His five co-defendants, who include his father and sister, all also protested their innocence. Their lawyers have a reprieve before the court sits again on 20 October to hear whether the defence team has managed to bolster its case before the hearings proper, which could last for years, kick off.

Spectators including Mr Johannesson's arch-foe and former business partner, Jon Gerald Sullenberger, jostled for the chance to see how one of Iceland's most eminent businessmen would cope with being formally charged. For Icelanders, it is as if their entire country is on trial, given that the unfolding legal drama pits its corporate against its political elite. Johannes Jonsson, Jon Asgeir's father, speaking afterwards, repeated his belief that the case was a political 'conspiracy' drummed up on behalf of the country's former prime minister, David Oddson.

Wheeling out the first of its trump cards, Baugur's board yesterday said a favourable independent report by a UK corporate investigator gave it no qualms about reiterating its 'unreserved support' for Jon Asgeir and the others charged. Deidre Lo, a director of Capcorn Argen, a law firm, claimed she had picked apart the 40 charges against the six defendants. Where the police investigators, who have spent the past three years investigating Jon Asgeir's corporate dealings, uncovered fraud, she maintained that in every instance Baugur had been victor not victim.

The crux of the case will hinge on the relationship between Gaumur, Jon Asgeir's private investment company, and Baugur, which is at the centre of almost half the charges. These so-called 'related party transactions', which are rare in UK plcs, include one charge that Baugur lent 35m Icelandic kronur (pounds 303,000) to Gaumur to buy shares in a Debenhams franchisee in 1999. Others concern the initial purchase of shares in Icelandair, part of the FL Group that has easyJet in its sights, in 1997 and the acquisition of various chunks of real estate in Reykjavik.

By and large, Icelandic law allows for such transactions between closely linked public and private companies, although there are limits on the loans that can be made in some cases. Whether Jon Asgeir clears his name will largely depend on the interpretation of this law.

Two of the most serious fraud charges relate to the acquisition of Thee Viking, a yacht in Florida, and tax avoidance of about ISK1m. One charge relates to payments to Nordica, Mr Sullenberger's US-based firm that used to source goods for Baugur to sell in its Icelandic retail outlets. There is confusion over whether any of the payments are related to the boat, which Jon Asgeir used when in the US. In his defence, the Baugur chief executive will argue that Gaumur paid $450,000 (pounds 250,000) towards the boat.

Other charges assert that Mr Johannesson embezzled company funds by using a corporate credit card to pay for nearly 200 items. Although the indictment acknowledges that Mr Johannesson did repay the sums, he still stands accused of a crime that violates the country's Companies Act. Ms Lo said: 'Here is a CEO of a very fast- growing company who travelled a great deal. He was in London four out of five working days. It's not unusual to use a company credit card but at all times Baugur owed him more money than he owed Baugur.'

The fate of the Baugur boss will lie in the hands of three judges, described by one well-connected observer as 'heavy hitters', rather than a jury.

In the meantime, Baugur's appetite for deals is undiminished. It recently bought a second Danish department store chain, adding to the pounds 442m it has invested across the UK, Iceland and Denmark since the Icelandic police launched their investigation in August 2002. That same inquiry has scuppered two deals: the possible acquisitions of Arcadia and Somerfield to add to a UK portfolio that includes Hamleys, Iceland, Karen Millen and Oasis. But as Sege Jonsson, a taxi driver, said yesterday: 'There is a saying in Iceland that still stands true. If today Jon Asgeir buys one share in a company, tomorrow you should buy two.'