The Baugur case featured prominently Wednesday on the TV news program Kastljós (Spotlight) on the Icelandic National Broadcasting Service, RÚV.
Kastljós reported on the reaction of Baugur CEO Jón Ásgeir Jóhannesson and the reaction of his former business partner Jón Gerald Sullenberger who filed the complaints with the Icelandic police that led to the investigation of Baugur.
Kastljós also interviewed Áslaug Björgvinsdóttir, associate professor at the School of Law at Reykjavík University.
On Kastljós, Áslaug claimed that judging by the court’s interpretation of Icelandic law, Iceland had not properly adopted European Union directives on the corporate code and annual statements.
“If this is the case, the result is not good,” she said. The verdict must provoke a response by the legislature, she said. “I believe that it is necessary to clear this up, and it would be good if the Supreme Court expressed its view on the interpretation of these issues,” she said.
Áslaug said that the 43rd article of the law governing annual statements had been intended to put into effect the EU directive concerning the presentation of annual statements. The directive includes a clause stipulating the disclosure of loans and other financial favors granted by a company to its managers, shareholders and subsidiaries. According to Áslaug, the reason underlying these rules was that financial favors between these parties were considered especially risky because it was possible that they did not receive the same critical scrutiny as transactions with non-related parties.
Áslaug said that the court had decided in favor of a “narrow interpretation” of a “loan” and that, presumably, only properly documented loan agreements bearing interest rates should be interpreted as a “loan.”
“If you consider why it is considered important that the markets and the readers of annual statements, including financial institutions and others who are engaged in business with these companies, are able to form a view of the company and its position, then you would think that it should be necessary to know more about these informal transactions,” she said. “If the conclusion is that this clause of the law governing the annual statements should be interpreted this way, the legislature must react, because then we have not properly adopted the EU directive.”
The Icelandic corporate code was changed in 1995, two years after Iceland joined the European Economic Area, an association of several former European Free Trade Association nations and the EU. As part of the agreement for the European Economic Area, the non-EU nations agreed to adapt their legal systems to the EU legislative framework in many important areas, including commerce.
The Reykjavík District Court’s verdict in the Baugur case reads: “In spite of this text [of the law currently in effect], the Court considers the definition of a loan in this clause of the [EU] directive and the aforementioned clause of the old law governing [limited liability companies] to be considerably broader in scope and more extensive than the 43rd article of the [current] law governing annual statements, and the same can be said of the 73rd article of the Danish law governing annual statements [which is] based on the directive.”
According to the verdict, at the close of the fiscal year ending February 28, 2002, Jón Ásgeir Jóhannesson owed Baugur ISK 67 million, his sister, Kristín Jóhannesdóttir, owed Baugur ISK 3.4 million, their family investment company Gaumur owed Baugur ISK 244 million, and the investment company Fjárfar, of which Jón Ásgeir was a shareholder, owed Baugur ISK 167 million.