Insolvency 2023 Comparisons

Market Overview

In 2020–21, the number of insolvency cases in Denmark was at its lowest in several years, due to the government’s financial COVID-19 bailout packages.

However, in 2022 and continuing in 2023, the number of insolvency cases has been increasing.

The number of insolvency cases is still in the high end, relatively speaking, with 250–270 new cases each month. The amount of bankruptcies of active businesses from January to July 2023 has increased, by 31% compared to the same period in 2022.

During the COVID-19 pandemic, the government made it possible for businesses to receive an interest-free loan from the tax authorities in the amount corresponding to their due VAT. The deadline for repayment of the loan was 1 April 2022; with the possibility, however, of postponing payment by another 12–24 months, with interest. From January 2022 to July 2023, 41% of all active businesses being declared bankrupt had received a special loan of due VAT during the COVID-19 lockdowns as part of one of the governmental bailout packages.

The government’s financial policy is still focused on stabilising inflation and thus the economy. Currently, any financial initiatives from the government have been focused on subsidising private households (and not distressed business).

When looking at which sectors have seen the most bankruptcies, building/contracting has historically always been a leading industry. This was the case even more so in the first seven months of 2023, where over 400 companies were declared bankrupt within the sector during such period.

Inflation has been decreasing since the end of 2022; however, this is due greatly to decreasing energy prices. Core inflation is still high, and, in combination with high increases in salaries, this has led to limited economic growth in 2023. As such, the Danish National Bank foresees a lengthy period before inflation returns to the desired 2%, and at the same time encourages a reserved financial policy.

Due to the prospects of stagnation and possible recession in the economy, the authors expect the number of insolvency cases to continue to increase.

In order to secure the position of distressed companies and their employees, the government has issued legal changes to the restructuring rules. During the COVID-19 pandemic, in March 2021, the government issued a number of such changes, including the possibility of performing a “fast track” business transfer. Furthermore, EU Directive 2019/1023 (the “EU Restructuring and Insolvency Directive”) was implemented on 17 July 2022, which introduced a new preventative in-court debtor-in-possession insolvency proceeding that allows businesses to address financial challenges at an earlier stage.

The Implementation of the EU Restructuring and Insolvency Directive

Denmark has opted out of EU judicial co-operation, and as a general rule is not a party to the EU Regulation concerning the recognition of insolvency proceedings within the EU.

However, the EU Restructuring and Insolvency Directive has now been implemented in Danish law under the EU rules concerning the internal market. The law, implementing the required amendments to the Danish Bankruptcy Act for compliance with the Directive, entered into force on 17 July 2023.

The amendments are based on the recommendations from the Danish Bankruptcy Council, which is an advisory body to the Danish Ministry of Justice.

The aim of the rules is to implement preventative measures for businesses to use to avoid bankruptcy. With the new amendments – and contrary to the existing rules on restructuring – preventative restructuring proceedings can be initiated even before insolvency has occurred, provided there is a likelihood that the debtor will become insolvent.

With the new amendments, several new components have been introduced into Danish law, including the new scheme of preventative restructuring as well as major amendments to the existing rules:

• the preventative proceedings do not require the debtor to be insolvent;
• the opening/commencement of preventative restructuring proceedings is not necessarily made public;
• it is not required to have an administrator appointed in preventative proceedings;
• preventative restructuring does not necessarily provide a stay on other enforcement actions against the debtor;
• creditor voting classes have been introduced; and
• the restructuring proposal can contain initiatives other than compulsory composition or business transfer, including some (limited) changes to the corporate structure and share capital, regardless of shareholder approval.

Further, the possibility of performing a compulsory composition during bankruptcy was reintroduced. The more detailed contents of the new rules are described under the relevant sections in the guide below.

The amendments have led to an increase in the number of in-court restructurings.

The principal piece of legislation underpinning Danish insolvency law is the Danish Bankruptcy Act, which contains procedural and substantive provisions pertaining to formal insolvency proceedings, including provisions on:

• the opening of (preventative) insolvency proceedings;
• appointment of a trustee/restructuring administrator;
• claw-back/avoidance;
• creditor voting rights; and
• priority of claims, etc.

The rules on in-court restructuring were significantly amended in March 2021 and July 2022.

The Bankruptcy Act also contains rules on “insolvency quarantine”. Pursuant to these rules, the trustee of a bankruptcy estate must investigate whether the management of the bankrupt business has grossly mismanaged the business and is therefore deemed unfit to participate in the management of other businesses. If relevant, the trustee must make a petition to the bankruptcy court to initiate separate insolvency quarantine proceedings against the management and inform the general body of creditors of the quarantine petition.

Underpinning the Bankruptcy Act is the Danish Administration of Justice Act, which supports the coherence between the bodies of law on formal insolvency proceedings initiated in the interest of the entire body of creditors, and individual enforcement proceedings before an enforcement court, initiated in the interest of a single creditor. Furthermore, the Danish Companies Act contains provisions regarding the responsibilities of the management of public and private limited companies. In addition, the Danish Criminal Code and the Danish Act on Bookkeeping both support the overall regulation of insolvency matters.

