I OVERVIEW OF RESTRUCTURING AND INSOLVENCY ACTIVITY
i Banking and finance
According to the annual report from the Danish central bank, Danmarks Nationalbank, the Danish banks are in general well-capitalised and resilient to severe economic shocks, and have excess liquidity. Moreover, they have conducted stress tests as part of the IMF’s Financial Sector Assessment Program. These tests showed that financial stability risks in Denmark are contained.2
Finansiel Stabilitet A/S
Finansiel Stabilitet A/S was established in October 2008 as part of an agreement between the government and the Danish banks. The company is state-owned through the Danish Ministry of Economic and Business Affairs. The purpose thereof was to establish confidence, which was lacking in the Danish financial sector due to the international financial crisis.
Currently, the following companies belong under Finansiel Stabilitet: FS Property Finance, FS Finans I A/S (the former Sparbank Østjylland), FS Finans II A/S (the former Max Bank), FS Finans III A/S (the former Amagerbanken) and FS Finans IV A/S (Fjordbank Mors).
According to Statistics Denmark, there was a decline in the number of bankruptcies in 2015. The number of bankruptcies was 5,458 in 2011, 5,634 in 2012, 4,993 in 2013, 4,049 in 2014 and 4,029 in 2015. Between January to May 2016, 3,035 bankruptcies were filed, which was 1,279 more than last year.
The number of jobs lost as a result of companies going bankrupt has in general been in decline since 2010, and the number is now half the size of what it was in 2010.3
II GENERAL INTRODUCTION TO THE RESTRUCTURING AND INSOLVENCY LEGAL FRAMEWORK
i Reconstruction process
If a company is unable to pay its creditors at maturity, the company may file a petition for a reorganisation with the Danish bankruptcy court for the purpose of completing a creditor arrangement, or a sale of the company or part thereof.
The bankruptcy court appoints a reorganiser as well as a nominee. The reorganiser is an attorney, whose duties as reorganiser are to take care of and protect the creditors’ interests in the company. The reorganiser must be independent and meet the Bankruptcy Act’s requirements with respect to impartiality, and accordingly the reorganiser may not have been the company’s attorney. The nominee is an auditor and may not have been the company’s auditor for a period of two years prior to the reorganisation.
The Danish rules on reorganisation ensure that all creditors are treated equally, notwithstanding their size and nationality.
When filing a petition for a reorganisation to the bankruptcy court, a completion date (the commencement date of the reorganisation) is set, and any payment of debts incurred prior to the completion date is discontinued while the reorganisation is in progress. The company may be reorganised by means of an arrangement with the creditors for an extension of payments or payment of composition dividend, or both, or an arrangement with the creditors for the sale of the company or part thereof.
The management of a company in reorganisation will continue to have management powers under the Danish Companies Act, but any significant decisions must be pre-approved by the reorganiser. However, upon request by the debtor or the creditor, the bankruptcy court may decide that the reorganiser be in charge of the management of the company.
In the reorganisation period, the company is protected against individual debt proceedings from creditors as a starting point.
With respect to the reorganisation, first a reorganisation plan and then a reorganisation proposal is prepared and presented to the creditors for their approval. If either the reorganisation plan or the reorganisation proposal is not approved, the company will pass on to bankruptcy proceedings.
A reorganisation plan will be considered approved unless the majority of the creditors present votes against the proposal and they represent a minimum of 25 per cent of the known amounts entitled to vote. Accordingly, both the number of creditors and the amounts entitled to vote are important to the voting. There are no voting rights attached to debts of full or no coverage and to related parties’ debts.
With respect to composition, voting rights are only attached to debts to the extent that the debts are effected by the composition but do not lapse as a result thereof.
A reorganisation proposal is considered approved unless a majority of the creditors present votes against the reorganisation proposal. The voting procedure is arranged according to the debt’s amount, but there are no voting rights attached to debts of full or no coverage and related parties’ debts. Accordingly, the number of creditors voting against a reorganisation proposal is irrelevant at the voting regarding adoption of the reorganisation proposal – contrary to what applies with respect to the adoption of the reorganisation plan.
With respect to composition, voting rights are only attached to debts to the extent that the debts are affected by the composition but do not lapse as a result thereof.
The reorganisation can only result in the arrangement of a creditor plan based on the creditors’ approval or in the sale of the company or part thereof, or in discontinuation of the reorganisation and transferral of the company to bankruptcy proceedings.
