Frequently Asked Questions

On December 5, 2008, Landsbanki Islands hf (“Old Landsbanki”) applied to a District Court Judge in Iceland for a Moratorium pursuant to the Icelandic Act on Financial Undertakings. The Moratorium was granted on the same day as such application.

The Moratorium is neither a winding-up of Old Landsbanki nor an insolvency procedure under Icelandic law. Apart from the effects of the Moratorium described below, the legal status of Old Landsbanki is not affected. Old Landsbanki 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 principal effect of the Moratorium is that creditors are prohibited from bringing legal proceedings in respect of any claim they may have against Old Landsbanki. There are certain limited exceptions to this principle which are set out below. Any existing legal proceedings that have already been brought against Old Landsbanki will be postponed until the Moratorium comes to an end. Whilst in Moratorium, the disposal of assets by Old Landsbanki will generally be prohibited without the consent of the assistant appointed by the court in respect of Old Landsbanki (as discussed in paragraphs 5 and 7). As discussed below, the assistant will, however, permit Old Landsbanki to enter into transactions necessary for its day to day operations.

The Moratorium provides Old Landsbanki with breathing space to enable its assets to be collected, managed and disposed of in a way which is designed to provide the greatest value to creditors of Old Landsbanki as a whole (irrespective of their jurisdiction of residence). It therefore gives the Resolution Committee of Old Landsbanki (which has been appointed to run Old Landsbanki by the Icelandic authorities) 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 asset seizure by individual creditors making it increasingly difficult for Old Landsbanki to collect and manage its assets. Whilst such action might benefit certain individual creditors, it would if permitted, be likely to destroy asset value for the majority of the creditors of Old Landsbanki.

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 of up to nine months at a time, provided that the Moratorium may not extend beyond two years from the date the original order was made. At the time the Moratorium was granted, the court appointed Kristinn Bjarnason, a Supreme Court attorney, as an assistant to act in relation to the Moratorium.

Creditors (irrespective of their jurisdiction of residence) have an active role in the Moratorium. The assistant is required to invite all creditors to a formal creditors’ meeting no later than three days prior to the initial court hearing to extend the Moratorium referred to in paragraph 5. At such meeting, the assistant is required to provide information as to the financial position of Old Landsbanki and its plans during the Moratorium. Creditors will be given an opportunity at the meeting to express their views as to such plans. Creditors are also entitled to be notified of and 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 at any time by making a motion to the District Court asserting that the legal grounds for the Moratorium no longer exist. The Resolution Committee has also established an informal creditors’ committee (the “ICC”) which met for the first time in Reykjavik on November 14, 2008. The Resolution Committee intends to hold meetings with the ICC on a regular basis and the next meeting is scheduled for Friday December 12, 2008. The ICC is made up of creditors and creditors’ representatives of Old Landsbanki representing the interests of different classes and types of creditors. The Resolution Committee will also provide updates of information on its website .

The assistant is appointed by the court to have an oversight role over Old Landsbanki during the period of the Moratorium. The Resolution Committee will continue to have day to day responsibility for Old Landsbanki 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 Landsbanki and will therefore have a duty to act in the best interests of Old Landsbanki’s creditors.

Subject to the supervision of the assistant, Old Landsbanki will be able to continue with its normal day to day operations in relation to its business whilst it formulates and implements a strategy for the best way to collect, manage and dispose of its assets for the benefit of its creditors.

The role of the Resolution Committee is to oversee the realisation of assets, maximise the amounts realised to the extent possible, and retain such amounts within Old Landsbanki until a formal process of payment distribution commences. The Resolution Committee will consult with the stakeholders of Old Landsbanki on a plan and timeframe for achieving such objectives as it stabilises its assets.

The Moratorium only applies to Old Landsbanki and not its subsidiaries. Therefore, such subsidiaries and the rights of their respective creditors will not be affected by the Moratorium.

The London branch is not a separate legal entity but is a division of Old Landsbanki. The current operations of the London branch and the powers given to local management of the branch to deal with its customers and vendors will remain in effect following the Moratorium. The assets of Old Landsbanki in the UK were made subject to a freezing order from HM Treasury on October 8, 2008 but the London branch has subsequently been granted licences to operate its business by HM Treasury (see “Releases” on www.hm-treasury.gov.uk/fin_sanctions_landsbanki.htm). Neither the freezing order nor such licences will be affected by the Moratorium and the London branch will continue to be able operate in the ordinary course of its current business under such licences in essentially the same way it did prior to the Moratorium.

The Moratorium has been granted and has effect in Iceland. In addition, because Iceland is a member of the European Economic Area (“EEA”) and Old Landsbanki 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 Landsbanki including postponing any existing creditor actions. Similarly, neither creditors nor the authorities in such member states are permitted to apply to put Old Landsbanki into local insolvency, bankruptcy, administration, winding-up or similar proceedings. Notifications of the Moratorium will be made to authorities in the EEA as required by the EU Directive. In relation to jurisdictions outside of the EEA where it has material assets, Old Landsbanki will take whatever action it can to seek recognition of the Moratorium. This includes filing for Chapter 15 protection in the United States.

The Moratorium will prevent creditors from taking action in Icelandic courts to enforce any security rights granted by Old Landsbanki. 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 mortgages, charges or similar rights created over assets of Old Landsbanki 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 Landsbanki. Although it is not possible for a creditor to enforce such set-off rights in the Icelandic courts during the period of the Moratorium, if Old Landsbanki seeks to obtain a judgment against a creditor during this time, such creditor may, to the extent it is entitled to do so, assert set-off as a defence. 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 Landsbanki will not be affected by the Moratorium where such set-off is permitted by the law applicable to such claims.

As stated in paragraph 4 the Moratorium provides Old Landsbanki 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 Landsbanki as a whole (irrespective of their jurisdiction of residence). It therefore gives Old Landsbanki time to consider all strategic alternatives to provide the best return for the creditors. As indicated in paragraph 9, the Resolution Committee will consult with the stakeholders of Old Landsbanki on a plan and timeframe for achieving such objectives as it stabilises its assets and has a clearer picture as to the options available. The maximum length of the Moratorium under statute is two years.

For the avoidance of doubt, NBI hf (New Landsbanki Islands hf), which assumed the domestic Icelandic operations of Old Landsbanki on October 9, 2008, is a separate legal entity from Old Landsbanki and is not affected by the Moratorium.