Danish insolvency law affords distressed debtors three different in-court insolvency proceedings:

• bankruptcy proceedings (winding up/insolvent liquidation);
• preventative in-court restructuring; and
• “ordinary” restructuring proceedings.

Danish legislation does not include provisions on out-of-court proceedings/schemes.

Bankruptcy Proceedings

Bankruptcy proceedings may be commenced either by a creditor or by the debtor upon petition to the bankruptcy court. Once the court receives a petition, the debtor and the creditor filing the petition are summoned to a court hearing, which is not publicly announced. If the court finds that there is a basis for issuing a bankruptcy order, it will do so; likewise, the court may choose to stay the hearing for a finite period of time. If bankruptcy proceedings are commenced, the court appoints a trustee, who assumes control of the assets and liabilities of the debtor in place of management. The management is relieved of all duties. The trustee is entrusted with preserving the value of the assets, liquidating the assets, and distributing the proceeds equally throughout the order of priority of creditors. The bankruptcy order is published in the official Danish Gazette.

The trustee must, at regular intervals, issue creditor information letters, whereby the status of the affairs of the estate are accounted for. There is no statutory timeframe dictating how long or short the bankruptcy proceedings may be from start to finish.

By amendment to the Danish Bankruptcy Act on 17 July 2022, the possibility of performing a compulsory composition during bankruptcy was reintroduced. Consequently, a debtor is – with the consent (and help) of the trustee – able to present the creditors’ proposal for a compulsory composition during the bankruptcy proceedings.

In-Court Restructuring

The rules were substantially amended in March 2021 and in July 2022, and now two kinds of restructuring proceedings exist: preventative restructuring and “ordinary” restructuring.

Preventative restructuring

Preventative restructuring proceedings can be initiated by the debtor and not by a creditor. The rules governing the proceedings differ depending on whether a stay on enforcement actions has been requested. If such a stay is requested, most of the rules of ordinary restructuring apply.

The court must automatically grant an enforcement stay if requested by the debtor, and the court will publish this in the official Danish Gazette. Further, an enforcement stay will also require:

• that an administrator be appointed;
• that an initial meeting be held in the court, where the creditors are informed of the plan, though contrary to the ordinary restructuring proceedings the creditors cannot vote on the plan; and
• that the rules on providing the court and creditors with information and issuing a restructuring plan and proposal at set deadlines apply.

If an enforcement stay is not granted, the debtor is still free – but not obliged – to comply with the rules.

Preventative restructuring proceedings must conclude within one year. The debtor is not automatically declared bankrupt if the preventative restructuring proceedings fail.

In both preventative and in ordinary in-court restructuring proceedings, the executive management and board of directors retain control of the business.

It is also possible for the court to appoint a restructuring accountant, who will have to approve the financial parts of the restructuring plan and proposal set forth by the administrator.

A floating charge will not crystalise when preventative restructuring proceedings commence, contrary to “ordinary” restructuring and bankruptcy proceedings.

“Ordinary” in-court restructuring

Danish in-court restructuring proceedings are somewhat similar to other debtor-in-possession proceedings, in the sense that management retains control of the affairs of a debtor. The administrator does not, generally, have any influence over how the management conducts the day-to-day business during the restructuring process. However, the administrator must consent to all material actions taken by the debtor. The practical reality surrounding restructurings is nevertheless quite different, as a successful restructuring requires that the administrator confirms to the court and the creditors that the management has been fully co-operative throughout the process; which, in practice, means that the administrator is often heavily involved in the day-to-day affairs of the debtor and not only in the major and material actions.

If the administrator has faith in the business case, but not in the executive management and board of directors, the administrator may request that the insolvency court replace them with the administrator, effectively side-lining management and handing full control of the business over to the administrator.

The administrator may choose to maintain contracts which have not yet been fulfilled, unless doing so would be contrary to the very nature of such contracts. If a contract is not maintained, the contract party may terminate the contract and file all claims arising therefrom with the estate/restructuring administrator. In restructuring proceedings, the administrator may also maintain a contract which has been terminated within the four weeks immediately preceding the initiation of the restructuring process, provided that the contract party has not acted upon the termination – eg, if leased inventory has not yet been retrieved.

Restructuring timeline and voting rules

Unlike bankruptcy proceedings, restructuring proceedings must adhere to strict timelines and can therefore not be extended beyond a total of 12 months from start to finish (provided that all possible postponement of deadlines is exhausted).

The timeframe for an ordinary in-court restructuring process (though not a fast-track business transfer as discussed below) is as follows.

