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Havering Council has received its first repayment of £1.5million from an Icelandic bank, which collapsed in 2008.

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The payment from Landsbanki, which was one of three Icelandic banks that suffered a financial crisis, is in addition to the £4million already received from another Icelandic bank Heritable.

The council, along with several other local authorities and public sector organisations, invested money in the Icelandic banking system because, it said, at the time it met with the council’s investment criteria and was highly rated by the credit ratings agency.

Havering Council invested £6million in Landsbanki and £6.5million in Heritable. The third to collapse was Glitnir, which the council had not invested in.

The council expects to get back most of the money it invested in both banks.

The repayment from Landsbanki follows a court victory after the local authorities’ preferred creditor status, which gives them priority to claim their money ahead of other creditors, was challenged.

But after a three-year legal battle led by the Local Government Association (LGA) on behalf of all 123 UK Councils affected, Iceland’s Supreme Court found in favour of the councils.

Havering was able to recoup money from Heritable Bank earlier as there was no challenge to the preferred creditor status.

Cllr Roger Ramsey, cabinet member for value, said: “This reinforces our expectation to make an almost full recovery of this money for the future benefit of our residents.

“It was made possible following the court battle and I’m glad the Icelandic Supreme Court recognised that UK local authorities should have priority over other creditors’ claims.”

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