Mount Banking may be insolvent

MOUNT Banking Corporation yesterday admitted for the first time that it may be insolvent, during a High Court hearing that led to the appointment of administrators.

The court move, aimed at saving all or part of Mount Banking, reverses the appointment of provisional liquidators a fortnight ago, at the request of the Bank of England, to close the pounds 200m bank.

A customer of Mount has claimed privately that the decision to apply for liquidation was an over-reaction by the Bank of England at a time when it was being criticised for delays in closing the Bank of Credit and Commerce International.

But the Bank of England made clear yesterday that in urgent cases it is harder to appoint administrators under the Banking Act than provisional liquidators.

A spokesman said: 'The Banking Act gives the Bank powers to act quickly to obtain a provisional winding-up order but the powers are more circumscribed when it comes to administration.'

Appointment of administrators requires co-operation from directors and proof of insolvency. At the time Mount was shut down it appeared solvent. However, in the High Court yesterday Robin Diecker, counsel for Mount, read out an affidavit from Suresh Shah, a director, who said: 'To the best of my knowledge the company is likely to be or become unable to pay its debts.'

Mr Diecker said the bulk of Mount's lending was property-based, and the security of the loans had been affected.

Michael Crystal, counsel for the Bank of England, said it supported administration, which would be in the public interest and the interests of depositors.

The court was told a number of depositors in Mount may agree to changing the terms of loans and some may convert them to equity.

Two of the provisional liquidators from KPMG Peat Marwick, Philip Wallace and Tim Hayward, are continuing as administrators, and will be joined by Tony McMahon. Mr Hayward said that while it was too early to come to a conclusion about the solvency of the bank, 'we are hopeful that depositors will recover a substantial proportion or all of the amounts due to them'.