The steps of a reorganisation in terms of time are as follows. After the opening of the reorganisation:
- a the initial meeting in the bankruptcy court takes place four weeks later;
- b the initial meeting may be adjourned for four weeks;
- c information to the creditors is sent by the reorganiser three months later;
- d a meeting in the bankruptcy court for the purpose of reviewing the proposals for the reorganisation is held six months later;
- e the meeting may be adjourned for two months for the purpose of reviewing the proposals for reorganisation; and
- f the meeting may be further adjourned for two months for the purpose of reviewing the proposals for reorganisation.
This means that the maximum duration of the reorganisation process is 12 months.
A petition for bankruptcy may be filed by a creditor or by the debtor itself to the bankruptcy court. If the bankruptcy court finds that the debtor is insolvent and that the insolvency is not considered to be of a temporary nature, the bankruptcy court will decide to commence bankruptcy proceedings against the debtor.
If a creditor is to file for bankruptcy against a company, the proceedings are conditional upon said creditor’s payment of an administration bond of 30,000 Danish kroner to the bankruptcy court. Under certain circumstances, the bankruptcy court may disregard the condition of an administration bond, but this is a rare exception.
If the petition is filed by the company, security is also a prerequisite for the bankruptcy court to initiate the proceedings, but the claim for security is often disregarded by the bankruptcy court.
When a bankruptcy order is issued by the bankruptcy court, the debtor loses its right to dispose of the assets. Thus, an estate will be established and, according to Section 107 of the Danish Insolvency Act, the bankruptcy court appoints a trustee of the estate in bankruptcy. The trustee in bankruptcy is appointed at the same time as the bankruptcy notice is issued.
According to Section 110 of the Danish Insolvency Act, the trustee in bankruptcy will manage all affairs on behalf of the bankruptcy estate, including ensuring that all property of the debtor vests in the estate and that the property is sold for the purpose of paying dividends to the creditors.
Accordingly, the trustee in bankruptcy will act as the management; he or she is granted full right of disposal of the bankruptcy estate, and is therefore authorised to act on behalf of the bankruptcy estate in all matters, and neither the bankruptcy court nor the creditors are to approve the transactions or arrangements made by the trustee in bankruptcy.
Objective of the bankruptcy proceedings
The main objective of the trustee is to wind up the business in favour of the creditors. The trustee has to monetise the assets of the estate. The trustee is obligated to review the company’s records and accounts for the purpose of clarifying whether the creditors have been pursued for any unlawful conduct or any unusual business transactions.
After the records and accounts have been reviewed by the trustee and all assets have been monetised, the trustee has to distribute any profit left in the estate after payment of the estate’s administrative costs.
The creditors of a company in bankruptcy will receive their claims according to the priority order set out by law. The creditors are grouped into the groups outlined below. Accordingly, a creditor in a subordinated group will not receive any dividend unless the creditors in the previous group have received full payment of their claims. If a group of creditors only receives partial payment of their claims, the amount available for distribution will be divided among the creditors proportionally according to their claims.
The ranking of the creditors is governed by Sections 93 and 98 of the Danish Bankruptcy Act. According to the Danish Bankruptcy Act, the costs of bankruptcy entry and the costs of the estate, together with the debt incurred under its care, must be paid prior to other debts.
After the above-mentioned claims, reasonable costs for attempting to achieve a comprehensive settlement of the debtor’s financial situation by reorganisation, liquidation, composition or otherwise, other debt that the debtor has contracted after the reference date with the consent of the reorganiser, reasonable costs related to initiated liquidation of a limited liability company and the court fee must be paid.
Once these requirements have been paid, claims for wages and damages for claims for wages, holiday allowances, and miscellaneous fees and other requirements, are to be paid in this order.
Other specific claims are also regulated.
Conclusion of proceedings
Normally, the trustee in bankruptcy will conclude the bankruptcy proceedings with a statement of affairs and accounts for the estate, including a proposal for distribution to the creditors, and the creditors will receive dividends of their claims, provided that the estate pays dividends to the specific type of claim.
iii Compulsory liquidation
A company is generally wound up by compulsory liquidation at the request of the Danish Business Authority.
