The European Court of Justice confirms the position of LBI hf. on the validity of winding-up proceedings during the moratorium period.

24 October 2013

A judgement was pronounced today by the European Court of Justice in case no. C-85/12, which concerned the validity of the substantial winding-up proceedings which commenced on 22 April 2009, while the moratorium of LBI hf. (at that time Landsbanki Íslands hf.) was in effect, in the European Economic Area.

LBI hf. was granted a moratorium by a Ruling of the Reykjavík District Court, pronounced on 5 December 2008. Act No. 44/2009, which entered into force on 22 April 2009, amending Chapter XII of the Act on Financial Undertakings concerning their winding-up proceedings. A Temporary Provision of the Act stated that the majority of the substantial rules of winding-up proceedings should furthermore apply to financial undertakings which had at that time been granted a moratorium.

This case tested whether it was in compliance with the rules of EU Directive 2001/24/EC that the Icelandic legislator had decided to have the rules on winding-up proceedings apply during the moratorium period and in so doing provided for the de facto commencement of winding-up proceedings, without this being based on a ruling by a court or other competent authority.

In its conclusion, the Court emphasises that the objective of Directive 2001/24/EC and the principle of equal treatment of creditors implies that mutual recognition by Member States of the national law and rules of each state in this field must be ensured. Icelandic law was not considered to be in contradiction to the Directive; on the contrary it was maintained that the Temporary Provision of the Act merely comprised a change to the substantial rules of the moratorium, which still comprised a measure based on a judicial ruling and subject to judicial control, inter alia with regard to its period of validity. Furthermore, it was verified that provisions of Icelandic law, prohibiting enforcement actions by individual creditors against assets of LBI hf., are fully valid in the European Economic Area.

It was established that the moratorium of LBI hf., with these characteristics, had concluded on 22 November 2010, when the Reykjavík District Court ruled on the winding-up proceedings of LBI hf. according to general rules of the Act on Financial Undertakings. There has been no dispute concerning the significance of the winding-up proceedings of LBI hf. from that time forth.

The Winding-up Board of LBI hf. welcomes the outcome, which accords in all respects with its pleadings in the case, and is of the opinion that the judgement has removed any doubt as to the legality of the company's winding-up proceedings and that the basic principle of equal treatment of creditors and other principles of equitable winding-up proceedings in an international context have been honoured.

The judgement of the European Court of Justice in English is available here.