Denmark: Insolvency & Reconstruction

Bankruptcy

How to file for bankruptcy?

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 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 (DKK 30,000) 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. However, the claim for security is more often disregarded by the Bankruptcy Court.

What happens when a bankruptcy order is issued?

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 a trustee appointed. The trustee will act as the management and is granted full right of disposal of the debtor.

Will the bankruptcy be made public?

The Bankruptcy Court announces the bankruptcy order in the Danish Official Gazette (in Danish: "Statstidende"), and a notice of the bankruptcy is submitted to the Danish Commerce and Companies Agency and other public authorities, if applicable. The debtor is required to add "under konkurs" (in English: "in bankruptcy") to its name.

The 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.

What information will the creditors receive?

Immediately after issuance of the bankruptcy order, the trustee will send a letter to all known creditors of the debtor. In this letter, the trustee will inform the creditors of the situation of the debtor. After three weeks, the trustee will send a preliminary statement on the assets and liabilities of the estate to the creditors.

No later than four months after the issuance of the bankruptcy order, the trustee will send a statement describing the reason for the company's bankruptcy. This statement will also include a balance sheet and information regarding the latest annual account and the accounting figures.

Subsequently, the trustee will send semi-annual statements describing the situation of the estate and the work undertaken by the trustee in the period following the last statement.

What happens to the employees?

Within 14 days after issuance of the bankruptcy order, the trustee has to decide whether or not the estate wants to affirm any existing employment contracts. If the trustee decides to affirm an employment contract, the estate will be bound by the terms and conditions of the contract. An employee will be entitled to terminate the employment if the trustee decides not to affirm the employment contract.

What happens to agreements concluded by the company?

The trustee decides whether or not to affirm the company's executive agreements. If the trustee decides to affirm an agreement, the estate will be bound by the terms and conditions herein, and the other party's claims in that respect will be ranked as pre-preferential claims, cf. below.

If an agreement is rejected by the estate, the other party may cancel the agreement and file a claim for consideration or damages. The claim will be ranked as an ordinary claim and the creditor may therefore expect to receive less dividend of the claim, cf. below.

How to file a claim?

The creditors are encouraged to file their documented claim with the estate within four weeks following issuance of the bankruptcy order. However, it is possible for a creditor to file a claim against the estate after expiry of the four-week period. When filing the claim, the creditor must provide documentation substantiating the claim and a legal advisor's assistance may be needed.

How are the claims ranked?

The Bankruptcy Act sets up a ranking of the claims that may be filed against the estate. Claims arisen in connection with the administration of the bankruptcy estate will be met before all other claims (the pre-preferential claims, Section 93-claims).

Second priority will be given to the secondary pre-preferential claims which concern costs incurred whilst attempting to restructure the company including obligations undertaken with the approval of the administrator during reconstruction (Section 94-claims).

Third priority is given to claims from the employees (Section 95-claims). After the employees' claims have been met, certain suppliers' excise duty claims will be met (Section 96-claims).

The remaining claims will be met on equal terms and covered by the remaining dividend, if any (Section 97-claims). Usually, the company's suppliers will file their claims as Section 97 claims. Last priority will be given to deferred claims such as interest and promised gifts; a claim which will rarely be met (Section 98-claim).

Creditor claims secured by mortgage or other types of securities will be fully covered subject to sufficient security.

What happens at the end of the bankruptcy proceedings?

Normally, the trustee will conclude the bankruptcy proceedings with a statement of affairs and accounts for the estate, including a proposal for distribution to the creditors. If the statement is approved by the Bankruptcy Court, the creditors will receive dividends of their claims, provided that the estate pays dividend to the specific type of claim.

Restructuring

According to Danish law, restructuring is the main possibility for a company to survive in case of insolvency.

The formal framework for restructuring a company according to the law is regulated by the Danish Bankruptcy Act.

A complete revision of the Danish restructuring rules was adopted on 1 April 2011, and previous rules on suspension of payments are no longer valid.

A company which applied for suspension of payments before the new rules entered into force will be subject to the new rules.

The objective of reconstruction

The objective of reconstruction is (i) to allow the company to continue its business by means of compulsory composition or by transferring some of the company's assets, (ii) to terminate the business of the company by transferring the business or (iii) to terminate the business through compulsory composition.

The restructuring is required to involve an element of compulsory composition or transfer of business, or a combination hereof.

How to file for reconstruction?

A company as well as the creditors may file for reconstruction. Only natural persons running a business may be reconstructed.

It is a condition for the Bankruptcy Court to initiate reconstruction proceedings that the company is insolvent and that the insolvency is not temporary.

