Judgement of the Supreme Court of Iceland in case no. 707/2014, Kaupthing hf. v Aresbank S.A.
On 16 August 2013, Kaupthing distributed payments to creditors holding accepted claims under article 112 of the Bankruptcy Act (“priority claims”). As all priority claims had been converted to Icelandic Krona in accordance with paragraph 3 of article 99 of the Bankruptcy Act, payment of priority claims was to be made in Icelandic Krona. Creditors were however given an option to have their payment made in euro converted at the exchange rate as at 22 April 2009 (“euro-option”)
The dispute in the case concerned whether Kaupthing was allowed to use the exchange rate as at 22 April 2009 to convert and pay creditors with accepted claims under article 112 of the Bankruptcy Act in accordance with the terms of the euro-option or whether the exchange rate on the date of payment, 16 August 2013, should have been applied.
The Supreme Court found that the Bankruptcy Act did not allow for Kaupthing to use any other exchange rate, to convert and calculate payments of claims in Icelandic Krona to foreign currency, than the quoted selling exchange rate on the date of payment.
As a result, Kaupthing will recalculate and distribute payments to those creditors that received payment of their priority claims in euro. The difference between the EUR/ISK exchange rate on 22 April 2009 and 16 August 2013 is 5.57% and is estimated to result in additional payment for Kaupthing of EUR 4.6 million to the respective creditors.
It should be noted that as part of its reasoning the Supreme Court found that a liquidator in bankruptcy is, under the Bankruptcy Act, allowed (but not obliged) to use funds in foreign currency to pay creditors, whose claims were originally in foreign currency and that a liquidator in bankruptcy is furthermore allowed (but again not obliged) to use Icelandic Krona to buy foreign currency on the market and distribute that currency to foreign creditors. The liquidator would, in both instances, when converting the claim in Icelandic Krona to foreign currency, need to apply the rate of the respective currency on the date of payment.
Please find below the link to the offical verdict on the Supreme Court‘s website:
Unoffical English translation