A legal battle that could see councils in Kent finally begin to recover millions of pounds they invested in Icelandic banks is due to get under way today.

Kent County Council is among councils who are contesting a court action being brought by other investors with money tied up in two of the banks.

It is now more than two years since it emerged that dozens of authorities and other public organisations had hundreds of millions of pounds of taxpayers’ money deposited in Icelandic banks.

Only a fraction of that has been recouped and the protracted legal wrangle means that refunds from two have been in limbo.

KCC was one of the largest local authority investors in Iceland, with £50m tied up in three banks.

So far, it has had £9.1m back of the money on deposit with Heritable bank but nothing of the £32m with Landsbanki and Glitnir.

The case, due to be heard in Iceland, is crucial to the prospects of KCC and four other Kent councils recovering the money tied up with the Landsbanki bank.

The court will be asked to rule whether councils should be considered as preferential creditors when it comes to distributing the assets of the banks that collapsed and went into administration.

A second court case involving a similar action taken by creditors for Glitnir is scheduled for March.

If KCC is successful, it could pave the way for the process of getting the bulk of its money back. However, if the ruling goes against the authorities involved in the action, the consequences could be far-reaching with suggestions that only about 35 per cent of the cash could come back.

Cllr John Simmonds (Con), KCC cabinet member for finance, said: "All our legal advice indicates that we have no reason to to doubt that our status as preferred creditors will be upheld. I have every reason to believe that our recovery will be in the region of 90-to-95 per cent and it might be more.

"Our worst case scenario is that between £2m and £3m could be written off, which I know is a lot of money but the longer it goes on, the more we may get although obviously there has been a loss of interest."

Of the other councils with money on deposit, only Canterbury City Council has had money back. It has secured just over £2m of £4m it had on deposit with Heritable but has had no payments back from Glitnir, where it invested £2m.

Tonbridge and Malling council said it had received nothing of the £1m invested .

Sharon Shelton, the council’s finance director, said: "Subject to the courts awarding local authority depositors priority status, we expect to recover 95 per cent of our deposit together with contractual interest over the period 2011 to 2018.

"The final settlement figure will be dependent on exchange rate fluctuations on the value of assets realised by the resolution committee."