In a move that creditors have been waiting patiently for since 2008, the Icelandic government has finally taken a step towards the lifting of capital controls which were imposed in Iceland after the financial crisis that will impact the main three failed banks; Kaupthing, Landsbanki and Glitnir.

Legislation was passed on 7 June 2015 which amends the Foreign Exchange Act No. 87/1992 and primarily intends to prevent the failed banks from circumventing the capital controls before they are lifted. Please click here for information regarding the amendments made to the Foreign Exchange Act.

Following the above, the Prime Minister of Iceland Sigmundur Davíð Gunnlaugsson, and the Minister of Finance Bjarni Benediktsson announced proposals on 8 June 2015 regarding the liberalisation of the country’s capital controls.


The Icelandic Parliament has been presented with two bills which aim to support the Government's plan to lift the capital controls; (i) a bill introducing a stability tax on the failed banks if they do not have a confirmed composition agreement in place by year end and (ii) a bill that simplifies the rules applying to composition proceedings. According to the proposals, the process of lifting the capital controls will be implemented in stages in order to maintain the stability of the Icelandic Krona and to ensure that monetary affairs are not jeopardised.

The total value of the assets being addressed in the proposals is approximately ISK1,200bn (around EUR8bn).

These assets fall into three categories:

  • the ISK assets comprised in the estates of the failed banks (ISK500bn);
  • the estates’ foreign denominated claims against residents of Iceland (ISK400bn); and
  • the offshore ISK held by foreign non-residents of Iceland (ISK300bn).

Firstly, the government has confirmed that, in respect of the old banks' estates, the winding up boards will be required to have composition agreements in place with creditors (confirmed by a district court) prior to 31 December 2015. These agreements will have to satisfy certain stability conditions in order for the Central Bank of Iceland to grant the necessary exemption from the capital controls contained in the Foreign Exchange Act No. 87/1992. If a composition agreement is not finalised prior to this date there will be a one off “stability tax” of 39% on the gross assets of taxable entities based on their value at 31 December 2015 (subject to certain possibilities of reduction). As for stability conditions, comprehensive proposals are already in place for LBI, Kaupthing and Glitnir Bank.

Secondly, in respect of offshore ISK owners, the problem is solved with a product mix auction, namely the sale of FX and treasury bonds. Creditors can choose between three options; (i) currency auction, (ii) treasury bonds or (iii) locked non-interest bearing accounts. As for the treasury bonds, it is envisaged that there will be two types of bonds, i.e. (1) a long-term (20 years) bond where repayments are to be consistent with Iceland’s balance of payments and (2) a medium term EUR denominated bond. The offshore ISK owners who bid on foreign currency will pay a premium for doing so and a premium is also to be paid for the first 7 years in respect to long-term treasury bonds.

Distributions to claimants would be able to flow freely following confirmed composition agreements or, if applicable, a payment of stability tax.


Certain Kaupthing claimants have submitted proposals aimed at providing a stability contribution in the form of an ISK84bn (USD632m)secured promissory note to the Government under their composition agreement instead of paying the 39% stability tax.  The secured note would be payable in two equal instalments on the second and third anniversaries of its issuance at a 5.5% interest rate and will be secured by a pledge over Euro Medium Term Notes issued by Arion Bank hf. to Kaupthing. Furthermore, the stability contributions envisage an assignment of the estate's equity, rights and claims against certain Icelandic counterparties in a nominal amount of approximately ISK114.8bn.

For a detailed analysis of Kaupthing’s proposals, please click here.


Certain Glitnir claimants submitted a proposal to the Minister of Finance on 8 June 2015. Specific proposals include an assignment of the Glitnir estate’s claims and rights against specified domestic Icelandic counterparties which have a book value of approximately ISK59bn. In addition to this, Glitnir will issue an ISK-denominated secured promissory note in the nominal amount of ISK199bn which will have a 5.5% interest rate. The note will be secured by a pledge over the bank’s Euro Medium Term Notes, the Treasury notes and the new Tier 2 subordinated notes.

For a more in depth analysis of Glitnir’s proposals, please click here.


Certain LBI claimants have also submitted proposals which contain stability contributions on various terms. This includes LBI granting Landsbanki an option to convert the current secured bond to EUR-denominated market instruments under its EMTN program to assist Landsbanki in achieving a more market typical unsecured funding structure.

For a review of LBI’s proposals, please click here.

