County council finance chiefs say they remain confident KCC will recoup the £45million the authority still has tied up in Icelandic banks.

It follows a setback last year when administrators of one of the banks, Glitnir, ruled that councils would no longer be considered as preferential creditors.

A court is due to rule shortly on that decision after local

authorities mounted a legal challenge. Lawyers representing councils have lodged a formal objection, arguing the move was out of step with the position of administrators for one of the other banks, Landsbanki.

Cllr John Simmonds (Con), KCC cabinet member for finance, said the council had always acknowledged the recovery of the money would be a long process.

“We have never pretended that the money would come back overnight or that it would not be a long process. We have got back £5million and for the remainder, the signs look good and the court case is coming up very shortly which should re-establish our rights as preferential creditors.

It is a sign of our strength in financial management [as an authority] that we have managed to carry on without impinging on frontline services,” he said.

KCC has about £15million on deposit with Glitnir and has previously forecast it will recover all the money. However, the administrator's move placed a question mark over the process of recovery and if KCC lost its priority status, losses could be substantial.

Canterbury City Council, which has £2million deposited with Glitnir, has said that it does not expect to get any further money back until next summer at the earliest.

A spokesman for the Local Government Association, which is co-ordinating the legal action by local councils, said no firm date had yet been set for the court hearing.