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.
- Previously it was the case that, once the restructuring process was initiated by the bankruptcy court, the process was irreversible, meaning that, if the reconstruction plan or the reconstruction proposal were not adopted, the debtor would automatically be declared bankrupt. By amendment to the Danish Bankruptcy Act on 23 March 2021, a business can now step out of a commenced restructuring without being declared bankrupt until a restructuring plan has been adopted (ie no later than after 8 weeks).
- One or more restructuring administrators 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.
- By amendment to the Danish Bankruptcy Act on 23 March 2021, it is no longer a requirement to appoint a restructuring accountant to assist the restructuring administrator. However, the debtor, the restructuring administrator or the creditors can still request the bankruptcy court to appoint a restructuring accountant.
- Please see the Guide to changes in insolvency law in response to COVID-19 to read further about the new rules on in-court restructuring/reconstruction/ 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 – extendable by the bankruptcy court for up to 8 weeks) 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 on 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, ie 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 nonperforming 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, ie they cannot be enforced without the cooperation of the trustee.
EU Directive Implementation
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, with an option to extend that deadline by one year. 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.
Implementation in Denmark
The directive has not yet been implemented.
The directive will be implemented no later than 17 July 2022. The initial deadline for implementation was 17 July 2021, but Denmark has requested a 1-year extension of the deadline from the EU Commission, which has been granted.
Recognition of foreign insolvency processes
EU Regulation on Insolvency Proceedings
The EU Regulation on Insolvency Proceedings applies to all EU Member States except Denmark and requires that certain collective insolvency proceedings, which are listed in Annex A to the Regulation, occurring in one EU Member State are automatically recognised in all other EU Member States and that each EU Member State automatically recognises the powers and authority of an insolvency practitioner appointed in another EU Member State.
Denmark is not part of or bound by the EU Regulation on Insolvency Proceedings due the Danish opt-outs from the European Union. See below regarding recognition of third country insolvency processes, as this applies to EU member states as well as third countries.
Recognition of third country insolvency processes
There is no general statutory framework in place with regards to the recognition of foreign insolvency proceedings other than the Nordic Bankruptcy Treaty, pursuant to which Denmark recognises other Scandinavian countries’ insolvency proceedings.
Under section 6 in the Danish Bankruptcy Act, The Minister of Justice may lay down regulations pursuant to which decisions by foreign courts of law and authorities in respect of bankruptcy, restructuring and other similar insolvency proceedings are to have binding effect and be 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.
The legal position in Denmark is however still unclear. Danish case law may in general presumably be construed as meaning that it is in any case a prerequisite for recognizing a foreign bankruptcy that the bankruptcy has been initiated in the debtor’s country of residence, and that this country’s bankruptcy law may not obviously be incompatible with the Danish legal system. However, recent case law has still not had the opportunity to directly determine to what extent foreign bankruptcies can be recognized in Denmark. Further, the Danish bankruptcy courts have in some cases entered into singular agreements/protocols with foreign insolvency courts on a case-by-case basis.
Insolvency changes in response to COVID-19
For more information on changes to insolvency law in Denmark as a result of the COVID-19 pandemic please see our Guide to changes in insolvency law in response to COVID-19.
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.