• One week after proceedings have commenced, the administrator must send out notice to all known creditors.
• Four weeks after proceedings have commenced (though this can be postponed for up to eight weeks in total):
1. a creditors’ meeting on approval of the restructuring plan must have taken place; and
2. the administrator must, at least one week before this meeting, have distributed the proposed restructuring plan, outlining the general terms of the plan, to all known creditors and the bankruptcy court.
• Three months after proceedings have commenced, the administrator must send a report on all material information and accounts of the business during the restructuring proceedings so far to all known creditors.
• Six months after the first meeting (though this can be postponed by two months at a time, up to a maximum of four months – ie, an absolute maximum of ten months after the first meeting):
1. the creditor meeting on approval of the restructuring proposal must take place; and
2. the administrator must send the restructuring proposal to all known creditors five days prior to meeting.

If no restructuring plan has been adopted within the first eight weeks after the commencement of the proceedings, the debtor can exit the restructuring process and return to ordinary operations; however, beyond this point the only exit opportunity for an insolvent debtor is to be declared bankrupt.

The creditors must – at meetings in the insolvency court – vote and approve first a restructuring plan and later a restructuring proposal (though these can be put to the vote at the same meeting).

The creditors vote proportional to the size of their claim affected by the restructuring. The voting thresholds differ when voting on the plan and the restructuring proposal. The overall restructuring plan is approved unless a simple majority of all the creditors affected by the restructuring and present at the court meeting vote against it (though it is required that these creditors account for at least 25% of all the claims eligible to vote).

The voting rules for the restructuring proposal differ depending on whether the debtor is a large enterprise or a small-medium sized enterprise, defined by the thresholds in the Danish Annual Accounts Act.

For large enterprises, the voting must happen in voting classes. Small and medium-sized enterprises can also request to have these voting rules apply, but the default is that the restructuring proposal for such debtors is adopted if a majority of the creditors present at the court hearing vote in favour.

When the rules on creditor voting classes apply, the restructuring proposal is adopted if a majority of creditor classes vote in favour at the court hearing. Creditors are put into classes with other creditors of sufficient equal interest – eg, financial creditors, public authorities and trade creditors. Creditors holding collateral must be put into a separate class. The voting threshold within each class is a simple majority.

The adopted restructuring proposal must be ratified by the court in a court order, having binding effect on all contracting parties and creditors of the debtor.

Outcome of restructuring

An in-court restructuring can result in a compulsory composition, a sale of business, a combination of the two and any other measures relevant to making the debtor solvent.

Debt conversion to equity is not allowed. However, the restructuring proposal can allow for the existing share capital being reduced to a value of 0, and then new shares can be issued. The new share capital must be paid in cash.

If a restructuring proposal containing a business transfer is adopted and ratified, the company – now having sold the business – will usually be declared bankrupt, and a bankruptcy trustee will be appointed to liquidate any remaining assets. The restructuring administrator will usually also be appointed as bankruptcy trustee.

Fast-track business transfer

A fast-track business transfer scheme was introduced in March 2021. In accordance with these rules, a business transfer can be executed by the restructuring administrator prior to a restructuring plan having been approved. Furthermore, such a business transfer cannot be deemed void at a later point if no creditors object within five days after having received notice of the transfer from the administrator.

The management is responsible for ensuring that a company has sufficient working capital in order to continue trading. A poorly capitalised company can continue trading (without management risking liability) provided the management has a reasonable expectation that the financial situation can be rectified within a foreseeable timeframe.

Once a company reaches the point-of-no-return/point of hopelessness, the management (both the board of directors and the executive management) has an obligation to:

• cease the operations of the company;
• ensure the equal treatment of creditors; and
• not take on further liability towards any creditor.

With the new rules on preventative restructuring, the management can now also take in-court steps before insolvency occurs, if it is likely that insolvency will occur.

If a company or natural person is deemed insolvent, its management or creditors may file a petition to the insolvency court to open either bankruptcy or restructuring proceedings (while only the debtor can file for preventative restructuring proceedings). The debtor can challenge a petition for insolvency proceedings filed by a creditor, but if the court also finds the company to be insolvent, the debtor cannot block either of the mentioned proceedings. A petition for involuntary ordinary in-court restructuring filed by a creditor will, however, most likely entail the side-lining of the current management.

With the exception of the new rules on preventative restructuring, Danish insolvency law is limited in its application to insolvent debtors – ie, debtors who are unable to service their debts as they fall due, and where this inability is not merely temporary.

The Danish criteria for insolvency are based on the principle of illiquidity, as opposed to the principle of insufficiency. A debtor is deemed insolvent when it cannot fulfil obligations as they fall due, and when this is not merely temporary. Therefore, a balance sheet deficit is not a defining characteristic of insolvency under Danish law, irrespective of its high indicative value in determining insolvency.

The Danish Bankruptcy Act is the principal piece of legislation underpinning Danish insolvency law, and contains the procedural and substantive provisions regarding insolvency proceedings both for companies and for natural persons.

