Council chiefs threaten legal action over Icelandic funds

Local authority leaders have warned they will take court action if English councils are not given priority creditor status on the recovery of £217m-worth of investments in a failed Icelandic bank.

The warning from the Local Government Association came after Glitnir bank’s winding up board specified that their claims were “general unsecured” rather than priority under the Icelandic Bankruptcy Act.

The decision means that the English councils affected would probably only get 25-30% of their deposits back rather than 100%.

The LGA argued that the Glitnir decision stands in contrast to that taken recently in relation to another Icelandic bank, Landsbanki, where councils have been recognised as priority claims.

Cllr Margaret Eaton, chairman of the LGA, said: “The LGA will not hesitate to take the legal action necessary to protect the deposits of councils and council taxpayers. We are absolutely determined to secure the priority creditor status that local authority depositors are entitled to under Icelandic law, and remain confident of doing so.”

LGA director of finance Stephen Jones is heading to Iceland this week to put forward the English councils’ case.