Tynwald has been told the Scheme of Arrangement put together by the Manx Treasury for depositors with the failed Kaupthing bank is a "sincere and genuine attempt to make the best of a very difficult situation".

Treasury Minister Allan Bell said the Isle of Man had a responsibility to help the depositors, many of whom were in very difficult circumstances because of what had happened.

However, he repeated that the situation which had arisen was not of the Island's making and the Isle of Man government, the Manx people and the Treasury had been "left to pick up the pieces of this most unfortunate incident".

The United Kingdom's Financial Services Authority seized the bank's ?550 million of deposits when Kaupthing Singer and Friedlander UK was put into administration last October.

Kaupthing is an Icelandic company and the money had been transferred to its London branch from the Isle of Man because it was considered a safer location, given the state of the economy in Iceland at the time.

Earlier, Chief Minister Tony Brown told Tynwald the money was frozen by the FSA using the Insolvency Act of 1986, and not anti-terrorism legislation as was widely reported at the time.

He said it was a far from satisfactory situation, but the UK government said it couldn't intervene because the matter was now in the hands of the court.

Tynwald today approved the transfer of ?180 million from Manx government reserves for use in connection with the KSF Scheme of Arrangement.

Subject to approval of the scheme by the High Court and the bank's creditors next month, guaranteed scheduled payments will be made to eligible KSF depositors, 70% of whom will be repaid in full within two years.

Two MHKs, Brenda Cannell and Peter Karran, voted against Mr Bell's motion.