Council may receive Iceland cash

Creditors may get up to 80% of the funds returned which were lost

Millions of pounds could be repaid to Cornwall Council following the collapse of Iceland's banking system.

Before the unitary authority took control on 1 April, Restormel Borough Council invested £4m and the county council invested £5m with Landsbanki.

However, all the money was lost when Landsbanki collapsed in October.

Now administrators for Heritable Bank, the UK arm of Landsbanki, have indicated its creditors could get up to 80% of funds back.

A report by the Audit Commission in March stated that Restormel Borough Council acted negligently by investing £3m into the Landsbanki bank just days before it collapsed last year.

According to the commision on 30 September 2008 the official credit rating for Icelandic banks was downgraded to "adequate", which is below the level deemed acceptable in local authority guidelines.

However, despite the downgrade, on 1 October Restormel Borough Council invested £3m in Landsbanki and just six days later the bank collapsed, taking the council's money with it.

The council also breached Treasury policy by investing more than it should have in a single bank - £4m in total.

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