UK: Iceland Versus Scotland: What Happens When Two Inconsistent Insolvency Regimes Clash?

Last Updated: 8 April 2013
Article by Brian Cain

Key points

  • The Credit Institutions (Reorganisation and Winding up) Regulations 2004 were to be construed to ensure forum shopping was not encouraged;
  • The extinguishing of a claim in Icelandic insolvency proceedings relating to one entity (Landsbanki) did not affect the ability to assert a right to set off that same claim in Scottish insolvency proceedings (Heritable).

The facts

Landsbanki Islands hf, and Icelandic bank, was the parent company of a Scottish bank Heritable Bank plc. Both were subject to national regulations implementing Directive 2001/24/EC of 4 April 2001 on the reorganisation and winding up of credit institutions (the "Directive"), which applies to EU Member States and non-EU countries in the EEA, including Iceland. The Directive was implemented in the UK by The Credit Institutions (Reorganisation and Winding up) Regulations 2004 (the "Regulations").

Landsbanki is an EEA credit institution for the purpose of Part 2 of the Regulations. Heritable is a UK credit institution for the purposes of Parts 3 and 4. Regulation 5 in Part 2 of the Regulations provides in essence that an EEA insolvency measure has effect in the UK in relation to the branches of an EEA credit institution, its property and assets, and its debts and liabilities, as if it were part of the general law of insolvency of the UK.

The Winding-Up Board of Landsbanki had submitted claims in the administration of Heritable. The administrators of Heritable submitted claims in the Landsbanki winding up. In the Heritable administration, one of Landsbanki's claims was rejected by the administrators, applying the principles of insolvency set off. However, in the Landsbanki winding up in Iceland, the Winding-Up Board of Landsbanki rejected the Heritable claims against Landsbanki and under the Icelandic regime these claims could not be pursued at all for the purposes of the Icelandic proceedings concerning the estate of Landsbanki.

The Winding-Up Board of Landsbanki brought the appeal in the Supreme Court against the rejection of their claim in the administration of Heritable. They argued that the decision rejecting the Heritable claims for all purposes in the Icelandic insolvency proceedings had effect and was binding in the United Kingdom – and so binding for all purposes of the administration of Heritable thus destroying the ability to assert a set off of such claim - under Regulation 5 of the Credit Institutions (Reorganisation and Winding Up) Regulations 2004/1045.

Simply put Landsbanki argues that Icelandic insolvency law nullified the Heritable claim, regulation 5 applied Icelandic law to the administration of Heritable and therefore no set off could properly be made involving the Heritable claim. Heritable argued that even if its claim could not be pursued in the Icelandic proceedings regulation 5 did not prevent it from being asserted in the administration of the Heritable estate under the relevant insolvency rules.


The issue was whether Heritable's claims, extinguished as a matter of Icelandic law, were to be treated as extinguished in Heritable's administration so that Heritable's administrators cannot use them to set off Landsbanki's claim. Did Icelandic law bind the administrators of Heritable?

The Supreme Court accepted that the common law in this case had to give way to the provisions of the Directive as implemented by the Regulations. The proper construction of the Regulations and in particular regulation 5 would determine the answer to the question whether the administrators of Heritable were bound by Icelandic law in this respect.

The Supreme Court held that the provisions of regulation 5 were concerned only with the winding up in Iceland in relation to Landsbanki and it is only for that purpose that the winding up is to have effect as if it were part of the general law of insolvency in the UK. In consequence regulation 5 was effective, among other things, to ensure that Landsbanki's property or assets located in Scotland were not disposed of in accordance with Scots law, and that steps by a creditor to enforce a claim against Landsbanki were to be pursued solely in the proceedings in Iceland. Furthermore, regulation 5 would ensure for the purposes of the winding up of Landsbanki, that decisions taken by the winding-up board were to be given effect in Scotland. That construction of the regulations was sufficient to maintain the integrity of the Icelandic proceedings in relation to Landsbanki.

The provisions of regulation 5 did not apply the relevant Icelandic insolvency laws – that excluded Heritable's claim in the Icelandic proceedings relating to Landsbanki - to the administration of Heritable in Scotland. The Supreme Court went on to hold that Parts 3 and 4 of the Regulations provided that the general law of insolvency has effect in relation to UK credit institutions and that matters such as the conditions under which set-off may be invoked and the rules governing, among other things, the admission and ranking of claims are to be determined in accordance with the general law of insolvency of the UK. These provisions when properly construed preserved the right of creditors to demand the set-off of their claims against the claims of the insolvent credit institution, where set-off is permitted by the law applicable to the credit institution's claim. Issues of set-off in relation to the Heritable claim were therefore to be determined as the common law of Scotland required, according to the proper law of the contract which was English law.


The decision reached by the Supreme Court resolves a clear inconsistency in the insolvency regime which is applicable to credit institutions under the Directive. One of the factors taken into account by their Lordships in arriving at their decision was that the effect of Landsbanki's argument, if successful, would have been to give universal priority to the process in which a decision happened to be made first. That would encourage forum shopping, especially where there was a prospect of inconsistent findings as to the validity of a claim in different states. The Supreme Court found it hard to believe that this was intended by the framers of the Directive. In an era where credit institutions are now much more likely to enter insolvency proceedings the complications and additional expense which forum shopping could bring to a resolution of such proceedings was to be avoided.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.