Insolvency 2022

Last Updated November 22, 2022

Denmark

Law and Practice

Authors



DLA Piper Denmark is part of DLA Piper, a global leading law firm with offices in more than 40 countries, and the only global law firm with a pan-Nordic presence. DLA Piper Denmark consists of approximately 300 staff members in offices situated in the hearts of Copenhagen and Aarhus. In the Nordics the firm has 550 lawyers organised in sector groups. The Danish group of lawyers specialised in insolvency law consists of 26 associates and eight partners. The firm has developed a specialist Nordic Region Restructuring and Insolvency group, focusing principally on cross-border restructuring and insolvency matters at the highest levels. Clients of DLA Piper range from multinational, Global 1000, and Fortune 500 enterprises to emerging companies developing industry-leading technologies. They include more than half of the Fortune 250 and nearly half of the FTSE 350 or their subsidiaries. The firm also advises the financial sector, governments, and public sector bodies.

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, the number of insolvency cases has been increasing as repayment of the bailout packages has been falling due. Furthermore, the surge in energy prices, increasing inflation and interest rates, and supply chain issues within certain sectors have contributed to the increase.

The number of insolvency cases is currently approaching levels, which have not been seen since the last financial crisis. During September 2022, bankruptcy proceedings were initiated against 217 active businesses; an increase of 36% compared to September 2021.

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, to postpone payment by another 12–24 months, with interest.

The government’s financial policy, including the Finance Act for 2023, is 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).

According to the Danish National Bank’s latest outlook, in 2023, the economy is going to experience negative growth of 0.1%. In alignment with the European Central Bank, the Danish National Bank has been raising interest rates in response to the elevated inflation.

Due the prospects of a stagnation and possible recession in the economy, the number of insolvency cases is expected 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 legal changes to restructuring rules, including the possibility of performing a “fast track” business transfer. Furthermore, the EU Directive 2019/1023 was implemented on 17 July 2022, which introduced a new preventive in-court debtor-in-possession insolvency proceeding that allows business to address financial challenges at an earlier stage.

Given the anticipated economic stagnation and the increase in distressed business, it is expected that distressed companies may attempt the amended in-court restructuring proceedings before bankruptcy proceedings.

During the COVID-19 pandemic, the stock markets had generally been growing. However, in 2022 the stocks markets have fallen significantly.

The M&A markets experienced a high level of activity in 2020 and 2021. However, in 2022, the economic uncertainty and stagnation has resulted in a slight decrease in the activity.

Due to the increased interest rates, the fall in real wages, and general stagnation in the economy, it is expected that real estate sector prices will drop significantly. A drop in prices is particularly expected to affect the larger cities (Copenhagen and Aarhus).

Amendments to the Rules on In-Court Restructuring

At the beginning of the COVID-19 pandemic, the Danish Bankruptcy Council was requested to provide the Danish Ministry of Justice with a statement regarding the proposed amendments to the in-court restructuring rules. The Danish Bankruptcy Council proposed a number of amendments, most of which were implemented into law in March 2021.

There are no official statistics on the number of in-court restructurings year by year. Based on the official Danish Gazette for the past year, the number of in-court restructurings seems, on an overarching basis, to be slightly higher than in previous years. According to the official Danish Gazette, during the last year, well over a 100 restructuring proceedings commenced in the Danish courts, an increase of more than 40% compared to previous years. Compared to the number of bankruptcy proceedings, however, the number of in-court restructuring proceedings remains very low. The amendments to the in-court restructuring procedure are therefore yet to lead to a major increase in the use of in-court restructuring proceedings, which was their purpose.

Status of the Implementation of EU Directive 2019/1023 (the EU Restructuring and Insolvency Directive)

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

However, EU Directive 2019/1023 (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 it to comply with the Directive, entered into force on 17 July 2023.

The amendments are based upon 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 preventive measure for businesses to use to avoid bankruptcy. With the new amendments – and contrary to the existing rules on restructuring – preventive restructuring proceedings can be initiated even before insolvency has occurred, as long as 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 preventive restructuring and also major amendments to the existing rules:

  • the preventive proceedings do not require the debtor to be insolvent;
  • the opening/commencement of preventive restructuring proceedings is not necessarily made public;
  • it is not required to have an administrator appointed in preventive proceedings;
  • preventive 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 principal piece of legislation underpinning Danish insolvency law is the Danish Bankruptcy Act which contains procedural as well as substantive provisions pertaining to formal insolvency proceedings, including provisions on the opening of (preventive) insolvency proceedings, appointment of a trustee/restructuring administrator, claw-back/avoidance, creditor voting rights, priority of claims, etc. The rules on in-court restructuring were significantly amended in March 2021 and July 2022.

