Financing and SecurityDownload PDF version
Under the principle of freedom of contract, parties may generally enter into a loan agreement on terms which they can agree on. The individual terms of the agreement are generally not regulated by Danish law. However, extreme interest rates or other unusually burdensome obligations may in some instances not be enforceable.
Loan agreements may be entered into as bilateral loan agreements between a single lender and a single borrower. However, loan agreements may also be entered into between multiple lenders or borrowers, or the loans in question may be syndicated by a lender. In such cases, the lenders will often together appoint one lender (the agent) to be responsible for the day-to-day administration of the loan.
In Denmark, the most common loan types are term loans, revolving loans, bank overdrafts and cash pools.
A term loan is characterised by the fact that it is paid out in one or more instalments and repaid according to a fixed repayment schedule through one or more repayments. Often, the borrower is not entitled to redraw any amount that has already been repaid. The term loan is often also characterised by a floating interest rate and is often used in relation to the financing of the acquisitions of companies and larger assets etc.
A revolving loan is characterised by the fact that it provides the borrower with a possibility of withdrawing the loan in one or more tranches upon request to the lender. Most often, certain minimum amounts for each withdrawal are agreed upon. A revolving loan is often used to finance the day-to-day business of a company and acquisition of replaced assets.
A bank overdraft is in many ways similar to a revolving loan. However, in the case of a bank overdraft, the borrower is entitled to withdraw and repay any amounts at any time within the limit of the overdraft. Thus, a bank overdraft is a more flexible arrangement than a revolving loan.
A cash pool is a loan arrangement for consolidated companies. The consolidated companies share an account and are all entitled to withdraw or make payments to the account whereby the companies’ total exposure may be reduced. A cash pool may be used despite of the group of consolidated companies being registered in different countries. However, various rules may apply for each company in the different jurisdictions. Hence, it is important to carefully study the taxation issues involved before entering into a cash pooling arrangement.
The requirement for perfection of security depends on the type of asset provided as security. The type of security may vary depending upon the borrower’s financial situation and the character of the loan. Most often, assets are provided as security.
A pledge of shares is perfected when the secured creditor has notified the issuing company. If security is provided in shares admitted to trade on a regulated market in Denmark, the secured creditor must register the pledge with VP Securities A/S.
Security in the form of company charges, personal property and intangible assets must be registered with the Danish Register of Chattel Mortgages by the secured creditor. Security in real estate must be registered with the Danish Land Register.
Registration of security in assets (excluding shares) and real estate are subject to a fee of 1.5 per cent of the secured amount plus a fee of DKK 1,660.
If perfection of the security is not effectuated in due time after the loan has been granted to the borrower, this may result in loss of rights or preferred positions if the borrower goes into receivership.
The above does not constitute legal counselling and Moalem Weitemeyer Bendtsen does not warrant the accuracy of the information. With the above text, Moalem Weitemeyer Bendtsen has not assumed responsibility of any kind as a consequence of a reader’s use of the above as a basis of decisions or considerations.