LGA hails ruling giving councils priority status in winding up of Icelandic banks

Town hall chiefs have hailed a favourable ruling for local authorities in the litigation over the fate of deposits with Icelandic banks that are now being wound up.

According to the Local Government Association, which coordinated the legal action, the Icelandic District Court has ruled that deposits placed by UK wholesale depositors have priority status in the winding up of Landsbanki and Glitnir.

LGA chairman Baroness Margaret Eaton said: “It is excellent news that the judges in Iceland have heard the arguments on both sides and found in favour of local authorities.

“This judgment means that councils' claims have been recognised as deposits with priority status over other creditors' claims and will be at the front of the queue when it comes to getting their money back following the collapse of the failed Icelandic banks. We hope that our opponents will accept this clear verdict.

“Securing priority status in the administrations of Landsbanki and Glitnir could save council taxpayers across the country as much as £400m. This money is particularly important at a time when local authorities need to maximise resources to help fund the reduction in their funding.”

Baroness Eaton said that the cost of the litigation amounted to less than 1% of the money the LGA expects will be recovered.

“If there is any further legal challenge, the LGA will continue to coordinate support for our member authorities,” she added.