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On 6 October 2008, the Icelandic parliament Althingi adopted Act No. 125/2008, which was intended to respond to the systemic bank collapse deemed imminent in Iceland. The Act authorised the Financial Supervisory Authority, for instance, to assume the powers of the shareholders’ meetings and Board of Directors of financial undertakings and to appoint Resolution Committees for them. A Resolution Committee was appointed for Landsbanki Íslands hf. on 7 October 2008. Act No. 129/2008, which came into force on 15 November 2008, established a special measure, a moratorium, for troubled financial undertakings. The bank was granted such a moratorium on 5 December 2008 by a ruling of the District Court of Reykjavík. At the same time the engagement of the bank’s Appointee in moratorium was approved.
Following a more extensive review of the Act on Financial Undertakings, No. 161/2002, legislation was passed amending this Act (Act No. 44/2009) on 22 April 2009. Among other things, it amended the substance and nature of the moratorium which had previously been provided for by law. Following these amendments, the objective of the moratorium had become, in fact, to ensure the normal progress of the bank’s winding-up within the moratorium grace period and to ensure equal treatment of creditors during this procedure within the framework provided for by law. Provision was made for the appointment of Winding-up Boards for financial undertakings and for the division of responsibilities between the Resolution Committees and the Winding-up Boards of the financial undertakings which had already been granted a moratorium as provided for in the rules of Act No. 129/2008. The substantive rules of the moratorium were changed so that it has all the main characteristics of a winding-up but still retained its character as moratorium during the time the formal authorisation existed, i.e. for a maximum of 24 months. In this manner, the decision was actually taken to have the special remedy, originally represented by the banks’ moratorium, developed further to create a continuous procedure, which would go from moratorium to being a winding-up pursuant to general rules without having that disturbing the continuous process which in fact began at the collapse of the bank in the fall of 2008.
On the basis of the above-mentioned amendments, the Reykjavík District Court appointed a Winding-up Board for the bank on 29 April 2009. The role of the Winding-up Board is to handle those tasks which are not specifically entrusted to the Resolution Committee in Act No. 44/2009 but the most significant among them is the task of processing any sorts of claims lodged against financial undertakings, along with making distributions to creditors and disbursement of claims, including the disbursement of all sorts of claims and costs during the moratorium period and later during the winding-up. Then the Winding-up Board is tasked with concluding the winding-up proceedings when the time is deemed right to do so.
Following the appointment of the Winding-up Board, ultimate responsibility for the affairs of Landsbanki Íslands hf. lies jointly with the Resolution Committee and the Winding-up Board, pursuant to a specific division of responsibilities. The work and status of those persons who comprise the Resolution Committee and Winding-up Board is subject to the same rules as apply to administrators under the Act on Bankruptcy etc., No. 21/1991.
In a ruling of the District Court of Reykjavík of 27 November 2009 the bank’s authority for moratorium, in its form after the aforementioned amendments with Act no. 44/2009, was extended for 9 months. That entailed that the amended character of the moratorium was confirmed in subject and execution. The same took place at the extension of the authority for moratorium in August 2010, but in that ruling the authority for moratorium was extended to December 5th 2010, which was the maximum period for the bank’s moratorium.
On 17 November 2010 the Parliament passed a certain amendment to the Act on Financial Undertakings, further stipulated an amendment on item 2 of temporary provision II. The amendment was intended to remove all doubt regarding the direct and continuing approach of the courts to the winding-up after the moratorium period expires. Instead of the winding-up pursuant to general rules being the automatic result of the court ordered moratorium it was decided to grant the Resolution Committees and Winding-up Boards of the failed banks the authority to request a judge’s ruling on winding-up pursuant to general rules and subject to certain conditions. If the judge considers that there are grounds to approve such a request it was stated that the legal effects of such a ruling was that the actions taken during the moratorium period from the adoption of Act no. 44/2009 (i.e. 22 April 2009) would stand undisturbed and moreover the arrangement of Resolution Committees and Winding-up Boards stipulated in item 3 and 4 of the provision would stand. This was done to ensure a continuous process and a minimum disruption for the estates of the financial undertakings in question.
On November 22 2010 the District Court of Reykjavík issued a ruling where a joint request of the bank’s Winding-up Board and the Resolution Committee for winding-up pursuant to general rules of the Act on Financial Undertakings was approved. The request was made following the aforementioned amendment to the Act. The ruling moreover cancelled the bank’s authority for moratorium. The court’s ruling can be found here.
Due to the above, Landsbanki Íslands hf. has been in winding-up from and including 22 November 2010 which is subject to general rules on the issue in the Act on Financial Undertakings. The position of an Appointee in moratorium was cancelled on the same date but the person who had the role of the Appointee retained his position in the bank’s Winding-up Board.
The Resolution Committee for the Bank was disbanded with Art. 8 of Act no. 78/2011 on amending the Act on Financial Undertakings no. 161/2002 at the end of year 2011 and all of its tasks were transferred to the Winding-up Board. The work and positions of those who were in the Resolution Committee and those who are in the Winding-up Board are subject to the same rules as apply to liquidators pursuant to the Act on Bankruptcy etc. No. 21/1991.
As of 3 January 2013, the name of Landsbanki Islands hf. was changed and will thereafter be LBI hf.
The Winding-up Board iterates that this is not an assignment of any form and no other change has been made concerning the company, its statutory position, governance or nature of operations. LBI hf. (formerly Landsbanki Islands hf.) continues to be in winding-up proceedings under the provisions of Act No. 161/2002 on Financial Undertakings in accordance with the decision of the Reykjavik District Court and governed by the Winding-up Board as provided for by law. Consequently all existing business relationships, contracts, payment instructions and other rights and obligations related to the company or its winding-up proceedings are, and remain, unaltered.
The operations of LBI hf. are carried out for the most part in the bank’s headquarters in Reykjavík, where the offices of the Winding-up Board are located. Most of LBI’s employees are located in the bank’s headquarters in Iceland, while the second-largest number of employees is found in Landsbanki’s London branch.