Regulation No. 838/2012

Article 1

Scope of application

This Regulation applies to liens granted by a municipality to Municipality Credit Iceland Plc. (MCI), pursuant to Paragraph 2 of Article 68 of the Local Government Act No. 138/2011, as security for borrowings from MCI and for guarantees which a municipality provides in respect of a company or agency which it owns or owns jointly with other public entities.

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:

1. Loans taken by the municipality itself, cf. Article 68 of the Local Government Act.
2. Secondary guarantees undertaken by the municipality in respect of borrowings by a company or agency, cf. Paragraph 1 of Article 69 of the Local Government Act.
3. 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. Paragraph 2 of Article 69 of the Local Government Act.
4. Secondary guarantees approved specifically by the municipality in respect of borrowings by a co-owned agency to which the municipality is a party, cf. Paragraph 8 of Article 94 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.

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 Point 1 of Article 2, or 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 obligation to pay has not been heeded, MCI sends a notice to such effect, first to the municipal manager and then to the Municipal Council including information on the amounts in default. Such notice is sent to the municipal manager 30 days after the due date and then to the Municipal Council 45 days after the due date. MCI may send a notice to the Ministry of the Interior including information on the amounts in default, 60 days after the due date. A copy of the notice to the Ministry of the Interior shall be sent to the Municipal Council.

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 to the Ministry of the Interior, pursuant to Article 4, the Minister of the Interior 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 Financial Management Authority for payment out of municipal tax revenues. When deemed sufficient by the MCI, it shall limit the claim to contributions to the municipality from the Local Authorities' Equalisation Fund.

Claims pursuant to Paragraph 1 shall be paid directly to the MCI out of contributions to municipalities as they become payable by the Local Authorities' Equalisation Fund and collected municipal tax revenues as they become payable by the Financial Management Authority.

Article 6

Entry into force

This regulation, adopted under the authority conferred in Paragraph 2 in Article 68 of the Local Government Act No. 138/2011, with subsequent amendments, shall enter into force upon publication. As from the same date, Regulation No. 124/2006 on the liens of Municipality Credit Iceland in municipality revenue, expires.

Ministry of the Interior, 26 September 2012.

Ögmundur Jónasson.

Ragnhildur Hjaltadóttir

This is a translation from Icelandic made by MCI.

The legally binding text is in Icelandic and any use of this translation is at the user's own risk.