A look at corporate, personal and, where relevant, partnership insolvency proceedings in Denmark, with a brief description to explain key features, as part of our Dictionary of Insolvency Terms in EU Member States. In particular, we highlight who controls the procedure and whether it is likely to be accompanied by a moratorium to prevent enforcement.
- Rekonstruktion comprises both voluntary and involuntary debtor-in-possession procedures for insolvent entities. It must include a compulsory arrangement and/or a transfer of the debtor's business.
- The proposed restructuring can only be imposed on unsecured claims. Preferential claims must be paid in full.
- Once initiated by the bankruptcy court, the process is irreversible and a restructuring administrator and a restructuring accountant are appointed by the bankruptcy court to oversee the ongoing business and to secure the execution of the restructuring. All major actions must be approved by the restructuring administrator and if considered necessary, the restructuring administrator may ask the bankruptcy court to replace the management of the company.
- Rekonstruktion triggers an automatic stay of enforcement.
- Creditors vote (simple majority) on the restructuring plan (no later than four weeks after the petition is filed) and restructuring proposal (no later than six months after the adoption of the restructuring plan – extendable by the bankruptcy court for up to four months) at court hearings and if both are not adopted, the debtor is automatically declared bankrupt.
- Konkurs can be both a voluntary or involuntary winding-up procedure for insolvent entities.
- Once initiated, a trustee is appointed who is charged with liquidating all the debtor's assets and distributing the proceeds in accordance with the statutory waterfall priority of claims.
- Konkurs triggers an automatic stay of enforcement. The normal organisational bodies – general meeting, board and management – will be deprived of their powers.
- The trustee binds the estate in bankruptcy and is supervised by the bankruptcy court.
- If a natural person is hopelessly indebted, they may petition the bankruptcy court for an order to facilitate a debt rescheduling.
- The bankruptcy court will appoint an insolvency practitioner to examine the financial affairs of the debtor and to provide a written opinion to the bankruptcy court of whether a debt rescheduling can be recommended or not. The opinion includes a budget concerning the debtor's next three-to-five-year period, listing all reasonable income and expenses and what debt can realistically be paid within that period, i.e. by how much the debts must be written down (up to 100%).
- Gaeldssanering triggers an automatic stay of enforcement.
Tvangsfuldbyrdelse af sikkerhedsrettigheder
Enforcement of pledge/charge
- Enforcement depends on the nature of the asset. If the debtor is not insolvent, then a non performing loan must be terminated and the assistance of the bailiff's court sought to enforce the secured interest. Pledges are unaffected by any of the restructuring proceedings. If the security right is a charge, and the debtor is subject to restructuring proceedings, the charge may only be enforced if payments falling due during the restructuring period are not paid.
- During bankruptcy proceedings, pledges may be enforced directly by the pledgee whereas enforcement of charges must be administered by the estate, i.e. they cannot be enforced without the cooperation of the trustee.
Anticipated changes in the next two years
The EU Directive on Restructuring and Insolvency1 requires Member States to incorporate minimum common standards into their national restructuring and insolvency laws by 17 July 2021. The intention of the Directive 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.
Notable features required to be included in Member States' national laws include:
- An effective preventive restructuring framework to enable debtors experiencing financial difficulties to restructure at an early stage, with a view to preventing insolvency and ensuring their viability.
- A stay of up to four months extendable to up to 12 months to support negotiations of a restructuring proposal, which should prevent individual enforcement action and include rules preventing the withholding of performance, termination, acceleration or modification of essential contracts.
- An ability to cram down dissenting classes of creditors.
- 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.
- Provision for honest, insolvent entrepreneurs to have access to a procedure that can lead to a full discharge of their debts (subject to limited exceptions) within three years.
Contact: Peter Hedegaard Knudsen
1 Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132.