Solicitors have voiced concerns over the safety of money paid to a specialist lending arm of collapsed Icelandic bank Landsbanki as rescue talks failed to produce a new financial backer.

As the Gazette went to press, Key Business Finance (KBF) – a subsidiary of Landsbanki’s UK arm Heritable Bank – was negotiating with banks to secure a financial lifeline. Solicitors said that parties due to be paid by KBF had not been paid after Heritable entered administration, and feared down-payments to KBF on these loans could be lost.

KBF provides about one firm in 10 with short-term loans to help pay for various expenses, such as practising certificate fees, insurance premiums and VAT. Because Heritable was KBF’s only source of funds for these loans, it must secure alternative funding or face collapse (see [2008] Gazette, 16 October, 1).

Mark Scrivenger, a partner at Cambridge firm Scrivenger Seabrook, said he was ‘staring at a loss of £5,000’. He made a down-payment on a 12-month loan to cover the firm’s professional indemnity insurance premium, but his broker later informed him that KBF had ‘not paid them a penny’.

‘I assumed they [KBF] would write the broker a cheque for the whole amount,’ he said. ‘Apparently they only pay the broker every month, so I could well be out of pocket.’

Another firm that contacted the Gazette said it had cashflow problems after making a down-payment for a VAT loan.

Heritable entered administration after Landsbanki collapsed on 7 October. The administrator declined to comment.