The Danish 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 (the Bankruptcy Act) 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);
  • preventive 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 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 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: preventive restructuring and “ordinary” restructuring.

Preventive restructuring:

Preventive 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, making the proceedings official to the public. Further, an administrator must be appointed if an enforcement stay is granted. If an enforcement stay is granted, an initial meeting must be held in the court where the creditors are informed of the plan, but contrary to the ordinary restructuring proceedings the creditors cannot vote on the plan. The rules on providing the court and creditors with information and issuing a restructuring plan and proposal at set deadlines apply in the case of an enforcement stay. If an enforcement stay is not granted, the debtor is still free – but not obliged – to comply with the rules.

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

In both preventive and 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 preventive restructuring proceedings commence, contrary to ordinary restructuring and bankruptcy proceedings.

Role of the administrator

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, however, 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 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 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 112 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:
    1. the administrator must send out notice to all known creditors.
  • Four weeks after proceedings have commenced (but 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:
    1. 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 (but 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 four to eight weeks after the commencement of the proceedings, the debtor can exit the restructuring process and return to ordinary operations, but 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 by simple majority of all the creditors affected by the restructuring and present at the court meeting, 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 votes in favour.

If 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. However, the rules of voting classes only by default apply to debtors categorised as large enterprises, while small and medium-sized enterprise debtors can request to also have the voting class rules apply.

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 make the debtor solvent.

Debt conversion to equity is not allowed. However, the restructuring proposal can afford for the existing share capital being reduced to 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 to the restructuring rules 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, not take on further liability towards any creditor, and initiate the necessary insolvency proceedings.

With the new rules on preventive 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 preventive 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 preventive 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 the debtor cannot fulfil obligations as they fall due, and 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 as well as substantive provisions regarding insolvency proceedings for both companies and natural persons.

The Financial Sector

As stipulated under 1.1 Market Trends and Changes, 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 on 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 (Finansiel Stabilitet) 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 institution or SIFIs), some 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), though their claims still rank after costs associated with the insolvency proceedings. Private/consumer policyholders and insured persons, plus injured third parties, are under certain conditions entitled to compensation from 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 has also covered certain claims covered by work-related accident insurance issued by bankrupt insurance companies or companies that have had their licence to issue such insurance 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, there has been building momentum 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 otherwise persuade such small creditors to participate in the restructuring. The new rules on preventive 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.

To what degree the new rules will be effective and used by distressed businesses – and approved by the major financial creditors – is to be seen.

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 advisors are reputable, major creditors will not object. Depending on the amounts involved, major creditors will often insist that their advisor (typically a lawyer) is hired by the debtor to work in conjunction with the debtor’s advisors 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 preventive restructuring, a floating charge will not crystalise due to the preventive 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 to provide 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, and mortgage rights, therefore, 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 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, respectively, (fully) secured and unsecured creditors. 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 preventive restructuring proceedings if a stay on enforcement actions is granted.

The order of priority of claims in formal restructuring are:

  • 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, but 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: preventive 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 preventive 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, effectively 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, 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 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 it 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 as well as the underlying financing.

If the insolvency court has made a binding determination of the value of a pledged asset, then 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 have 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. In in-court restructuring proceedings, some restrictions of the right to set-off do, however, 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 and, consequently, there is no general statutory framework in place with regard to recognition of foreign insolvency proceedings.

Denmark does, however, by virtue of the Nordic Bankruptcy Treaty, recognise other Scandinavian bankruptcy proceedings.

As described in 1.1 Market Trends and Changes, Denmark has, within the financial area, 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.

Seeing 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 then, Danish insolvency law will still apply with regard to 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 in (and implement into Danish law) to the 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 are appointed. In ordinary restructurings and in preventive restructurings with an enforcement action stay, one or more administrators and possibly also a restructuring accountant are appointed.

A trustee is responsible for handling all aspects of an estate, be it liquidating the assets, adjudicating claims made against the estate, 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 appoint the trustee nominated by the majority of creditors.

A restructuring administrator is appointed by the insolvency court. If the court finds sufficient grounds therefore, it may 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 be 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 seen an increase 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.

