legal costs would be shared.
GCC has already recouped £610,000 of its £2million from Heritable bank but none of its £1.6million from Landsbanki.
The LGA estimates that councils will eventually get back about 80 per cent of their deposits from both banks.
Local authorities are awaiting guidance on how to deal with any possible losses.