Edwin Coe Correspondence to DCS Scheme Manager 11/06/2009

Edwin Coe Correspondence to DCS Scheme Manager 11/06/2009

Dear Mr Fayle

Thank you for your message which is most helpful. Whilst you are correct to draw me up on the quantification of the protected payment, I may have missed the implication as to the payment of the protected deposit. I asked about the expressed intention to pay either the full £50,000 or £20,000 as applicable (subject to the deduction of any dividend paid out of the liquidation) within the next few months. Is that what is proposed?

I note your point about the provisions of Regulation 16 of the Compensation of Depositors Regulations 2008. I have to say that I'm not sure the regulation is as clear as you would suggest.

Regulation 16(1) states that the regulation has effect in relation to depositors who apply for compensation under the Scheme. 16(2) then goes on to say that the Scheme Manager shall not pay or determine to pay a compensation sum out of the fund in respect of a liability unless the depositor has agreed that the depositor's existing rights in respect of that liability shall vest in the Scheme Manager. There is no definition of which liability is referred to in this regulation. In particular, Regulation 9 is not invoked for the purposes of Regulation 16.

Regulation 9 stipulates that, "an eligible protected deposit liability" is the total liability of the participant to the depositor. As I say, however, that definition is not then carried into Regulation 16. Regulation 16 is talking about a liability and the willingness of the depositor to vest in the Scheme Manager existing rights in respect of that liability. Regulation 16 does not suggest that there has to be an assignment of the "eligible protected deposit liability" as defined in Regulation 9. Indeed Regulation 16 suggests that the liability referred to there is simply the payment that is received under the Compensation Scheme up to a maximum of £50,000 for individuals and a maximum of £20,000 (as you remind me) for companies.

Parking that one for the moment, the other point you make, repeated in your letter of 5 June, is that, "As soon as the compensation is recovered, any additional distributions in the liquidation will be redirected to you immediately". Surely the position should be that when the Compensation Scheme recovers the money which it has paid out to the depositor, there should be a reassignment of the remainder to the depositor so that they may pursue it. I note in particular with some concern the possibility of the DCS being able to compromise any claims against the relevant institution following the assignment.

There are some other issues on which I would be grateful for your guidance.

My understanding is that the Depositors' Compensation Scheme only becomes effective when there is an event of default on the part of the relevant institution. My understanding here is that that default took place when the Company was placed into liquidation. It does not take place when the winding-up petition is presented. Thus, accordingly, under Regulation 9(1) the liability for the definition of "eligible protected deposit liability" is the principal and accrued interest at the time of the default, namely 27 May 2009. I note the provisions of Regulation 9(4) but that talks about deposits and not accrued interest. I understand that it is being asserted that interest accrued as at the true date of default is not being allowed as part of a claim. I would be grateful for an explanation.

  1. Under Regulation 16(5) there is a definition of the words "retained sum" for the purposes of Regulation 16(4).  I have to say that I simply do not understand Regulation 16(5)(b) and perhaps that could be explained.  I am sure my lack of understanding is entirely due to my own failings. 
    
  2. I understand that depositors are being pressed to lodge their claims by 30 June 2009.  Could we know, however, what is the effect if they fail to do so?  What if it is with you by 1 July, and what if it is with you by 31 July?  What is the effect of any delay and, if there is an effect other than the delay in submission, why does that have any further effect?
    
  3. I understood from a recent article that some further authority for distribution under the Scheme is required from Tynwald.  Is that correct?
    
  4. What are the Scheme’s intentions in relation to the vote at any creditors’ meetings in relation to any assigned rights?  Will they be used in any way?
    

Regards

David Greene
Partner
For Edwin Coe LLP

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