DLA Piper Denmark

Oslo Plads 2
Copenhagen
DK-2100
Denmark

+33 34 00 00

Denmark@dk.dlapiper.com www.dlapiper.dk
Author Business Card

Trends and Developments


Authors



DLA Piper Denmark is part of DLA Piper, a global leading law firm with offices in more than 40 countries, and the only global law firm with a pan-Nordic presence. DLA Piper Denmark consists of approximately 300 staff members in offices situated in the hearts of Copenhagen and Aarhus. In the Nordics the firm has 550 lawyers organised in sector groups. The Danish group of lawyers specialised in insolvency law consists of 26 associates and eight partners. The firm has developed a specialist Nordic Region Restructuring and Insolvency group, focusing principally on cross-border restructuring and insolvency matters at the highest levels. Clients of DLA Piper range from multinational, Global 1000, and Fortune 500 enterprises to emerging companies developing industry-leading technologies. They include more than half of the Fortune 250 and nearly half of the FTSE 350 or their subsidiaries. The firm also advises the financial sector, governments, and public sector bodies.

Introduction

In 2020–21, several experts predicted a wave of bankruptcies due to the restrictions and lockdowns imposed in the wake of COVID-19. The pandemic and the trail of bankruptcies it was expected to create was on every expert’s lips. However, in contrast to almost every prediction, the expected boom in bankruptcies remained absent. The number of insolvency cases was in fact at the lowest level in several years. Several factors have played their part in deferring the economic catastrophe that everyone was expecting, but the government’s COVID-19 bailout packages and unpredicted consumer patterns have surely been a significant factor.

In addition to the government’s financial support, financial lenders and the Danish Debt Collection Agency showed flexibility and took a soft approach when collecting debt from their distressed debtors. Furthermore, interest rates remained low throughout 2020 and 2021, which enabled distressed business to access liquidity at a low cost.

However, the imposed restrictions were undeniably devastating for businesses across certain sectors, especially retail, casual dining, entertainment, travel and accommodations, and the nationwide restrictions also resulted in several major insolvency cases.

Emerging from the COVID-19 imposed restrictions and lockdowns in 2020 and 2021, businesses had initially hoped that 2022 would be a return to “normal” that would allow businesses to re-establish positive cashflow and revenue in order to sustain their business.

This year, however, businesses across multiple sectors have been struggling as the repayment of loans made under the COVID-19 bailout packages have been falling due. Businesses are now also facing stagnation in the economy, due to increasing inflation and interest rates, a surge in energy prices, and supply chain issues within certain sectors, making for a perfect storm. Due to these challenges, the number of insolvency cases has been on the rise in 2022. The number of Danish insolvency cases is now approaching levels which have not been seen since the last financial crisis.

Economic Overview – Risk of Stagnation and Possible Recession

In 2022, the economy has been experiencing a stagnation caused by a combination of different factors, including elevated inflation, elevated interest rates, and rollercoaster energy prices. Consequently, the expected recovery from the COVID-19 pandemic has been replaced by uncertainty and stagnation in the economy.

The slowdown in the economy is predicted to continue throughout 2022 and 2023. According to the Danish National Bank’s latest outlook, the Danish economy will experience negative growth of 0.1 % in 2023. The Danish National Bank has been raising interest rates in alignment with the European Central Bank to combat the elevated inflation. Based on the current outlook for 2023, the number of insolvency cases is predicted to either continue to increase or remain at the current level.

The turmoil in the economy has resulted in a decrease in activity in the M&A markets in 2022. Furthermore, the Danish stock markets have fallen significantly in 2022.

Due to the elevated interest rates and uncertainty in the economy, investors’ willingness to engage in high-risk investments has diminished. As a result, venture capital markets have experienced a significant fall in activity. Start-up and growth companies that rely on venture capital in their operations have thus experienced reduced access to financing and higher financing costs. The number of insolvencies cases within the venture capital segment is thus expected to rise.

Consumers have also become more cautious when spending their money, which is caused, among other things, by an expected fall in real wages and surge in energy prices. As a result, consumers are predicted to shift towards more careful and restrictive spending, which is likely to have a negative impact on businesses across sectors, especially the already-tested retail, casual dining, entertainment, travel, and accommodations.

The combination of increased interest rates, falls in real wages, and general stagnation in the economy is expected to cause a fall in prices in the real estate sector. The private/consumer real estate market has already experienced a significant cooling in activity compared to during the pandemic. Particularly the larger cities (Copenhagen and Aarhus) are expected to experience a drop in prices.

