Insolvency & reconstructionDownload PDF version
Filing for bankruptcy
A petition for bankruptcy may be filed by a creditor or by the debtor itself to the Bankruptcy Court. If the Bankruptcy Court finds that the debtor is insolvent, and if this is not considered to be of a temporary nature, the Bankruptcy Court will commence bankruptcy proceedings against the debtor.
If a creditor or the debtor itself wishes to file for bankruptcy against a company, the proceedings are, as a main rule, conditional upon said person providing security of DKK 30,000 for expenses in connection with the conduct of the winding-up.
The bankruptcy order
When a bankruptcy order is issued by the Bankruptcy Court, the debtor loses its right to dispose of the assets and the business of the company. Thus, an estate will be established, and a trustee will be appointed. The trustee acts as the management of the company and is granted full right of disposal of the debtor’s assets and business.
The Bankruptcy Court announces the bankruptcy order in the Danish Official Gazette (in Danish: “Statstidende”), and a notice of the bankruptcy is submitted to the Danish Business Authority and other public authorities. The debtor is required to add “under konkurs” (in English: “in bankruptcy”) to its name.
The objective of the bankruptcy proceedings
The main objective of the trustee is to wind up the business in favour of the creditors. The trustee must monetise the assets of the estate. Furthermore, the trustee is obligated to review the company’s records and accounts for the purpose of clarifying whether certain creditors or the management of the company prior to the bankruptcy proceedings have been favoured relative to the other creditors in the estate.
After the records and accounts have been reviewed by the trustee and all assets have been monetised, the trustee will distribute any profits remaining in the estate after payment of the estate’s administrative costs.
Information to creditors
Immediately after issuance of the bankruptcy order, the trustee will send a circular letter to all of the debtor’s known creditors. In this letter, the trustee will inform the creditors of the debtor’s bankruptcy. After three weeks, the trustee will send a preliminary statement regarding the assets and liabilities in the estate to the creditors.
No later than four months after the issuance of the bankruptcy order, the trustee will send a statement describing the reason for the company’s bankruptcy. This statement will also include a balance sheet and information regarding the latest annual accounts and accounting figures.
Subsequently, the trustee will send semi-annual statements describing the situation of the estate and the work undertaken by the trustee in order to monetise the assets and business of the estate in the period following the last statement.
The employees of the company
Within 14 days after issuance of the bankruptcy order, the trustee must decide whether the estate wishes to affirm any existing employment contracts. If the trustee decides to affirm an employment contract, the estate will be bound by the terms and conditions of the contract. An employee will be entitled to terminate the employment if the trustee decides not to affirm the employment contract.
Agreements concluded by the company
The trustee decides whether to affirm the company’s existing agreements, provided that the company was not in breach of any such agreements before the bankruptcy, and such agreements were therefore rightfully terminated. If the trustee decides to affirm an agreement, the estate will be bound by the terms and conditions herein, and the other party’s claims thereunder will be ranked as pre-preferential claims, see below.
If an agreement is not affirmed by the trustee, the other party may cancel the agreement and file a claim for consideration or damages. The claim will be ranked as an ordinary claim, and the creditor may therefore expect not to receive dividends corresponding to the entire claim, see below.
Filing a claim
Creditors are encouraged to file their documented claim against the estate within four weeks following the issuance of the bankruptcy order. However, it is possible for a creditor to file a claim against the estate after the expiry of the four-week period. When filing the claim, the creditor must provide documentation substantiating the claim, and a legal advisor’s assistance may be needed.
Conclusion of the estate
The trustee will conclude the bankruptcy proceedings with a statement of affairs and accounts for the estate, including a proposal for the distribution of any profits among the creditors. When the statement is approved by the Bankruptcy Court, the creditors will receive dividends for their claims.
The formal framework for restructuring a company according to Danish law is regulated by the Danish Bankruptcy Act.
The objective of restructuring
The objective of restructuring is (i) to allow the company to continue its business by means of compulsory composition or by transfer of some of the company’s assets, (ii) to terminate the business of the company by transferring the business or (iii) to terminate the business through compulsory composition.
Restructuring must involve an element of compulsory composition, a transfer of business or a combination thereof.
Filing for restructuring
The company as well as the creditors may file for restructuring. In order for the Bankruptcy Court to initiate restructuring proceedings, it is a precondition that the company is insolvent and that the insolvency is not temporary.
If a creditor files for restructuring of the company, and the company does not consent hereto, the Bankruptcy Court will require security for the costs of the restructuring administration.
Initiation of restructuring
The Bankruptcy Court will immediately appoint a trustee and a restructuring accountant to administrate the company. Material transactions cannot be carried out without the prior approval of the trustee.
The restructuring accountant will assist the company in financial matters.
If the creditors so request, the Bankruptcy Court may decide that the management of the company will only be handled by the trustee during the period of restructuring.
During the restructuring period, creditors are prohibited from taking certain legal actions against the company.
The Bankruptcy Court announces the restructuring of the company in the Danish Official Gazette.
Information to creditors
Immediately after a restructuring order has been issued, the trustee will send a statement to all known creditors of the company. This statement must contain the latest annual report, current information on the most essential assets and obligations, information regarding the accounting management and a statement on the objective of the restructuring of the company.
Within four weeks after commencement of the restructuring, each creditor will receive a draft plan for the restructuring. The plan will be resolved if a majority of the creditors does not reject the plan.
After three months, the creditors will receive a statement from the trustee containing essential information on the restructuring.
Within six months after the draft plan was presented to the creditors, the creditors will receive a final draft proposal for the restructuring of the company. The final draft proposal will be resolved if a majority of the creditors does not reject it.
The proposal may be amended at the meeting on the final proposal until it is affirmed by the Bankruptcy Court.
Employees of the company
The company continues to operate on a normal basis. However, the trustee and the management of the company must decide whether it is necessary to dismiss all or some of the company’s employees as part of the restructuring or in connection with a sale of the company.
Agreements entered into by the company
Subject to approval by the trustee, mutually binding agreements between the company and opposing parties may continue to apply. It is not possible for the opposing party to terminate the contract on grounds of the commencement of the restructuring. Furthermore, a terminated agreement between the company and the opposing party may be revoked four weeks after termination if such termination was based on the company’s breach of the agreement, provided that the opposing party has not acted in reliance hereof or concluded other agreements due to the termination of the contract. Furthermore, the company may terminate an agreement with one months’ notice at any time during the restructuring.
If an agreement does not continue to apply, the opposing party may terminate the agreement and demand compensation for the termination.
If the opposing party has delivered goods to the company after commencement of its restructuring, and if the company does not wish to continue the agreement as described above, the goods must be returned if possible.
Filing a claim
The trustee will encourage the creditors to file their claims in order to build a foundation for the potential restructuring of the company.
Payment of debt will only take place in accordance with the order of asset distribution.
The restructuring period
The restructuring of a company normally lasts approximately seven months. The Bankruptcy Court may extend the restructuring period twice by two months to a total of 11 months. If a satisfactory solution has not been found within 11 months, bankruptcy proceedings will be initiated against the company.
If, at any time during the restructuring, the trustee does not consider a solution within reach, he must notify the Bankruptcy Court in order to initiate bankruptcy proceedings.
Other ways to restructure a company
Unregulated by law, it is possible to restructure a company on a more voluntary basis. This method is solely based on contract law, and it is therefore up to the creditors to decide whether or not to conclude an agreement with the debtor.
The bankruptcy/restructuring of a physical person
In general, the above also applies to physical persons with the required amendments due to the nature of the bankruptcy/restructuring concerning a physical person.
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 of considerations.