Thousands of depositors who held more than £800 million in offshore accounts with Kaupthing Singer & Friedlander, the failed Icelandic-owned bank, are preparing to take legal action to get their money back.

An action group representing more than 8,000 investors in the bank's Isle of Man arm yesterday contacted The Times with pleas for help and threatened to escalate its campaign to include court proceedings against the UK Government. They feel they have been left out in the cold by the UK Government, while onshore retail depositors received swift guarantees that their savings would be protected.

Their pleas have been backed by the Isle of Man Government, which will today send a delegation to meet senior officials from the Treasury and the UK Financial Services Authority. The delegation will demand the release of about £550million of Isle of Man deposits held by KSF in London that were frozen on October 8.

The Treasury's decision to seize control of KSF's UK operations has already led to one potential court case. It has been blamed by shareholders in Kaupthing, the Icelandic parent, for causing a run on the bank that caused it to fail. Last week, those shareholders appointed Grundberg Mocatta Rakison, a London-based law firm, to begin preparing an application for judicial review in the High Court of the Government's decision.

Yesterday, a spokesman for the Isle of Man action group told The Times that it had held discussions with Grundberg Mocatta and was considering joining its case. “We will certainly be taking legal action,” he said. Grundberg Mocatta did not return calls seeking comment.

A separate legal action is set to be launched against Ernst & Young, the administrators of the UK operation, by 30 Isle of Man depositors who attempted to recover their savings before KSFIOM was put into provisional liquidation by the island's financial regulator on October 9. Their funds were caught by the UK Government's decision to order clearing banks not to process transactions involving Icelandic-owned institutions. Greg Latchams WRH, a Bristol-based law firm, confirmed it had been instructed to prepare a case.

However, one of the depositors leading the case said that a further 120 investors had expressed interest in joining the lawsuit and that letters of claim would be sent next week. The depositor said that the group had lost more than £100 million.

That case will be closely followed by the wider group of Isle of Man investors who did not withdraw their savings in time. Of particular interest will be an attempt to gain access to court documents relating to the appointment of Ernst & Young as administrator for KSF UK, which have to date been kept secret.

The threat of legal action comes as the Isle of Man's High Court prepares for a hearing today that is expected to approve the liquidation of KSF's operations on the island. Dozens of angry depositors are set to attend in an attempt to make their voices heard.

There was some comfort for those investors yesterday as the Isle of Man parliament committed £150 million to boost its deposit protection scheme, raising the amount guaranteed from £15,000 to £50,000.

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