Political Tendencies

During the COVID-19 pandemic, like many other countries, the government supported businesses financially by making it possible to receive an interest-free loan from the tax authorities in the amount corresponding to their due withheld VAT. The Danish Debt Collection Agency took a softer approach to distressed businesses during the pandemic. However, this soft approach has now been left behind and the authorities have returned to their pre-COVID practices when collecting debt.

This year, to combat the elevated inflation and stabilise the economy, the government’s financial policy, including the Finance Act for 2023, is focused on tightening fiscal policy. In contrast to the political discourse during the COVID-19 pandemic, the government is not expected to adopt any subsidising schemes of significance for distressed businesses, as this might accelerate the already elevated inflation. Tightening financial conditions are expected to be the general political discourse for 2022 and 2023. Consequently, any financial subsidies from the government have been focused on supporting private households and not distressed business.

However, to ease liquidity for businesses, the government has implemented a so-called “price ceiling” on the supply of power, gas, and heating. The “price ceiling” allows businesses and private households to freeze an amount exceeding the “price ceiling” fixed at the energy prices of 2021, and the excess will then be payable on later terms.

Implementation of the EU Directive on Restructuring and Insolvency

On 17 July 2022, the EU Directive on Restructuring and Insolvency was implemented into Danish law.

The overall aim of the EU Directive on Restructuring and Insolvency is to reduce barriers to the free flow of capital stemming from differences in member states’ restructuring and insolvency frameworks, and to enhance the rescue culture in the EU by implementing preventive restructuring measures in the legislation of the member states within the framework of the Directive.

With the implementation, several new components and rules have been introduced into Danish law, by recommendation of the Danish Bankruptcy council.

Most notably, the amendments introduced a completely new kind of in-court proceedings called “preventive restructuring proceedings”. Consequently, Danish insolvency law now affords distressed debtors three different in-court (preventive) insolvency proceedings:

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

Preventive restructuring proceedings can only be initiated upon the debtor’s request, subject to the conditions that the debtor carries on business activities and that debtor is insolvent or likely to become insolvent. Consequently, the debtor may initiate in-court restructuring steps as soon as there is a likelihood of insolvency.

The rules governing the preventive restructuring proceedings differ depending on whether a stay on enforcement has been requested, which is optional for the debtor. If such a stay has been requested, most of the rules of ordinary restructuring proceedings apply.

Commencement of preventive restructuring proceedings without an automatic stay of enforcement is characterised by the fact that (i) the commencement is not published, (ii) appointment of a restructuring administrator or restructuring accountant is optional, and (iii) the date of the commencement of preventive restructuring proceedings does not constitute a reference date.

In both preventive and ordinary restructuring proceedings, the executive management and board of directors retain control of the business. However, a restructuring administrator (if appointed) must consent to all material actions taken by the debtor.

During preventive restructuring proceedings the debtor can present the creditors with a restructuring proposal under the same rules as a traditional restructuring. The proposal must be adopted by the creditors by a majority vote and ratified by the Bankruptcy Court to be valid.

Further, the amendments to the Bankruptcy Act also included the following.

  • An amendment to the voting rules that enables debtors to divide creditors in to voting classes, with the aim of improving the ability to cram down dissenting creditors.
  • Widening of the possible outcomes of restructuring from compulsory compositions and business transfers to any other measure relevant to returning the debtor to solvency (though traditional debt to equity conversion is not allowed without shareholder consent).
  • Adequate protection for financing needed to allow the business to survive or to preserve the value of the business pending a restructuring, and for new financing necessary to implement a restructuring plan.
  • Amendments to the provisions that allow for honest, insolvent entrepreneurs to have access to a discharge procedure of their full debts (subject to limited exceptions) within three years.
  • The possibility of performing a compulsory composition during bankruptcy proceedings was reintroduced.

In Denmark, there are no official statistics on the number of in-court restructurings year-by-year. Compared to the number of bankruptcy proceedings, the number of in-court restructuring proceedings remains relatively low. Therefore, the amendments to the in-court restructuring proceedings are yet to result in the expected increase in the use of in-court restructuring proceedings, which was their purpose.

Danish legislation does not include provisions on out-of-court proceedings/schemes. Also, debtors are not obliged to attempt or consider informal restructuring before formal judicial insolvency proceedings are commenced.

It is hoped that the amendments will allow distressed companies to attempt the amended in-court restructuring proceedings before bankruptcy proceedings. This might become highly relevant to many businesses as the economy is slowing down. However, the preventive restructuring proceedings will not automatically block a bankruptcy (liquidation/winding up) petition against the debtor, which may lead to many unsuccessful attempts.

