Debts in the bankrupt estates of two companies owned by the lawyer Bjorn Thorri Viktorsson in Reykjavik amount to ISK 140 million (over USD 1 million). The companies changed name shortly before going bankrupt.
Viktorsson established the Midborg estate agency and the Logmenn Laugardal law firm 14 years ago but the companies changed their names to M182B and L182A last autumn shortly before being declared bankrupt. At the same time, two new companies were established with new social security numbers under the old names Midborg and Logmenn Laugardal, RUV reports.
The bankrupt law firm now called L182A owes ISK 15 million, 13 million of which is owed to the State. The estate agent now called M182B owes ISK 125 million, including 62 million to Byr Savings Bank and 30 million to New Landsbanki.
The head of the companies’ bankruptcy proceedings told RUV that it is already clear assets will not cover the debts.
The news of a company filing for bankruptcy in Iceland is common enough and the amounts owed in this case are not extraordinary; it is the manoeuvres carried out in the lead up to their collapse which are raising eyebrows in Reykjavik.
The ‘new’ companies Midborg and Logmenn Laugardal are still in operation.
This sort of stuff doesn’t really surprise me after watching Inside Job.
great post !
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kuiskaus writes
“Peter Reeves, its not fraud, its very common in most countries, debpts are too high they make another company, sell the stuff to the other company, and the previous one go bankrupt.”
It isn’t “common” because usually the “the stuff” – especially the big/expensive stuff – is often used as security for a loan so it can’t be sold. The cases where it does happen is in the service sector where there are very few assets and the business relies on “brains” or “skills”. A good example would be a hairdresser who rents their property. The assets probably boil down to a few pairs of scissors, a hairdryer and the fittings in the shop (which are worthless in most cases). If the hairdresser owes suppliers its a fairly easy trick to fold and start again.
I’ve come across the trick at a larger scale. An engineering consultancy firm up in Aberdeen provided services to oil companies. The firm consisted of a dozen PhD egg-heads in maths, engineering and computing. They rented their offices and also any computer time they needed. Penalties in the oil industry are severe – one day late and it can wipe you out. This is what happened to these guys. The next day they turned up at work just as normal trading under a different name, simply because the company had no assets worth selling. (The oil company that imposed the severe penalty knew well enough it was an empty threat, which is why no one pursued the matter.)
The Icelandic example given above – an estate agents – is typical of this type of “shell” or no-assets companies. (The estate agents probably rented their premises and had a couple of PCs and a phone.)
However, the difference between Iceland and the UK is that in the UK directors can be disqualified if they knowingly continue to trade while the enterprise is insolvent or bankrupt. This law stops the Icelandic kennitala-hopping trick since you cannot simply sell off the assets and start again. The very act of selling the assets in such a manner is proof enough that the senior managers know that the company is insolvent. Those assets could then be called back by unsecured creditors and/or other shareholders and sold for their benefit and the people who did the trick would be disqualified. That is what would happen to Bjorn Thorri Viktorsson in the UK. (Being a lawyer he would also lose his licence to act as a lawyer.)
So while you can say “Yes, it does happen in the UK” it is very very rare, it can only happen in certain circumstances and any director who tries the trick will almost certainly be investigated and then pursued by the creditors/shareholders who were left with the empty shell. Also if they get disqualified then its the end of their business career – at least for a few years. (And try getting a loan if you’ve been a disqualified director!)
@Barni
If you elect politicians that allow your Icelandic banks to operate out of control then you have nothing to complain about. Unfortunately the more of these badly regulated practices (banks and bankrupcies) that become public knowledge to the outside World, the less likely it is that international funds will be lent to Iceland in the future. You see there is a link between the two – they have in common the lack of proper regulations to avoid other people being cheated and deceived.
L182A and M182B ??????….what a strange name does not seem the name of a company .It looks like a name of a virus .Better call it HN1.hahhah
Thanks again Bjarni for making it clear.
When you put it like that (leased assets), I wonder if the situation is really any different from that in the UK? Although perhaps banks are more reticent to give out unsecured loans here (then again, perhaps not).
“private bank Landsbanki ”
Landsbanki, like the other banks, were nationalised so taking the debt with them. Even so, banks are not private businesses that can be made bankrupt which is why the Icelandic state took over the banks and guaranteed the deposits. The only issue now is repaying all the debt that Iceland has incurred by guaranteeing the deposits in the UK and NL.
To Grim Reaper:
>>>>This just demonstrates a general lack of ethics that exists within Iceland and partly explains the reluctance to agree the Icesave deal.
This has nothing to do with the Icesave deal, as that particular dispute is about unfair terms in an agreement, that is trying to force Icelandic taxpayers to pay more than required for deposits guarantees of a private bank Landsbanki which was operating in UK and Netherlands.
The current Icesave agreement is considered very unfair here in Iceland for various reasons. One of the main issues, as mentioned before in a different thread, is that only HALF (3.2B Euros) of the Landsbanki asset recoveries of 6.4B Euros will actually be used to cover Iceland’s share of the Icesave obligation (deposits up to 20K, total 4.0B Euros). The other half (3.2B Euros) goes directly to UK/NL to cover their own deposit insurance on deposit amounts above 20K Euros, even if that goes against all standard practices of bankruptcy laws.
To Bromley86:
>>>>How is this unusual? People have been complaining about the whole scam nature of Icelandic corporate bankruptcy from when I first started visiting Icelandic news sites.
You are right, this kind of ‘scam’ is not unusual thing to happen here at all. Unfortunately this practice is legal, and it even has its own nickname ‘Kennitoluflakk’. Many people here have been complaining about this practice for years, but nothing ever seems to change.
I just finished helping my niece trying to get her salary paid from 2 1/2 years ago, after her summer job company (the local Quiznos franshise) at the time, went bankrupt and switched their ID to a new company. This was done without the employees even being aware of it!
Any equipment and assets are typically leased, so they can easily be transferred over by the lender. Nothing is left behind in the old company except the dept. This is typically justified, by keeping the companies operating, in the name of saving ‘value’.
This practice should be barred in my view or at least severely restricted, as this makes it harder for honest companies that pay their debts to compete. The people that misuse the bankruptcy laws, should be barred from ever running any company again.
Peter Reeves, its not fraud, its very common in most countries, debpts are too high they make another company, sell the stuff to the other company, and the previous one go bankrupt.
This just demonstrates a general lack of ethics that exists within Iceland and partly explains the reluctance to agree the Icesave deal. When a country lacks ethical credibility nobody wants to know about it anymore. Welcome back to the third world Iceland.
Its called fraud in most western democracies and something this blatent would result in prison time.
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How is this unusual? People have been complaining about the whole scam nature of Icelandic corporate bankruptcy from when I first started visiting Icelandic news sites.
Even I know to set up a new entity with a new kennitala and transfer the assets to it, leaving the debts in the old one. I’m still uncertain how it’s actually possible to do this though. Thankfully, I now know of a lawyer who can answer that question if I need :D .
Is there any hope for the companies who wish to practice good business with ethics?!?