The EU rules (especially BRRD and BRRD II) regarding recovery and resolution of credit institutes and investment firms have been implemented into Danish law. The EU rules stipulate a number procedural and material provisions for the recovery and resolution of credit institutes and investment firms, and the recognition of insolvency proceedings within the EU in the financial sector.

Under the special provisions for certain financial institutes, the Governmental Limited Liability Company (Finansiel Stabilitet A/S) will initiate recovery and resolution actions to minimise negative repercussions. The recovery and resolution tools may include a transfer of the assets and select portions of the liabilities of the bank to a designated buyer, leaving only the remaining portions of the bank eligible for bankruptcy proceedings under the Bankruptcy Act.

Besides the special recovery and resolution actions in the financial area, financial institutions must observe stricter solvency requirements, which have been laid down for financial institutions in the EU. The relevant legislation for financial institutions is:

• the Danish Financial Business Act;
• the Danish Act on the Governmental Limited Liability Company; and
• the Danish Act on Restructuring of Certain Financial Enterprises.

For certain major institutions that hold a significant bearing on the Danish economy (so-called systemically important financial institutions or SIFIs), certain stricter requirements apply.

Non-life Insurance Companies

For non-life insurance companies, the policyholders and insured persons have a first right to receive dividends ahead of the other simple/unsecured creditors (mainly trade creditors and employees’ claims for salaries), though their claims still rank after costs associated with the insolvency proceedings. Private/consumer policyholders and insured persons, as well as injured third parties, are, under certain conditions, entitled to compensation from the Danish Guarantee Fund for Non-life Insurers. The Guarantee Fund has a specific right to receive reinsurance payments triggered by the coverage provided by the Guarantee Fund, and these assets are thus excluded from the bankruptcy proceedings.

From mid-2021, the Guarantee Fund also covers certain claims covered by work-related accident insurance issued by bankrupt insurance companies or companies that have had their licence to issue such insurances withdrawn. This coverage was previously provided by the official Danish Labour Market Insurance (AES).

In general, Danish parties prefer statutory restructuring processes to consensual or out-of-court restructurings. Therefore, even when a consensual restructuring is attempted or suggested, there will usually be an expectation that it will be structured to reflect the basic principles laid out in the Danish Bankruptcy Act. There is no requirement to attempt or even consider informal restructuring before formal judicial insolvency proceedings are initiated.

Danish banks, financial institutions, etc, are usually reluctant to engage in talks about the restructuring of a distressed business. If approached with a restructuring request from a debtor, the bank will ask that debtor to procure or produce the necessary documentation on its financial position. Only in relation to customers/debtors with significant engagement with the bank will the bank procure the necessary documentation and take a more active role in the restructuring process. It should be noted, however, that significant debtors are very often kept out of formal insolvency proceedings using inter-creditor or inter-bank agreements, enabling the major creditors to have direct control over how the value of the debtor’s assets should be preserved and/or liquidated. This is usually as formal restructuring proceedings have difficulty in preserving the value of the debtor’s assets. From a legislative and judicial perspective, over the last ten years, momentum has been building towards gearing formal insolvency proceedings (principally in-court restructuring proceedings, but also bankruptcy proceedings) to be able to better preserve the assets’ values, jobs and the business; whereas previously there was a strong focus on the protection of creditors’ rights.

In Denmark, there is no tie between formal and informal restructuring efforts/proceedings. Therefore, since informal restructuring efforts have no stay on singular enforcement proceedings, an informal restructuring requires the business and/or major lenders to either pay out small and aggressive creditors or to otherwise persuade such small creditors to participate in the restructuring. The new rules on preventative restructurings allow for more “informal” in-court restructurings, somewhat similar to consensual, out-of-court restructurings, depending on whether a stay of enforcement actions is granted.

So far, the new preventative restructuring proceedings has not been widely used by creditors, probably because the proceedings only have limited moratorium effect unless an enforcement stay is granted, and at that point most of the rules of the ordinary restructuring proceedings apply. However, preventative proceedings will not necessarily block a bankruptcy petition from a creditor, weakening the preventative effect of the proceedings. On the other hand, the amendments of the ordinary restructuring rules seem to have led to an increase of restructuring cases over the last couple of years, providing debtors and practitioners with new valuable tools in the attempt to save businesses and jobs while preserving the assets.

With the newly amended in-court restructuring rules, it is now possible to carry through a fast-track business transfer (but only if the proceedings are made public). This is expected to provide for greater use of pre-packed solutions. Please refer to 2.2 Types of Voluntary and Involuntary Restructurings, Reorganisations, Insolvencies and Receivership and 6.8 Asset Disposition and Related Procedures for further detail.

In instances where a consensual restructuring is feasible, a debtor will confer with major and/or secured creditors on the content and timing of the contemplated restructuring. The major creditors will often form an ad hoc steering committee in the sense that the success of the restructuring is dependent upon all these creditors agreeing to the restructuring plan.

