December 1, 2016 / 2:01 PM / in a year

UPDATE 2-Iceland court agrees to probe freeze on bonds owned by foreign funds

* Iceland court says experts can probe decision to freeze bonds

* U.S. fund Autonomy says preparing the ground for court case

* Iceland finance ministry says unsurprised by court move (Adds quotes from U.S. fund’s lawyer, changes story slug to ICELAND-BONDS/US FUNDS from previous ICELAND-US FUNDS)

By Ragnhildur Sigurdadottir and Marc Jones

REYKJAVIK/LONDON, Dec 1 (Reuters) - A Reykjavik court will appoint independent experts to look at Iceland’s decision to freeze more than a billion dollars worth of bonds owned by foreign investment funds earlier this year as part of its capital controls.

The ruling is the latest stage of an ongoing battle between the funds and the government over how to unfreeze the assets.

“As requested by Autonomy Capital LP, Autonomy Master Fund Limited, GAM Trading (No.37) and Autonomy Iceland Two S.a.r.l, the expert appraisers will be appointed,” the Reykjavik District Court said in a Nov. 30 decision.

Iceland, which has had capital controls in place since 2008 when a banking collapse brought its economy to its knees, froze the funds’ bonds in a special low-interest account in May.

The move was designed to avoid a sudden rush of money out of the country as it began the delicate process of removing the controls, but it has angered the funds that claim it was unnecessary.

GAM Trading is part of U.S.-based Autonomy Capital which has taken the lead in challenging Iceland’s government over its actions.

The lawyer representing Autonomy, Pétur Örn Sverrisson, said the process was likely to take “several” months at least.

Last month the funds, which include Boston-based Eaton Vance, Loomis Sayles and Discovery Capital Management, saw a parallel complaint rejected by the European Free Trade Association Surveillance Authority.

“We are pleased that the court has ruled in favour of our motion,” Sverrisson said.

“We will continue to pursue all avenues to resolve the issue until the government of Iceland decides to justly resolve capital controls for all investors.”

Once identified, the experts are expected to look at the premise and the economic rationale of the government’s move to effectively freeze the funds’ bonds as it was preparing to take the first step in removing its capital controls.

“What we are really doing by having the expert appraisers look at this is that we are gathering evidence to use in a potential court case,” Sverrisson added. “No decision has been made in relation to the exact contours of that case.”

The Iceland finance ministry responded on Thursday saying: “Generally the courts accept that appraisers are appointed and as such the conclusion of the District Court is not a surprise.”

“The Icelandic government has stated from the beginning that the owners of off shore kronur will not be subjected to limitations any longer than necessary and nothing has changed in that respect.”

It reiterated that it would make a new assessment of when to take the next step in removing the restrictions early next year. (Additional writing by Daniel Dickson; Editing by Alistair Scrutton/Keith Weir)

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