The package will combine government and bank contributions under the local depositor compensation scheme and assets from the provisional liquidation of the company.
Kaupthing Singer & Friedlander IoM’s liquidation order was adjourned until a further court hearing on January 29, 2009 to allow more time for a more managed and co-ordinated wind-down and to improve returns.
The KSF IoM rescue package will consist of a levy from the government and local banks under the DCS and monies raised by the provisional liquidator from the sale of KSF assets. The maximum government contribution to the scheme will be £150m and the banks will have a maximum total contribution cap of 200m. This compares to Guernsey’s recently announced compensation scheme which has a total of cap £100m and is not retrospective meaning it will not cover Landsbanki Guernsey savers’ losses.
Over £800m of savings were tied up with KSF IoM, nearly £400m of which was in cash deposits within offshore bonds.
The IoM government says it is working with the provisional liquidator to achieve the “best possible outcome” for depositors and expects an indicative amount of the value of KSF assets to be announced in the next few weeks.
AILO says all depositors, including life insurance company policyholders can expect to do “significantly better” from the resulting rescue package.
The IoM government is also understood to be looking to provide emergency payouts of around £1,000 to help small depositors who are in desperate straits but these discussions are thought to be at an early stage. There would be a number of obstacles to overcome before any such payments could be made.
A government spokesman confirmed that it was considering how an advanced payment could work but said specific figures were yet to be announced.
Under the liquidation of KSF IoM, the rights of ‘pari passu’ would apply meaning that the individual accounts held by an insurance company would rank equally against other creditors and assets would be evenly distributed amongst all parties.
This compares to the depositor compensation scheme where the insurance company is classified as one claimant and is therefore only eligible to £20,000 cover to distribute amongst all policyholders.
The provisional liquidator is currently working to quantify claims on KSF IoM assets and is due to hold an update hearing on Jan 15.
Isle of Man Finance director John Spellman says: “The government’s reposnsibility is to make sure the various rights of depositors under legislation in the Isle of Man and the DCS is is appropriately applied. What the insurance companies do is a commercial decision for themselves.”
AILO chairman Alan Morgan-Moodie says: “AILO is continuing to work closely with the Manx Insurance Association and the IoM government to get the best possible outcome for policyholders whose advisers recommended investment in KSF. It will take time but the outcome will be worth it.”