Standstill agreements are not uncommon in, or leading up to, a restructuring, but they also occur as a form of defence of a lender’s mortgage rights – ie, as an attempt to postpone or avoid a debtor’s full-blown financial breakdown.

Usually, a debtor will nominate a lawyer and/or an accountant to assist in the restructuring, and, provided the suggested advisers are reputable, major creditors will not object. Depending on the amounts involved, major creditors will often insist that their adviser (typically a lawyer) be hired by the debtor to work in conjunction with the debtor’s advisers; and seeing as these types of restructuring processes are trust-driven, the debtor will never object. The board of directors in question will also sometimes hire a separate lawyer to advise them on their duties to the company and ultimately to the creditors.

The formal proceedings almost always serve as the benchmark against which consensual restructurings are measured, so they are only successful if there is an appreciable upside for major creditors. If such an upside cannot be reasonably quantified, the creditors will most likely terminate their participation in the out-of-court proceedings.

Danish insolvency law does not afford new money super-priority as such, although an inter-creditor agreement may afford super-priority for new monies (which of course only applies to the participating creditors). Capital injection as part of an informal restructuring is usually made pro rata between major creditors in order to keep a debtor afloat, or by parties closely related to the debtor in order to support the restructuring.

Danish claw-back rules, however, do allow for such new capital to be duly secured against the debtor’s assets without risk of subsequent claw-back/avoidance of that security.

Under the new rules on preventative restructuring, a floating charge will not crystalise due to the preventative proceedings commencing (contrary to ordinary restructuring proceedings), therefore allowing the charge to function as collateral for assets obtained during the proceedings.

Please also see 5.5 Priority Claims in Restructuring and Insolvency Proceedings.

There is no law that dictates the duties of creditors to one another. Creditors are free to vote as they see fit. The only restriction is that a creditor’s vote in restructuring proceedings may not be influenced by a debtor, or any third party, giving that creditor preferential treatment of any kind. Non-compliance with this restriction will lead to the insolvency court refusing to confirm a restructuring proposal, or, if already confirmed by the insolvency court, rejecting the restructuring proposal.

Danish law does not provide for a cram-down of an out-of-court restructuring towards dissident creditors. Dissident creditors must either be paid in full or otherwise be persuaded to co-operate. Also, the formal Danish restructuring regime through the insolvency court is not geared towards providing a separate cram-down process – ie, the relevant rules do not allow for only the cram-down parts of the regime to be invoked. This lack of cram-down enforcement of a consensual restructuring is due to the desire of the Danish legislature and insolvency courts to encourage distressed businesses to seek assistance through formal insolvency regimes.

A mortgage over real estate must be registered with the Land Register.

A pledge over non-negotiable and unlisted shares must be registered with the company in the register of shareholders. A mortgage over negotiable unlisted shares or over listed shares must be registered with the financial institution which keeps the company’s register of shareholders.

A mortgage over movable property (aside from aircraft and ships) must be registered with the Land Register.

Historically, Danish law has not allowed for the creation of floating charges; therefore, mortgage rights had to attach to specific identifiable assets. One of the few exceptions to this rule is floating charges over a business’s outstanding debtors, inventory, operating equipment, livestock, intellectual property and certain vehicles (virksomhedspant). Such a floating charge must also be registered with the Land Register.

Danish law distinguishes between two types of securities: pledges and mortgages. A security right consisting of a floating charge covering receivables is considered a pledge even though a floating charge covering, for instance, inventory and operating equipment is considered a mortgage.

A creditor secured by way of a pledge is free to enforce their pledge irrespective of either a bankruptcy or a restructuring.

A creditor secured by way of a mortgage is, in the event of an in-court restructuring of a debtor, not allowed to enforce their security right over the assets, provided a debtor services the secured debt. If the debt is only partially secured (ie, the asset does not provide full security for the secured claim), a debtor is only required to service the secured proportion of the debt. Only in the event of a debtor failing to service the secured (part of the) debt may a creditor enforce the mortgage. In the event of a debtor’s bankruptcy, the trustee is afforded a period of six months to liquidate the assets of the estate, including mortgaged assets. Once the six-month period elapses, any mortgagee may request the trustee to put the mortgaged asset up for public auction and the trustee is required to comply with such a request immediately.

A fully secured creditor is not eligible to participate in any voting at creditor meetings, and is therefore not able to disrupt the process. A partially secured creditor may exercise voting rights proportionate to the unsecured portion of their claim. However, subject to the condition that the debtor in restructuring proceedings has requested voting classes, secured creditors are eligible to vote in their own voting class.

A trustee must adjudicate the creditor’s security and verify the merits of a claim, but other than that no special procedural rules apply to secured creditors.

Danish insolvency law does not divide creditors into classes, apart from (fully) secured and unsecured creditors, respectively. However, the creditors can be put into voting classes when voting on a restructuring proposal. The determination of the classes is made by the court upon a proposal from the debtor/administrator.

