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Invalidating the invalidation of the Kaupthing loans

So, Fred posted a question in the Forums concerning loans to Kaupthing staff and personal liabilities, which have now been rescinded. [Sometimes you readers are way ahead of me!] Anyway, yes, that was one of the main news items yesterday, and one I was planning to write about.

Those of you who have been following the Icelandic bank collapse closely may recall that just before the collapse of Kaupthing, the directors of the bank rescinded the personal liabilities of their staff on loans that the bank had made to them.

The loans in question were, in almost all cases [if not all] made to the bank’s staff so they could buy shares in the bank itself. As I’m sure you’re aware by now, this was a favoured trick to jack up share prices and make it look like the banks were doing much better than they actually were. Indeed, this is one of the things that Hreiðar Már Sigurðsson et. al. are accused of and one of the reasons they were remanded in custody a little more than a week ago [Hreiðar Már was let go yesterday, along with one of the other Kaupthing honchos; Magnús Guðmundsson, ex-CEO of Kaupthing Luxembourg was released a few days ago. All of them have had a travel ban imposed, and at least one of them, Hreiðar Már, has appealed to the Supreme Court to have the ban overturned. But I digress.]

Predictably it aroused a great deal of anger around here when those personal liabilities were rescinded and, indeed, when the entire premise behind those loans was revealed. For a while it looked like nothing could be done, except that taxation authorities planned to tax them to the max as wage-related benefits. Now, however, the Kaupthing resolution committee has evidently found a way to rescind the rescinding of those personal liabilities, so those who took the loans are 100% responsible for paying them back.

This does not bode well for a lot of [many formerly high-ranking] people, as I’m sure you can understand. However, a number of them were one step ahead and already transferred the debts into private limited companies that they established for precisely that purpose. In other words, the plc’s will go bankrupt, while the individuals will get off scot-free. [One such individual is Kristján Arason, husband of Þorgerður Katrín Gunnarsdóttir, who was vice-chair of the Independence Party during the party boom years preceding the crash. This is the main reason why Þorgerður Katrín resigned from her post a few weeks ago.]

The resolution committee, however, is planning to use all tools at its disposal to have those actions invalidated, as well. In other words, the cleaning-up process continues at a brisk pace.

You can read more about this story here.

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  • sylvia hikins May 19, 2010, 10:16 am

    These people employ the best legal minds in town and know every trick in the book to protect their assets. Expect the worst and let’s hope the Government shows the resolve to see it all through.
    sylvia from viking wirral

  • andy May 19, 2010, 10:26 am

    Whilst the loans may have been put into limited comnpanies to write off the debts, I presume katrins husband can still pay tax on the whole loan as an employment benefit, which most assuredly would lead to bankruptcy?

    Get them, either which way.

  • Michael Lewis May 19, 2010, 11:13 am

    This looks like the action of a company about to go bust, knowing this and then recinding the loans to help its employees (i.e. themselves). Again, I’m pretty sure that is not lawful in most countries. i.e. its Fraudulent.

  • The Fred from the forums May 19, 2010, 7:49 pm

    Transferring assets on sweetheart terms when about to go bankrupt is fraud in at least one jurisdiction I know of.

    Does anyone understand Icelandic business law well enough to explain how you can “transfer” a debt to another entity, especially to a limited liability company? Seems like if you can do that, there wouldn’t be a mortgage or car loan left standing.

  • Sigvaldi Eggertsson May 20, 2010, 12:17 am

    Fred, if you have a company you can transfer (or sell) assets and the debts relevant to those assets to that company.
    It is much harder in the case of property of course as the sums involved are much bigger but a number of people have done that already or had the company buy the cars and houses in the first place.

  • Fred December 20, 2010, 11:14 am