LOGOS legal services has prepared a memorandum in respect of the above. For those interested in the memorandum for a fee of EUR 2,500 (excl. VAT), please contact Benedikt Egill Arnason, Partner (


The procedure for the transfer of Icelandic claims has significantly developed since the banks' collapse and there is now a consistent method for acquiring and selling Icelandic claims. It is recommended that Sellers consider the potential stability tax, which should be a Buyer risk without recourse to the Seller on any trade transactions following June legislation.


The Icelandic Bankruptcy Act (Act on Bankruptcy, etc, 1991, No. 21, 26 March) sets out the criteria for the assessment of priority of claims under Articles 112, 113 and 114. Generally speaking, Article 113 is the category under which unsecured and unsubordinated claims fall and it is applicable to the majority of bond and loan related claims traded in the secondary market. A Winding- Up Board ("WuB") was appointed for each failed bank to claims assisted by Epiq Bankruptcy Solutions, LLC, who have been appointed as claims transfer agent for the Winding-Up Committee of Kaupthing and the Winding-Up Boards of Glitnir and Landsbanki.  As part of the buyer’s due diligence, a buyer of Icelandic claims should review the Proof of Claim and the latest creditors list in order to ensure that the claim being purchased is recognised as falling into the category of Article 113, in order to verify the amount of principal and interest that has been accepted and to check whether the original claimant has indicated that a right of set-off exists against the filed claim.


Trade Documentation based on the Loan Market Association form of Trade Confirmation which is English law governed and an Icelandic law governed Assignment Agreement are widely being used for the trading of claims and the market has developed a number of specific terms of trade since the banks' collapse in 2008.  The additional terms address matters such as voting rights, the risk of any distributions being received by a previous owner and the joint and several liability of buyer and seller under Icelandic tax laws.


In order to successfully transfer a claim, the WuB must be notified of the transfer by submission of an original Claim Transfer Request Form, signed and initialled by both parties. The WuB will then issue a Notice of Proposed Transfer whereby the parties have the option to reduce the objection period from 10 to 3 days.  If no objection is raised, the WuB will issue a Notice of Successful Transfer at which point the parties can proceed to settlement which is usually within two business days. Transfer fees are payable to the WuB in the sum of USD2,000 for a full transfer and USD4,000 for a partial transfer of a claim. Additional documentation and procedural requirements are in place for claims arising under the Kaupthing US MTN programme.

There are no banking licence requirements for the transfer of a claim in Iceland and a 10% Withholding Tax applies on interest payments unless a double taxation treaty applies.

Further information and instructions regarding the transfer of claims for each specific bank can be found on the individual bank’s website.

Special Note:Special thanks to Benedikt Egill Árnason and Heiðar Ásberg Atlason at LOGOS in Iceland, who assisted us with this Trade Alert.


Faye Harvard-Jones faye.harvard-jones@cwt.comTel: +44 20 7170 8548

Faye Harvard-Jones has recently joined Cadwalader's London office as a Paralegal in the Financial Restructuring Group and primarily assists the Debt and Claims Trading practice with transactions in the secondary loan markets.  Prior to joining Cadwalader, Faye obtained Bachelors and Masters degrees in Law and International Commercial Law and graduated from the University of Birmingham in 2011. Faye went on to work in private practice and gained broad experience acting for a number of banks in the Real Estate Finance SME Market.

Caroline Friederichs caroline.friederichs@cwt.comTel: +44 20 7170 8512

Caroline Friederichs is an associate in the Financial Restructuring Group and the Debt & Claims Trading practice in Cadwalader's London office.

Caroline focuses on the secondary loan trading markets and provides advice on the legal issues relating to the purchase and sale of distressed assets, with a special emphasis on the German non-performing loan market. She has been actively involved in the loan trading market since 2005 and advises investments banks, broker/dealers, hedge funds and other investment entities in all legal aspects of their secondary loan trading activities relating to distressed, par and near par loans, claims trading, portfolio asset transactions and high-yield investments/equity trading.

GREECE: the next Iceland?


While there are signs of an end in sight of the Icelandic saga of capital controls, Greece’s may have just begun.

Failure to reach an agreement in the negotiations to release bail out money over the weekend and the Greek Government’s call for a referendum has led the ECB to cap Emergency Liquidity Assistance ("ELA") to Greek banks.

Without new money from ELA, the Greek government has resorted to shut the country’s banks and imposed capital controls in a bid to avert the collapse of its financial system, a day before the extension expires for the “Master Financial Assistance Facility Agreement”, as Greece’s bailout is known, and the due date of a EUR1.6bn payment to the IMF. At the time of going to press, daily cash withdrawals are limited to EUR60 and payments and transfers abroad are banned.

