IFLR 1000
The Guide to the World's Leading Financial Law Firms

The small and isolated nation of Iceland found itself suddenly in the spotlight of the global financial crisis drama when the collapse of all three major banks - Kaupthing, Glitnir and Landsbanki - brought the country to the brink of bankruptcy.In September 2008 Glitnir and Landsbanki were taken under direct control of the Financial Supervisory Authority (FME) and soon after that Iceland's biggest bank, Kaupthing, suffered the same fate....

The small and isolated nation of Iceland found itself suddenly in the spotlight of the global financial crisis drama when the collapse of all three major banks - Kaupthing, Glitnir and Landsbanki - brought the country to the brink of bankruptcy.

In September 2008 Glitnir and Landsbanki were taken under direct control of the Financial Supervisory Authority (FME) and soon after that Iceland's biggest bank, Kaupthing, suffered the same fate. The banks' difficulty in refinancing their short-term debt and a run on deposits, notably in the United Kingdom, led to disaster for this once prosperous island.

The financial crisis led to the freefall of Iceland's currency and in October 2008 the country came close to national bankruptcy. Total costs of the crisis are estimated to exceed 70% of the country's 2007 GDP and, outside Iceland, over half a million depositors (more than the entire population of Iceland) lost their money when their bank accounts were frozen. "It is a difficult environment," says a law firm partner. "People do not get paid or your client constantly risks bankruptcy."

Given the dramatic scale of events, political casualties were unavoidable: Prime Minister Geir Haarde announced his resignation in January 2009.

Meanwhile, these developments had huge implications for Iceland's small legal community. Corporate firms, used to strong economic growth that promoted successful M&A deals and big banking transactions, had to undergo a sudden transformation that would see them as R&I practitoners and advisors on emergency bankruptcy legislation.

"Lots of new legislation has been introduced in the last six months, all in the light of the credit crisis," says a senior partner. "On top of that there are a lot of new IMF and currency exchange rules which are rather strict."

As a result, many firms are in fact conducting a thriving business owing to the crisis. "Since the fall of the Icelandic banking system, the last six months have proved to be very good," says a leading lawyer. "We get new clients every day."

BBA Legal and Logos Legal Services dominate the market and managed to adapt swiftly to the new demands and types of clients. "To tell you the truth, the crisis keeps us very busy. For our firm it means continued growth," says one senior partner. "We are hiring people, instead of laying anyone off."

Indeed, there may even be insufficient firms on the island to handle the work. "There is a lack of financial experts," says a senior partner. "Take a look at Reykjavik Law Firm. They normally just do serious criminal cases - rape and murder - and now they are acting for the board of Landsbanki, just because they are not in conflict with other clients."