Brief thought on the new restructuring rules in Denmark

1 Fast-track transfers in restructuring

As a result of COVID-19, there has been a desire in Denmark to improve the regulatory framework for the restructuring of companies that are viable but experiencing temporary financial difficulties. However, the changes to the restructuring rules also cover companies that have run into financial difficulties for reasons other than COVID-19, and the new rules will also apply after COVID-19.

On 23 March 2021, the Danish Parliament therefore adopted a number of amendments to the restructuring rules. Among other things, the amendments introduce the possibility of carrying out a quick transfer of business without the prior agreement of creditors and affirmation of a restructuring proposal by the bankruptcy court.

The preparatory work states that: “it should be possible to carry out transfers of undertakings under restructuring proceedings under a fast and simple fast-track procedure which does not involve the adoption and affirmation of a restructuring proposal.”

1.1 What do the new rules on fast-track business transfers imply?

A business transfer can be carried out before a restructuring plan has been adopted if the following four conditions are met:

1. The restructuring administrator must consent to the transfer of the business;
2. the restructuring administrator must consider that it is appropriate to carry out a fast-track transfer of assets in order to preserve the value of the debtor’s business;
3. no objection by a majority of the creditors entitled to vote has been lodged within five working days of the sending of a notice of transfer to the creditors; and
4. a restructuring plan must not have been adopted.

It may be appropriate to carry out a fast-track business transfer:

• if the debtor lacks the liquidity to keep the business going during the ordinary restructuring procedure,
• if a potential acquirer cannot await the normal procedure; or
• because the company loses value and the normal procedure could thus only yield a lower transfer sum.

1.2 Which creditors have the right to object?

Most creditors have the right to object, and the voting is done according to the voting amounts and not the number. Claims of the debtor’s related parties – i.e. persons or companies with family or financial ties – do not carry voting rights.

It is up to the restructuring administrator to decide on the total amounts to be taken into account, who has the right to object and for what amounts. On this basis, the restructuring administrator assesses whether objections have been raised by a majority of the creditors and, consequently, whether there are grounds for implementing the transfer of the undertaking under the fast-track procedure.

However, the restructuring administrator is responsible for his assessment and, if he has doubts as to whether a majority of the creditors have objected, the transfer of the undertaking must be carried out in accordance with the normal procedure of adoption and affirmation of a restructuring proposal. This process typically takes 3-10 months.

In assessing which creditors have a right to object, the restructuring administrator must act on the basis of information contained in the debtor’s accounting documents. If the bookkeeping is or appears to be deficient, this would, in the circumstances, argue in favour of the restructuring administrator not applying the fast-track procedure.

It is not a requirement that the restructuring administrator is in dialogue with the main creditors, but in practice this will be natural if support for a transfer is sought.

1.3 Valuation and data

It is not a requirement that the restructuring administrator obtain a valuation of the debtor’s assets before carrying out a fast-track transfer, but as noted above, it is a requirement that the restructuring administrator disclose the valuation if one is available.

1.4 Summary         

The new rules are significantly more lenient than the previous rules. The possibility of fast-track transfers to safeguard assets – and typically jobs – can become an important tool in our toolbox. However, the relaxed rules are matched by a considerable responsibility on the part of the restructuring administrator to ensure that no creditor is disadvantaged or forgotten.

Solutions like this or other effective solutions in insolvency require in Denmark considerable experience and understanding of current practice in the field. In addition, virtually any viable solution will require close cooperation with the main creditors, which will typically be traditional financial creditors, such as banks, as well as public creditors, with which we have extensive experience.

If you have any questions about insolvency law issues in Denmark – or need legal advice in general – you are very welcome to reach out.