Only unsecured debt, affected by the restructuring, carries voting rights.

Please see 2.2 Types of Voluntary and Involuntary Restructurings, Reorganisations, Insolvencies and Receivership.

In a formal restructuring process, trade creditors are equal to the other unsecured creditors of the debtor.

Bankruptcy Proceedings

Unsecured creditors may ask the insolvency court to hold an election for the trustee of an estate, but this right is limited to the first few weeks after the opening of bankruptcy proceedings.

After that point, creditors have, in general, no formal possibilities other than filing a complaint regarding the trustee with the insolvency court.

In-Court Restructuring Proceedings

In the restructuring process, the creditors’ role in moulding the proceedings is more noticeable, as the general body of unsecured creditors is the body to vote on whether a proposed restructuring plan and the final restructuring proposal should be adopted. The restructuring plan and proposal is adopted by the creditors if a majority of creditors present at the meeting vote in favour of the plan and the proposal. In order for the restructuring proposal to be valid, it must also be ratified by the court.

Pre-judgment attachments are available. The Administration of Justice Act and the Danish Bankruptcy Act provide for interim measures including arrest of assets. Such interim measures are, however, precluded once formal insolvency proceedings are opened and in the case of preventative restructuring proceedings if a stay on enforcement actions is granted.

The order of priority of claims in formal restructuring is as follows:

• administration expenses and debts incurred with the consent of the trustee or restructuring administrator;
• employee wages, pensions and holiday allowance (including taxes);
• certain special duties/taxes;
• simple unsecured claims; and
• any interest calculated after the bankruptcy date (usually the petition date) and fines.

In bankruptcy proceedings, the bankruptcy administration costs and debts incurred during the bankruptcy rank prior/over all the above; other than that, the waterfall scheme is the same.

New money added during a formal restructuring process is considered debt incurred with the consent of the administrator and therefore ranks very highly in the order of priority of claims. Likewise, new money added during a bankruptcy is considered debt incurred during the bankruptcy and therefore ranks even higher in the order of priority of claims.

Under Danish law, there are only three forms of formal insolvency proceedings:

• preventative restructuring;
• ordinary restructuring; and
• bankruptcy.

Please see 2.2 Types of Voluntary and Involuntary Restructurings, Reorganisations, Insolvencies and Receivership for further information on in-court proceedings.

Due to the previous lack of flexibility of the formal restructuring rules, it was not uncommon for a de facto restructuring process to be carried out by means of a business transfer through the bankruptcy proceedings rather than through formal restructuring proceedings. With the amendments of the restructuring rules, including the introduction of preventative restructuring, it is possible that more restructurings will in fact be conducted through these schemes and not through bankruptcy proceedings.

Please see 2.2 Types of Voluntary and Involuntary Restructurings, Reorganisations, Insolvencies and Receivership.

The ordinary in-court restructuring proceedings effectively block enforcement proceedings against a company, offering a de facto moratorium, and under the new rules offering a four-to-eight-week timeout for the debtor. This does, however, only extend to pre-existing claims, as new claims stemming from continued operations have priority and must be honoured continuously.

In bankruptcy proceedings, a qualified minority of creditors may require the formation of a creditors’ committee consisting of up to three members. The insolvency court decides how the members of such a committee are to be elected so as to ensure a diverse representation of the general body of creditors.

The trustee must inform the creditors’ committee of any significant actions taken and, unless doing so would be detrimental for the estate, must inform the creditors’ committee of any particularly significant planned actions to be taken.

The creditors’ committee is strictly of an advisory nature to the trustee and the insolvency court, and wields no special powers. The trustee must suggest to the insolvency court how the members of the creditors’ committee are to be remunerated. The costs are borne by the estate alongside the trustee’s remuneration in the order of priority of claims.

The principle of pari passu regarding creditor rights and responsibilities is subject to certain modifications, since creditors are only equal with creditors of the same ranking in the hierarchy defined by the Bankruptcy Act’s waterfall schedule of dividend distribution (see 5.5 Priority Claims in Restructuring and Insolvency Proceedings).

Please also see 2.2 Types of Voluntary and Involuntary Restructurings, Reorganisations, Insolvencies and Receivership for further discussion of the role of the creditors within in-court restructurings.

Danish insolvency law does not distinguish between different classes of creditors as such (apart from secured and unsecured creditors and apart from the subclasses of the unsecured creditors). A passed restructuring can, however, imply a cram-down imposed on dissenting creditors as it is – by virtue of law – globally binding for all unsecured creditors (known or unknown).

There are no restrictions on debt trading in place, and it can therefore take place at any time. Once a transfer has been made, the purchaser is recognised as the rightful creditor. It should be noted that closely related creditors cannot vote, even if they have acquired a claim from a creditor that was entitled to vote based on the transferred claim.

There are no group restructuring proceedings available, but it is possible to co-ordinate the separate restructuring proceedings for each company and to thereby achieve a somewhat similar result to actual group proceedings.