The stock market and banks will be closed at least until 6 July 2015, the day after the Greek people vote in a referendum on 5 July 2015 on whether to accept the terms offered by the international creditors, required in order to release EUR7.2bn bailout aid Greece needs in order to meet its financial obligations.

“Grexit”, i.e. Greece abandoning the euro and re-introduction of the Drachma, has thereby moved another step closer, albeit not yet being inevitable.

A number of key risks arise in connection with this rapidly evolving situation, most notably contractual default by counterparties exposed to Grexit, redenomination of liabilities in euros into a new currency, termination rights in accordance with key clauses under financial contracts, and expropriation.


Please click here for a briefing by Assia Damianova on how the 2014 Credit Derivatives Definitions cater for a Euro exit.

Please click here for an opinion issued by ESMA on the emergency measure by the Greek HCMC on short selling and certain aspects of credit default swaps.

Please click here for an English translation of the legislative act that imposed capital controls in Greece.


  1. Torm A/S: On 30 June 2015, Mr. Justice Barling approved the proposed UK scheme of arrangement for Torm following the opening hearing held in London on 9 June 2015 where 94% majority of creditors by value and 85% by number approved the proposed plan.  Only a minority of creditors showed opposition to the scheme and they represent approximately 1.5% of the debt.

The Danish shipping company is seeking to restructure approximately USD1.4bn of loans to avoid enforcement under the four main facilities held with a syndicate of banks, in addition to preventing the instigation of formal insolvency proceedings. Oaktree Capital, who will become a majority shareholder of the company after the workout, will contribute some of its own vessels and inject USD300m into the company in exchange for a stake in the equity of the company.

Under the proposed scheme, the company’s debt will be reduced from USD1.439bn to about USD800m and will improve the company’s overall loan-to-value ratio to about 55% from its current 170% position. The provision of vessels from Oaktree will deleverage the company and create a new fleet valued at USD 1.54bn. However, one issue remains to be agreed in the restructuring deal and a group of lenders are still negotiating with Torm and Oaktree Capital on whether articles of association granting protection to minority shareholders should be modified in the subsidiaries documentation in addition to the parent company. Nevertheless, Mr. Justice Barling noted the point and agreed that this should not affect the scheme sanction.

Please click here to view an announcement by Torm and here for the Skeleton Argument submitted to the High Court of Justice (Chancery Division).

  1. HSH Nordbank AG: There have been recent statements that HSH Nordbank AG, could split off a "bad bank" for non-performing shipping loans as part of a plan to create a sustainable business model.

As a result of the downturn in the shipping industry following the financial crisis, the bank had been forced to write down a significant number of shipping loans and noted that there are no indications of a significant recovery in the industry before the end of 2015. HSH began a restructuring process in 2009 which provided for a EUR 3bn capital increase from the states of Schleswig-Holstein and Hamburg and a second loss guarantee of EUR10bn, which is only triggered if the company incurs over EUR3.2bn in portfolio losses. In exchange for this, the company pays EUR400m to the two federal states per year. Investigations by the European Commission whether the aid received by the bank was consistent with EU state aid rule are ongoing.

  1. Ahmad Hamad Algosaibi & Brothers (AHAB): Following an all claimants meeting held on 3 June 2015, the creditor’s steering committee have approved a restructuring plan that could resolve a six year long dispute over USD 6bn worth of debt. 

AHAB proposes to share almost the entire value of the company’s portfolio with creditors and have offered a minimum return of 28 cents on the dollar, which is a 40% increase on the 20 cents previously offered by the company. Creditors will receive an immediate payment of 10% in cash (2.4 billion riyals) together with a pledge of over 3.4 billion riyals from the real estate portfolio and a pledge on a minority participation in a joint venture worth approximately 300 million riyals.

Please click here for a recent article by the Financial Times.

  1. HETA: Heta, the resolution vehicle of the defunct Austrian bank Hypo Alpe Adria, has reported a 23% decline in its interest income together with a EUR7bn capital hole in its accounts published in its 2014 financial year results on 18 June 2015. 

The 15-month moratorium on all interest and principal payments imposed by the Austrian government is due to end on 31 May 2016.  It has been reported that this could be further extended, however, the Austrian government have said that they want to come up with a plan by the end of 2015 and insolvency remains on the table.  Heta is the first case to test the new laws passed under the EU Bank and Recovery Resolution Directive which is designed to protect taxpayers from the costs involved in winding up failed banks.