Councils fight for Iceland cash

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British council leaders are attending a creditors' meeting in Iceland to fight for more of their money back from one of the country's ruined banks, Glitnir.

The local authorities had almost £900m ($1.5bn) of deposits in the country when a trio of its banks closed.

Most of the money was in Landsbanki, which granted the councils priority status, meaning they should get almost all of their money back from it.

But Glitnir has not followed suit. It says creditors must be treated equally.

Equal status theoretically means the authorities will receive less than 30% of the £200m they had on deposit with Glitnir.

So far, barely £100m has been returned from all the banks.

The finance director of the Local Government Association, Stephen Jones, is flying out to Iceland to attend the creditors' meeting and appeal against the decision.

We made those deposits in good faith, we expect to be paid back in good faith Richard Kemp, deputy chairman, LGA

'Every penny back'

Richard Kemp, the LGA's deputy chairman, told the BBC: "We have strong legal advice supported by the Landsbanki administrators that we have preference and we'll be pushing that case today."

He admitted that the amounts were only significant for a small number of councils.

But he added: "Whether it's significant or not, we want every penny back for British council tax payers. These banks were regulated under Western democracies with external auditors, with credit rating agencies giving triple-A ratings.

"We made those deposits in good faith, we expect to be paid back in good faith."

But the chairman of the winding-up board of Glitnir Bank, Steinunn Gudbjartsdottir, said: "It is a general principle of insolvency law that creditors should enjoy equal treatment. The winding-up board is of the opinion that there is sufficient doubt as to the priority right of the claims to refuse them priority."

COUNCILS IN GLITNIR Kent County Council: £14.5mNottingham City Council: £11mLondon Borough of Barnet: 12.4mGloucestershire: £8.9mHertfordshire: £7m<i>Source: DCLG</i>

Iceland's financial institutions collapsed in late 2008. It soon came to light that local authorities and other public bodies across the UK had invested substantial amounts of money in Icelandic banks.

Fraud probe

On Wednesday, the Serious Fraud Office launched an investigation into suspected UK fraud at the failed Icelandic bank, Kaupthing.

It will examine whether the bank misled savers to encourage deposits into its Kaupthing Edge account and investigate why large sums flooded out of the bank in the days before it failed.

One in four local authorities had invested in Icelandic banks by the end of 2008. The total amounted to more than £929m.

The Local Government Association says it expects to get some 90% of the money back.