A court-appointed restructuring administrator must consent to all actions of significance for the restructuring process, including sales of assets. Such consent is usually given explicitly in writing, but can also be given implicitly by way of the restructuring administrator’s actions.

See 2.2 Types of Voluntary and Involuntary Restructurings, Reorganisations, Insolvencies and Receivership.

In bankruptcy proceedings, the trustee is responsible for the sale of assets, either through sale of individual assets or through a sale of the business as such. If a mortgagee refuses to consent to a sale of a mortgaged asset, the trustee may request that the mortgaged asset be sold by way of a public, forced sale.

In both bankruptcy and restructuring proceedings, anyone, including the pledgee/mortgagee, may bid on the asset in question. A bid “within” the pledgee/mortgagee’s own security right is effectively set off against the secured debt. The only party who may not acquire the assets is the administrator/trustee/restructuring accountant.

The restructuring proceedings do not, as such, clear pledges and mortgages, and the sale of encumbered assets (which do not represent any excess value) must therefore be co-ordinated with such stakeholders. Such secured creditors can either demand cash payment or accept that the purchaser assumes the rights and responsibilities of the seller regarding the underlying debt.

In restructuring, a sale of the business or a separate branch of the business may only take place through the new fast-track rules on a business transfer or as a result of an approved and confirmed restructuring proposal. If a sale of the business takes place based on a confirmed restructuring proposal, the sale can include a statutory forced debtor change so as to include both pledged/mortgaged assets and the underlying financing.

If the insolvency court has made a binding determination of the value of a pledged asset, the pledge and accompanying financing pass to the purchaser on a statutory basis. In essence, the “surplus pledge” is removed, and the determined pledge and financing is passed on.

Pre-packed sales are not uncommon as such, but the administrator/trustee must somehow ensure that the sale is made on arm’s length terms. The new rules on fast-track business sales in restructuring proceedings might over time increase the use of pre-packed sales.

It is – also without using the fast-track rules – possible to prepare a restructuring in such a manner that a pre-packed sale is executed within a very short period of time. With the permission of the court, the two mandatory creditors’ meetings can be scheduled back-to-back, limiting the restructuring proceedings to a mere few weeks. Such a request to the court will require that the debtor and administrator clearly quantify that the compressed timeframe will not unduly affect any creditor’s position – eg, demonstrate a clear picture of the body of creditors and a clear show of support from a majority of the creditors for the restructuring proposal and for the compressed timeframe.

Other claims, including secured creditor liens and security arrangements, can be released only if the secured creditor accepts the release.

New money can be secured against the company’s assets to the same extent that the company could otherwise do so.

Please also see 5.5 Priority Claims in Restructuring and Insolvency Proceedings.

It is not possible to use the statutory restructuring process to determine the value of a claim and creditors.

A restructuring proposal adopted by the majority of the creditors is not valid or binding until it has also been ratified by the insolvency court. The insolvency court may reject a restructuring proposal even though it carries the majority vote if it is disproportionate to the debtor’s financial situation. The court is required to reject a restructuring proposal if there has been any procedural misconduct, incompleteness of significant factual statements made by the debtor or non-compliance with the Bankruptcy Act, or if one or more creditors has been given preferential treatment outside the restructuring so as to influence the vote.

Danish legislation does not contain rules on out-of-court creditor agreements of restructuring or reorganisation of a debtor.

A statutory procedure cannot release non-debtor parties from liabilities.

Creditors may, in general, perform set-off if both the main claim and the counterclaim are created either prior to or after the reference date and/or the opening of insolvency proceedings. However, in in-court restructuring proceedings, some restrictions of the right to set-off do exist.

If a company is in significant violation of the terms of a passed restructuring, the restructuring may be lifted, which in turn would resurrect any claims which have been subject to a haircut, thereby exposing the company to possible bankruptcy proceedings.

Existing equity owners may receive or retain ownership of their shareholdings in the debtor. Equity owners cannot receive or retain ownership of property on account of their ownership interests. Debt conversion to equity is not allowed without complying with the formal rules on shareholder approval at a general meeting, etc. However, a restructuring proposal concerning a public or private limited liability company can contain a scheme for the existing share capital being reduced to a value of 0, and then new shares can be issued. The new share capital must be paid in cash, and it must be certain that the debtor is insolvent. In this situation, existing equity owners cannot object to the proposal.

Please refer to 2.2 Types of Voluntary and Involuntary Restructurings, Reorganisations, Insolvencies and Receivership and 6.1 Statutory Process for a Financial Restructuring/Reorganisation.

Please refer to 6.8 Asset Disposition and Related Procedures.

Please refer to 5.5 Priority Claims in Restructuring and Insolvency Proceedings and 6.3 Roles of Creditors. The Danish Bankruptcy Act contains rules allowing creditors to form a creditors’ committee during a bankruptcy process; however, this happens very rarely.

