Money raised through the Landsbanki wind-up will cover 100% of Icesave compensation costs to the UK only if the Government avoids a firesale, says the Treasury.
HM Treasury expects to receive £500m from the sale of the UK assets of Landsbanki, Icesave's parent company, which it says will cover the cost of payouts it made in excess of the £50,000 Financial Services Compensation Scheme (FSCS) limit.
A Treasury spokesman says: "The wind-up has not started yet and we have no timeline at the moment. But it will happen in an orderly process.
"We don't want a fire-sale because we want to get back as much as possible."
The UK Government is currently in talks with its Icelandic counterpart about how to manage the process.
Britain wants Iceland to repay a £2.3bn loan used to bail-out almost 290,000 Icesave customers plus £1.1bn to cover the difference between the UK's £50,000 compensation limit and Iceland's much lower limit of €20,000.
However, earlier this week Icelandic President Ólafur Grimsson refused to ratify a repayment package passed by his parliament, adding to mounting tensions between the two countries since the collapse of Iceland's banking system in September 2008.
No money is outstanding to Icesave's almost 290,000 customers after the UK Government stepped in during October 2008 to guarantee their losses.
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