The following situations may result in the Danish Business Authority requesting the bankruptcy court to initiate compulsory liquidation:
- a the company has not timely filed its annual report and has not responded to the reminder from the Danish Business Authority;
- b the company does not have the management or the registered office required by law;
- c the company has not registered an auditor required by law;
- d the company has not registered an auditor, even if the general meeting has decided that the company’s annual report must be audited; or
- e the company’s management has not taken appropriate measures by, for example, capital decrease in relation to requests for payment of unpaid share capital that cannot be paid by shareholders.
Before the company is put into compulsory liquidation, the Danish Business Authority will forward a warning letter to the management of the company with a deadline for compliance.
The bankruptcy court may appoint one or several liquidators to be in charge of proceedings. The rules for voluntary liquidation will mutatis mutandis apply to the liquidators’ work in relation to the compulsory liquidation. The former members of the management of the company in compulsory liquidation are committed to the extent necessary to assist the liquidators with information about the company.
When the proceedings are completed, the bankruptcy court will notify the Danish Business Authority and request the company to be deleted from the register.
III RECENT LEGAL DEVELOPMENTS
i The Bankruptcy Act
On 1 January 2014, provisions on bankruptcy quarantine came into effect. The bankruptcy quarantine is imposed on a member of management or a member of the board of directors by the bankruptcy court if that member has acted with gross negligence in managing a company that is later adjudged as bankrupt.
The bankruptcy quarantine includes a prohibition on conducting specified types of businesses for a period of three years. The prohibition includes continuing in business, which must be terminated immediately, as well as any future businesses that cannot be initiated as a result of the prohibition.
Any person subject to bankruptcy quarantine must be recorded in a register kept by the Danish Business Authority.
After the provisions came into effect last year there have been a large number of judgments, and it seems as though the bankruptcy courts have taken a strict approach to the provisions.4
ii The Companies Act
Public Register of Shareholders
On 15 June 2015, the new Danish Public Register of Shareholders came into force.
All Danish companies (A/S, ApS, IVS and P/S) are required to register their shareholders (ownership of 5 per cent or more of capital or shares) in the newly established Register. The Register will be made publicly available; thus, going forward, it will be possible to look up the ownership of Danish companies. The registration duty is imposed on all Danish companies, and if not complied with, the Danish authorities may impose a fine on the company (fine levels are still unknown).
On 1 March 2016 the Danish parliament adopted L94 regarding the imposition of a register presenting the real owners of a company. This act originates from the EU’s Fourth Anti-Money Laundering Directive and implies that all Danish companies must register their real owners on the Danish Central Business Register, from June 2017. Most companies, including limited liability companies, are already registered as such.
Today, it is demanded that entrepreneur companies, limited liability companies and limited companies must register all legitimate owners in the Public Register of Shareholders, but the new regulation demands that partnerships and limited partnership companies also register such information. At the moment, these forms of company are exempted from the registration duty.
The new Market Abuse Regulation
The Market Abuse Regulation (the Regulation), that came into effect on 3 July 2016, modifies the existing regulation in a number of areas. The Regulation has direct effect in all EU countries, and, in Denmark, replaces the present legal framework regarding market abuse set out in the Danish Securities Trading Act.
The Regulation aims at enhancing market integrity and investor protection, and updates and strengthens the existing Market Abuse Directive framework by extending its scope to new markets and trading strategies, and by introducing new requirements.
The modifications to the Regulation will be relevant regarding: the publication of inside information and insider lists; reporting transactions by persons discharging managerial legal responsibilities; insider trading; market manipulation; dissemination of inside information; publication and distribution of investment analysis; stabilisation and share buy-back programmes; powers of the authorities; and whistle-blower arrangements.
The EU Insolvency Regulation came into force throughout the European Union, with the exception of Denmark, on 31 May 2002. Because of Denmark’s opt-out relating to judicial cooperation, which effectively dates back to the Danish referendum on the Maastricht Treaty in 1992, the EU Insolvency Regulation does not apply in Denmark. Therefore, the general national Danish rules apply to international insolvency.
In principle, bankruptcy proceedings initiated in another jurisdiction do not exclude a creditor from the attachment of the debtor’s assets in Denmark.
If the Danish rules on jurisdiction are met, there should be nothing to prevent an implementation of independent bankruptcy of a debtor’s assets in Denmark, regardless of whether the bankruptcy has already started in another jurisdiction.
The Nordic countries (Denmark, Norway, Sweden, Finland and Iceland) have all joined the Nordic Bankruptcy Convention. The Bankruptcy Convention only applies in rare cases. The Convention includes all assets and liabilities belonging to the debtor in the other Nordic countries.