Debtor-Friendly Amendments to Danish Insolvency Law

Compared to other countries, Danish Insolvency law has generally been inclined to favour the interests of the creditors instead of those of the debtor. According to Danish insolvency law, creditors can exercise their influence at creditors’ meetings, where they are able to appoint the trustee or restructuring administrator. During restructuring proceedings, the creditors’ influence is particularly noticeable since the creditors vote on the restructuring plan and restructuring proposal. The creditors’ influence at creditors’ meetings is exercised through voting, and votes are cast in proportion to the amounts of the claims affected by the restructuring.

However, numerous of the latest amendments to Danish insolvency law have introduced new debtor-friendly rules and initiatives, with a view to preserving jobs and businesses. This tendency to consider the interests of the debtor is expected to be the focus of future legislation.

In March 2021, due to the COVID-19 pandemic, the Danish government issued several legal changes to the restructuring rules, including the possibility of performing a “fast track” business transfer. The purpose of the “fast track” rules is to ensure the jobs, future operations, and the value of the company.

The implementation of the EU Restructuring and Insolvency Directive has introduced new rules and schemes with the aim of considering the interests of distressed businesses. Pursuant to the new rules, only the debtor may file a petition for preventive restructuring proceedings. Further, commencement of preventive restructuring proceedings is not publicly announced unless a stay of enforcement is implemented, and the appointment of an administrator is optional. These amendments aim to provide distressed businesses with a more flexible and interesting set of restructuring rules for their management to consider.

Compared to traditional bankruptcy/winding up proceedings, restructuring proceedings have been criticised for being too costly. Pursuant to making the appointment of a restructuring administrator and accountant optional, the legislature hopes that costs related to the restructuring proceedings can be diminished. 

Pursuant to the implementation of EU Directive 2019/1023, the voting rules have also been amended. As a result of the new rules, the creditors may be divided into voting classes as an alternative to creditors voting individually in proportion to the amounts of their claims. The amended voting rules aim to ensure that a single large creditor is unable to veto a proposal that the rest of the creditors vote in favour of, since the restructuring proposal is adopted if a majority of the creditor classes vote in favour of the proposal.

The rules on debt rescheduling were also amended with the implementation of EU Directive 2019/1023. The amended rules aim to align and standardise debt rescheduling proceedings and ease the requirements for debt rescheduling. One of the major changes has been the reduction of the repayment period from five years to three years for debtors not undergoing insolvency proceedings.

DLA Piper Denmark

Oslo Plads 2
Copenhagen
DK-2100
Denmark

+45 33 34 00 00

Denmark@dk.dlapiper.com www.dlapiper.dk
Author Business Card

Law and Practice

Authors



DLA Piper Denmark is part of DLA Piper, a global leading law firm with offices in more than 40 countries, and the only global law firm with a pan-Nordic presence. DLA Piper Denmark consists of approximately 300 staff members in offices situated in the hearts of Copenhagen and Aarhus. In the Nordics the firm has 550 lawyers organised in sector groups. The Danish group of lawyers specialised in insolvency law consists of 26 associates and eight partners. The firm has developed a specialist Nordic Region Restructuring and Insolvency group, focusing principally on cross-border restructuring and insolvency matters at the highest levels. Clients of DLA Piper range from multinational, Global 1000, and Fortune 500 enterprises to emerging companies developing industry-leading technologies. They include more than half of the Fortune 250 and nearly half of the FTSE 350 or their subsidiaries. The firm also advises the financial sector, governments, and public sector bodies.

Trends and Development

Authors



DLA Piper Denmark is part of DLA Piper, a global leading law firm with offices in more than 40 countries, and the only global law firm with a pan-Nordic presence. DLA Piper Denmark consists of approximately 300 staff members in offices situated in the hearts of Copenhagen and Aarhus. In the Nordics the firm has 550 lawyers organised in sector groups. The Danish group of lawyers specialised in insolvency law consists of 26 associates and eight partners. The firm has developed a specialist Nordic Region Restructuring and Insolvency group, focusing principally on cross-border restructuring and insolvency matters at the highest levels. Clients of DLA Piper range from multinational, Global 1000, and Fortune 500 enterprises to emerging companies developing industry-leading technologies. They include more than half of the Fortune 250 and nearly half of the FTSE 350 or their subsidiaries. The firm also advises the financial sector, governments, and public sector bodies.

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