DAG STRATEGY TEAM ANALYSIS OF SoA v LIQUIDATION & DCS

DAG STRATEGY TEAM ANALYSIS OF SoA v LIQUIDATION & DCS

The differences between the DCS and the SOA are the way both schemes are funded, the timetable and procedure they use to pay out and the way they recover their funding.

The situation regarding the way the DCS was funded was discussed at length in court on the 9th April 2009 which I attended.
The issue relating to the £150 million pre approved treasury funding was clarified also after some discussion.
The treasury funding is only to pay claimants in excess of £20,000 up to the new £50,000 DCS limit.
Claimants below £20,000 are to be funded as before by bank contributions. (this stems from the banks lack of acceptance of the DCS increase, the increase is IOMG’s responsibility)
In practice, though the government funding is only for over £20,000 claimants it was stated the funding will be distributed to all claimants.
This means that IOMG’s contribution to the DCS is to be £90 million rather than £150 based on the discussions in court.
In Mike Simpsons earlier affidavit he stated that the DCS liability of all claimant likely to claim was £210 million. (very high value depositors have a claim but as the first 12.5p/£ dividend exceeds the total claim they are discounted)

The first available DCS funding will be £140 million, based also on MS affidavit and FSC letter of confirmation.
This is made up of the following:

£90 million treasury contribution for all DCS claimants between £20k - £50k – This figure was specified in court
£19 million bank levies – 2 years levies, one covered by IOMG agreement to cover lapsed levy up to 31/3/09
£31 million dividend payment from Bank at 12.5p/£ relating to eligible DCS claimants.

£140 million total.

This funding would be available within a few weeks of the bank being liquidated and the DCS invoked.

Payments under the DCS are pari passu for all creditors so if the total claims were £210 million with £140 million of funding available then there would be a 66% payout to all DCS claimants of their claim.
This offers a significant advantage for claims in excess of £30,000 because the first DCS payment will be greater than the first assured payment under SOA as well as being distributed at an significantly earlier date.
For claimants under £30,000 the assurance of a guaranteed £20,000 at the first assured payment stage of the SOA may offer some advantage.
Any advance under EPS will also be deducted at this stage as per the SOA.

Also stated in Mike Simpsons affidavit and the FSC letter was that there will be a further £21 million loan made available to the DCS on the 23rd October 2009.
This again would be distributed pari passu offering a further 10p/£ payment.
So by around the time of the first SOA assured payment of £20,000 under DCS 76% of your claim value would have been paid.
Any claimant in excess of £26,500 would be better of under DCS than SOA at this point.
All those under £20,000 would be fully paid out from SOA but would still have 24% of their claim under DCS outstanding.

There is then a further dividend of 7.5p/£ that Mike Simpsons affidavit declares he is able to pay in May 2010 which equates to £18 million
Bank levies of £10 million for 2010/11 would be made available and a £4 million IOMG Loan also totally a further £32 million.

This would allow a further distribution to DCS claimants pari passu of 15% of your claim value.
We are now at 91% payout of all claim values under DCS as of May 2010.

By comparison under SOA all outstanding claims up to £35,000 would be covered by the second assured payment of £15,000 due to be paid in June 2010.
All claimants above £38,500 would have received more under DCS even after this 2nd assured payment from the SOA.

The final DCS liabilities would be covered by the final dividend which Mike Simpsons affidavit declares as 15p/£ dividend payable December 2010
All claimants would be fully paid out pari passu with this.

The final assured payment will not be until June 2011 so all claims under DCS would be fully paid out 6 months sooner than outstanding claims under SOA.
All claims in excess of £35,000 will be fully paid out 6 months sooner under DCS than SOA.
DCS claimants below £38,500 will receive less than SOA from June 2010 until December 2010 but will be fully paid out Dec 2010 unlike June 2011 under SOA.
They receive 100% of there funds or their full compensation entitlement 6 months quicker than the alternative SOA.

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