REGULATION No. 123/2006
on the liens of Municipality Credit
Article 1
Scope of application
This Regulation applies to liens granted by a municipality to Municipality Credit Iceland (MCI) as security for borrowings from MCI and for guarantees provided to MCI pursuant to Paragraph 6 of Article 73 of the Local Government Act No. 45/1998, as amended.
Article 2
Types of lien
A municipality can grant to MCI a lien on its municipal income tax revenues and contributions to the municipality from the Local Authorities’ Equalisation Fund in respect of the following:
- Loans taken by the municipality itself;
- Absolute guarantees undertaken by the municipality in respect of borrowings by a company or agency, cf. the first clause of Paragraph 6 of Article 73 of the Local Government Act, as amended;
- Secondary guarantees undertaken by the municipality in respect of borrowings by a company or agency owned and operated by the municipality in partnership with other municipalities or other public entities, cf. Sub-section 73.6.2 of the Local Government Act.
- Secondary guarantees approved specifically by the municipality in respect of borrowings by a co-owned agency to which the municipality is a party, cf. Article 82 of the Local Government Act.
Article 3
Form of pledge
In order for a pledge to be valid, the pledge shall be approved by the Municipal Council of the municipality at a meeting of the Council and comply with other conditions established by law. During the summer leave of a Municipal Council, the Municipal Executive Board can grant final approval in a corresponding manner, provided that there is no dispute within the Board or with the Municipal Administrator as regards the decision.
The pledge shall be referred to specifically in the debt instrument or declaration of guarantee, and the Municipal Council, or the person signing the document by power of attorney, shall confirm it by his or her signature.
Article 4
Default by a municipality
In the event that a municipality is in default to MCI in respect of a loan pursuant to Item 1 in Article 2, MCI may send a notice to the Ministry of Social Affairs containing information on the amounts in default. However, such notices shall not be sent until the event of default has lasted 30 days or more from the due date.
In the event that a claim is submitted to a municipality in respect of payment relating to a guarantee issued to MCI in respect of borrowings by a company, agency or co-owned agency pursuant to Items 2, 3 or 4 of Article 2, and the municipality has not heeded its obligation to pay, MCI may send a notice to such effect to the Ministry of Social Affairs including information on the amounts in default. However, such notices shall not be sent until 30 days have passed from the time that MCI sent to the municipality a request for payment.
Copies of notices pursuant to Paragraphs 1 and 2 shall be sent to the municipality in question.
Article 5
Collection of amounts in default
If a pledge meets with the conditions of law or if a municipality is in default and MCI has sent a notice of the default pursuant to Article 4, the Minister for Social Affairs shall promptly issue an authorisation to MCI to foreclose. MCI may then send to the Local Authorities’ Equalisation Fund a claim for payment of the default amount out of contributions from the Fund or to the State Treasury for payment out of municipal tax revenues. If it is sufficient, in the opinion of MCI, MCI shall limit the claim to the contributions from the Local Authorities’ Equalisation Fund to the municipality.
Claims pursuant to Paragraph 1 shall be paid directly to MCI from contributions to the municipalities and collected municipal tax revenues as they fall due for payment from the Fund and the State Treasury respectively.
Article 6
Entry into force
This regulation, issued pursuant to authorisation in Paragraph 3 of Article 73 of the Local Government Act, shall enter into force on its publication.
Ministry of Social Affairs, 27 January 2006
For the Minister
Ragnhildur Arnljótsdóttir (sign.)
Guðjón Bragason (sign.)
Regulation on the liens of Municipality Credit
