Cross border insolvency of EU credit institutions

29 September 2011

In The Winding-Up Board of Landsbanki Islands HF, Noter, in which both sides were represented by members of Axiom Advocates, the Inner House considered a novel question as to the correct construction of the regulations governing cross border insolvency of EU credit institutions.

Landsbanki was formerly Iceland's largest bank.  In 2008 it was made the subject of winding up proceedings, against the backdrop of the Icelandic financial crisis.  At the same time its Scottish subsidiary, Heritable Bank plc, was placed into administration.  The Winding-Up Board submitted claims to the Scottish Administrators in excess of £1.1 billion.  The Administrators submitted claims to the Icelandic Winding-Up Board of around £905 million.

The issue in dispute between Landsbanki's Winding-Up Board and Heritable's Administrators concerned the effect, in Scots law, of a decision in the Icelandic winding-up proceedings and specifically, whether in terms of the Credit Institutions (Reorganisation and Winding-up) Regulations 2004, a determination by the Winding-Up Board under Icelandic Law as to the existence and extent of Heritable's claims against Landsbanki was decisive for the purposes of the Scottish Administration of Heritable; or, alternatively, whether the availability of insolvency set-off against Landsbanki's claims had to be determined by the Administrators according to Scots law.

Recalling the decision of the Lord Ordinary, the First Division found in favour of the Scottish Administrators, holding that in relation to the question of insolvency set-off, they were not bound by the Icelandic determination.

Sarah Wolffe QC and Euan Duthie of Axiom Advocates appeared for the Administrators of Heritable.  Heriot Currie QC and Paul O'Brien, also of Axiom, appeared for the Winding-Up Board of Landsbanki.

The opinion of the First Division, which was delivered by the Lord President, can be found at http://www.scotcourts.gov.uk/opinions/2011CSIH61.html.