Denmark is, due to its reservation from judicial co-operation in the EU, not part of or bound by the EU Regulation on Insolvency Proceedings; consequently, there is no general statutory framework in place with regard to recognition of foreign insolvency proceedings.

However, by virtue of the Nordic Bankruptcy Treaty, Denmark does recognise bankruptcy proceedings in the Nordic countries.

Within the financial area, Denmark has implemented the EU rules regarding recognition of insolvency proceedings in another EU member state (among these are the BRRD and the BRRD II). These rules are implemented according to EU rules concerning the internal market and not judicial co-operation. In the future, more EU Directives are expected to be enacted under the EU rules regarding the internal market.

Under the Danish Bankruptcy Act, the Minister of Justice is authorised to lay down regulations pursuant to which decisions by foreign courts of law and authorities in respect of bankruptcy, restructuring and other similar insolvency proceedings have binding effect and are enforceable in Denmark. The Minister has not exercised this authority, though this does not necessarily mean that foreign insolvency proceedings can never be, or have never been, recognised in Denmark.

However, Danish insolvency courts have entered into singular agreements/protocols with foreign insolvency courts on a case-by-case basis when there was a need to do so.

Even though it has happened on a case-by-case basis, the Danish courts – as a general rule – do not liaise with foreign courts.

Given that, in general, Danish law does not recognise foreign jurisdiction in insolvency-related matters, Danish private international law stipulates the laws by which a contract is governed. Even so, Danish insolvency law will still apply regarding certain foreign insolvency-related matters – eg, perfection of security, claw-back, etc, based on the principle of lex concursus.

In Denmark, foreign creditors are dealt with in the same manner as Danish creditors.

Denmark is, due to its reservation from judicial co-operation in the EU, not part of or bound by EU regulation within the judicial area.

However, Denmark has chosen to opt into (and implement into Danish law) Brussels I/EU Regulation No 1215/20212 on jurisdictions and the recognition and enforcement of judgments in civil and commercial matters. Furthermore, Denmark has adopted the Lugano Convention (on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters) and the Hague Convention (of 30 June 2005 on Choice of Court Agreements).

Judgments from courts in countries that are not parties to these international conventions and treaties are not recognised in Denmark and cannot be enforced in Denmark. The foreign party in question will need to obtain a court order/judgment from a Danish court.

In bankruptcies, one or more trustees is appointed. In ordinary restructurings and in preventative restructurings with an enforcement action stay, one or more administrators (and possibly also a restructuring accountant) is appointed.

A trustee is responsible for handling all aspects of an estate, including:

• liquidating the assets;
• adjudicating claims made against the estate; and
• executing claw-back claims, etc.

The trustee reports to the general body of creditors by way of creditor information letters at set intervals and to the insolvency court through the same letters, among other things.

An administrator is responsible for overseeing the management of active operations of a company and for detailing the restructuring plan and proposal. The restructuring accountant, if appointed, focuses on validating the value of assets and the overall financial aspects of the restructuring process. Both report to the general body of creditors by way of creditor information letters at set intervals, and to the insolvency court.

A trustee is appointed by the insolvency court. If a trustee election has been requested by a creditor, the court will consult the majority of creditors with voting rights, and most often will appoint the trustee nominated by the majority of creditors.

A restructuring administrator is appointed by the insolvency court. If the court finds sufficient grounds, it may therefore decide to appoint additional administrators or replace the current administrator.

Please refer to 2.3 Obligation to Commence Formal Insolvency Proceedings.

Please refer to 2.3 Obligation to Commence Formal Insolvency Proceedings and 11.3 Claims to Set Aside or Annul Transactions.

Chapter 8 of the Danish Bankruptcy Act contains provisions regarding claw-back measures against actions which constitute a breach of the basic principle of creditor equality. Such actions may include:

• gifts;
• renunciations of inheritance;
• certain types of payment made by a debtor;
• provision of security for pre-existing debt; and
• general creditor-hostile actions.

The ordinary claw-back period is usually three to six months. If the creditor in question is closely related to a debtor, the claw-back period is extended to two years and the burden of proof generally shifts from the estate to the creditor.

Claw-back (and any other types of) claims are most often brought by a trustee directly. If a trustee decides not to pursue a potential claim of any kind, any creditor may – within a timeframe laid down by the insolvency court – continue to pursue the claim at their own expense. If the creditor is successful, the proceeds will be paid to the estate, but the creditor’s reasonable expenses will be covered by the estate through the proceeds of the case.

Often a trustee will ask one or more creditors to fund further pursuit of a claim (often court cases) if the estate itself is unable to bear the associated costs. Furthermore, the use of third-party litigation funding has increased during recent years, particularly in matters where no creditors were interested in funding the litigation process in question.

Such claims can be brought in restructuring and insolvency proceedings. In restructuring proceedings, the creditors must also vote on whether identified potential claims are to be pursued or not.