If a creditor files for reconstruction of the company, and the company does not consent hereto, the Bankruptcy Court requires security for the costs of the reconstruction administration.

What happens when the reconstruction is initiated?

The Bankruptcy Court will immediately appoint a trustee and a nominee to administrate the company. Material transactions cannot be carried out without the prior approval of the trustee.

The nominee will assist the company in financial matters.

If the creditors so request, the Bankruptcy Court may decide that the management of the company will only be handled by the trustee during the period of restructuring.

During restructuring, the creditors are prohibited from taking certain legal actions against the company.

Will the restructuring of the company be made public?

The Bankruptcy Court announces the restructuring of the company in the Danish Official Gazette.

What information will the creditors receive?

Immediately after a restructuring order has been issued, the trustee will send a statement to all known creditors of the company. This statement must contain the latest annual report, current information on the most essential assets and obligations, information regarding the accounting management and a statement on the objective of the restructuring.

Within four weeks after commencement of the restructuring, each creditor will receive a draft plan for the restructuring. The plan is resolved upon if a majority of the creditors does not reject the plan.

After three months, the creditors will receive a statement from the trustee containing essential information on the restructuring.

Within six months after the draft plan was presented to the creditors, the creditors will receive a final draft proposal for the restructuring of the company. The final draft proposal is resolved upon if a majority of creditors do not reject the proposal.

The proposal may be amended at the meeting on the final proposal and until affirmed by the Bankruptcy Court.

What happens to the employees?

The company continues to operate on a normal basis; however, the trustee and the management of the company must decide whether it is necessary to dismiss all or some of the company's employees as part of the restructuring or in connection with a sale of the company.

What happens with agreements entered into by the company?

Subject to approval by the trustee, mutually binding agreements between the company and the opposing party may continue to apply, provided that it is not possible for the opposing party to terminate the contract on other grounds than commencement of the restructuring. Furthermore, a terminated agreement between the company and the opposing party may continue to apply for four weeks after termination if such termination has only been effected based on the company's breach of the agreement. However, if the opposing party has acted in accordance with the termination of the agreement, it is not possible for the company to continue the agreement.

If an agreement concluded by the company continues to apply, or the company enters into a new agreement, claims related to such agreements will be classified as secondary pre-preferential claims (Section 94-claims).

The company may terminate an agreement at any time during the restructuring with 1 months' notice.

If the company chooses that an agreement must continue to apply, the opposing party cannot (i) demand that the company provides security for claims in relation to the agreement; (ii) prevent the company's performance under the contract due to the reconstruction process; (iii) demand that the company performs its obligations under the agreement before maturity of the agreement; or (iv) terminate the agreement based on the company's failure to duly meet its obligations under the agreement, unless the opposing party's claim under the agreement is contemplated by the secondary pre-preferential claims (Section 94-claims) and the company does not perform its obligations without undue delay after continuation of the agreement.

If an agreement does not continue to apply, the opposing party may terminate the agreement and demand compensation for the termination.

If the opposing party has delivered goods to the company after commencement of its restructuring and if the company does not wish to continue the agreement as described above, the goods must be returned if possible.

Should the creditors file their claims?

The trustee will encourage the creditors to file their claims in order to build a foundation for the potential restructuring of the company.

The claims will be ranked in the same way as in the case of bankruptcy.

Payment of debt will only take place if this corresponds with the order of asset distribution.

How long is a reconstruction period?

The restructuring of a company normally takes approximately seven months. The Bankruptcy Court may extend the restructuring period twice with two months to a total of 11 months. If a satisfactory solution has not been found within the 11 months, bankruptcy proceedings will be initiated against the company.

If, at any time during the restructuring, the trustee does not consider a solution within reach, he has to notify the Bankruptcy Court in order to initiate bankruptcy proceedings.

Other ways to restructure a company

Unregulated by law, it is possible to restructure a company on a more voluntary basis. This method is solely based on contract law and it is therefore up to the creditors to decide whether or not to conclude an agreement with the debtor.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
Accounting and Audit
Anti-trust/Competition Law
Consumer Protection
Corporate/Commercial Law
Criminal Law
Employment and HR
Energy and Natural Resources
Environment
Family and Matrimonial
Finance and Banking
Food, Drugs, Healthcare, Life Sciences
Government, Public Sector
Immigration
Insolvency/Bankruptcy, Re-structuring
Insurance
Intellectual Property
International Law
Law Practice Management
Litigation, Mediation & Arbitration
Media, Telecoms, IT, Entertainment
Privacy
Real Estate and Construction
Strategy
Tax
Transport
Wealth Management
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.