Sigrún Davíðsdóttir's Icelog

Kaupthing IoM, the Queen and “The Body”

with 7 comments

One of Kaupthing’s celebrity clients, the Australian supermodel Elle Macpherson has won the right to appeal a judgment in her case in the Isle of Man. Macpherson took out a loan with Kaupthing’s Isle of Man branch. The liquidator insisted Macpherson should pay back £7.8m but she claimed she could offset her deposits with the bank of £2.5m to lower the outstanding loan and should only pay the difference, just over £5m. The case was further complicated because the deposit was in Macpherson’s name whereas the loan was in the name of a nominee company, Light House Living Ltd*. With Kaupthing’s full acceptance Macpherson chose to have a company as the owner of her property in order to guard her privacy and hinder that the address landed in the public domain.

Macpherson, who in her earlier modelling days was simply called “The Body,” now runs a successful lingerie business and lives in London. She took the liquidator to court, won the first instance but when the High Court in the island sided with the liquidator Macpherson turned to the highest court of appeal for the British Crown Dependencies, such as the Isle of Man, this highest court being one of these archaic English institutions the Queen’s Privy Council. The Council has now granted the model appeal, which means she still has the chance to a successful challenge. The administrator has been ordered to pay Macphersons’s legal bill, expected to be a six figure sum.

The final ruling will be of importance not only to Macpherson but to others in the same situation.

There are several issues at stake in this case and those who want to get to the bottom of this case and its consequences can read some legal views on it here, p 384 and also here.

Follow me on Twitter for running updates.

Written by Sigrún Davídsdóttir

August 6th, 2012 at 9:25 pm

Posted in Iceland

7 Responses to 'Kaupthing IoM, the Queen and “The Body”'

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  1. “The case was further complicated because the deposit was in Macpherson’s name whereas the loan was in the name of a nominee company …” is I think quite misleading here. This was/is not a ‘further complication’, but the whole ‘raison d’etre’ of this case, which would never have arisen had the loan in question been in Ms Macpherson’s name. In this liquidation (not administration, by the way), set-off has been routinely applied to creditors who also had loans from the bank. The point in this legally complex case is that Ms Macpherson and Light House Living are clearly not the same legal ‘person’ and that allowing set-off in such a case would seem to involve piercing the ‘corporate veil’.

    As to the not insignificant legal charges, I fail to see how these can have been awarded against the Liquidators as the court has not yet heard the appeal, much less handed down its judgment (the Privy Council has simply accorded the right to appeal). In English law, costs generally follow the event, but to the best of my knowledge they do not precede it. Do you have a reliable source for this ‘information’ (other than the appallingly bad, error-ridden and sensationalist article which appeared in the Telegraph and which refers to Light House Living as KSF’s liquidators!)?

    But if and when such costs are awarded (in the case of a ruling in Ms Macpherson’s favour), they will effectively be borne by the vast majority of her ‘fellow’ creditors who had no loan with Kaupthing to set-off against. In other words, her win would be their loss, an eventuality the many ordinary depositors for whom the idea of such wealth is beyond imagination (and who suspect there may have been reasons other than privacy for the use of a nominee company, with the potential fiscal advantages that come with it) would not see as cause for celebration. Maybe they would have more sympathy with her cause had she used her celebrity status to support their efforts to raise awareness of the regulatory failures which brought about the collapse of the bank and caused so much distress, from which many will never recover. But when that might have helped everyone, she was nowhere to be seen.

    What is particularly galling about this whole affair is that, in view of the high recovery rate in this liquidation (currently standing at 91% and still rising), the potential financial gain for Ms Macpherson is vanishingly small, so that the case is now mainly about the ever-escalating legal costs (though admittedly that was not the case at the start). The only real winners, as often in these situations, will thus be the legal advisers – on both sides.

    anrigaut

    7 Aug 12 at 7:42 am

  2. If the company was just a nominee, ie the shares were held in her own name (which I doubt) she should be entitled to set off but it is more than likely that the company was owned by a trust for tax purposes and set off should not be allowed

    flying pig

    7 Aug 12 at 8:30 am

  3. I can see your point, Anrigaut, regarding the nominee company – it was most likely the raison d’etre of this set up. However, in the legal terms, it did complicate the matter since this case wouldn’t have arisen if the mortgage holder and the deposit holder had been the same person/entity, which is why I talke about it as a “complication.”

    If the Kaupthing liquidator will lose the case the estate will most likely have to pay the legal costs of Macpherson. This has been pointed out in the media coverage but so long as the case isn’t finished it’s probably not yet certain. Not only the Telegraph made the mistake re Light House Living; also here: http://www.thisismoney.co.uk/money/news/article-2184361/Queen-rides-rescue-supermodel-Elle-Macpherson-8m-Kaupthing-case.html. – Interesting per se that this same mistake crops up in more than one media because it’s quite clear from reading the legal papers what the position of LHL was.

    I have corrected the text and replaced “administrator” with “liquidator,” thank you.

  4. Sigrun,

    I think we agree: the ‘matter’ was complicated (but not ‘further’ complicated!) by the fact that the mortgage was in the name of a company, but without that complication there would never have been a (court) ‘case’. Sorry if I was being pedantic, but as it was quite possibly misleading to those not familiar with the case (and given the erroneous messages put out by a section of the UK press), I felt it important to make clear that without the company involvement set-off would have been automatically accorded by the Liquidators, without the need for a court case.

    The multiple errors in the Telegraph article were also reproduced in the Daily Mail (of which the thisismoney one is a direct copy) here: http://www.dailymail.co.uk/money/news/article-2184361/Queen-rides-rescue-supermodel-Elle-Macpherson-8m-Kaupthing-case.html

    Sadly, it would seem that both these once highly respected British newspapers are now more interested in sensationalism and the cult of ‘celebrities’ than in the truth. The simple fact of the matter (confirmed by reliable sources on both sides of the dispute) is, as you quite correctly stated, that the Privy Council has accorded Ms Macpherson/Light House Living the right of appeal, but no date has yet been fixed for the hearing.

    anrigaut

    7 Aug 12 at 7:23 pm

  5. Update: Just checked the Telegraph site and it would appear their article has been withdrawn!

    anrigaut

    7 Aug 12 at 7:26 pm

  6. For the record, the Daily Mail has today updated its report to correct its worst errors and has added the following info and statement from the Kaupthing (IOM) Liquidators:

    “Liquidators PwC said depositors and other ‘ordinary creditors’ had so far been paid 91 per cent of their deposits, meaning Macpherson’s, excluding legal costs, would have been around £250,000.

    Joint liquidator Michael Simpson of PwC said: ‘We were appointed as liquidators to the bank in order to realise the assets and pay the proceeds out to the creditors, who consist almost entirely of depositors who entrusted their savings to the bank.'”

    anrigaut

    8 Aug 12 at 11:03 am

  7. The Telegraph article has now reappeared in a somewhat toned down and modified form with the major factual errors removed – but still very unbalanced.

    http://www.telegraph.co.uk/news/celebritynews/9452102/The-Queen-gives-Elle-Macpherson-a-financial-lifeline.html

    anrigaut

    9 Aug 12 at 7:26 am

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