Bank's offshore arm in liquidation

Kaupthing Bank has been put into liquidation

The offshore arm of an Icelandic bank has been put into liquidation, paving the way for compensation payouts for savers.

A winding up order was made on Kaupthing Singer & Friedlander Isle of Man (KSFIOM) by the island's Deputy Deemster.

The move opens the way for the bank's 10,000 savers to receive payments from the Isle of Man's Depositors' Compensation Scheme of up to the first £50,000 lost, plus any other money that is recovered during the liquidation process.

There will now be a meeting of the Depositors' Compensation Scheme later this week at which it will determine whether a default has occurred, activating payouts for savers.

The bank was put into liquidation after savers and other creditors rejected an alternative Scheme of Arrangement which had been proposed by the island's government.

The Isle of Man Treasury had claimed that 54% of depositors would get back all their money within three months under the scheme, while 76% would have received 100% within two years.

But the KSFIOM Depositors' Action Group argued that the scheme gave them little more than they would receive under liquidation, and they organised an internet campaign urging savers to vote against it.

It is understood that £540 million of the £900 million of assets needed to repay savers are currently under the control of the liquidator PricewaterhouseCoopers, including a loan book which needs to be run down.

But there is around £400 million belonging to the bank which was held by its parent company, Kaupthing Singer & Friedlander, and which was frozen by the UK Government. It is not yet known how much of this money, if any, will be returned.

KSFIOM was placed in provisional liquidation on October 9 following the collapse of the Icelandic banking sector.