DENMARK Law and Practice Contributed by: Henrik Sjørslev, Peter H. Knudsen, Henrik Lund-Koefoed and Levent Kitir, DLA Piper Denmark
If the insolvency court has made a binding determina - tion of the value of a pledged asset, the pledge and accompanying financing pass to the purchaser on a statutory basis. In essence, the “surplus pledge” is removed, and the determined pledge and financing is passed on. Pre-packed sales are not uncommon as such, but the administrator/trustee must somehow ensure that the sale is made on arm’s length terms. The new rules on fast-track business sales in restructuring proceedings have increased the use of pre-packed transactions. It is possible – also without using the fast-track rules – to prepare a restructuring in such a manner that a pre-packed sale is executed within a very short period of time. With the permission of the court, the two man - datory creditors’ meetings can be scheduled back-to- back, limiting the restructuring proceedings to merely a few weeks. Such a request to the court will require that the debtor and administrator clearly show that the compressed timeframe will not unduly affect any creditor’s position – eg, demonstrate a clear picture of the body of creditors and a clear show of support from a majority of the creditors for the restructuring Regarding the position of office holders in restructur - ing, rehabilitation and reorganisation, please see 1.2 Types of Insolvency , 4.2 Statutory Restructuring, Rehabilitation and Reorganisation Procedure and 4.4. The Position of the Debtor in Restructuring, Rehabilitation and Reorganisation . 4.6 The Position of Shareholders and Creditors in Restructuring, Rehabilitation and Reorganisation There are no restrictions on debt trading in place, and it can therefore take place at any time. Once a transfer has been made, the purchaser is recognised as the rightful creditor. It should be noted that closely related creditors cannot vote, even if they have acquired a claim from a creditor that was entitled to vote based on the transferred claim. proposal and the compressed timeframe. 4.5 The Position of Office Holders in Restructuring, Rehabilitation and Reorganisation
Existing equity owners may receive or retain owner - ship of their shareholdings in the debtor. Equity own - ers cannot receive or retain ownership of property on account of their ownership interests. Debt con - version to equity during restructurings is not allowed without complying with the formal rules on share - holder approval at a general meeting, etc. However, a restructuring proposal concerning a public or private limited liability company can contain a scheme for the existing share capital being reduced to a value of 0, after which new shares can be issued. The new share capital must be paid in cash, and it must be certain that the debtor is insolvent. In this situation, existing equity owners cannot object to the proposal, mak - ing room for a possible debt-to-equity swap of sorts, though with significant limits. 5. Statutory Insolvency and Liquidation Procedures 5.1 The Different Types of Liquidation Procedure If a company or natural person is deemed insolvent, its management or creditors may file a petition to the insolvency court to open either bankruptcy or restruc - turing proceedings (while only the debtor can file for preventative restructuring proceedings). The debtor can challenge a petition for insolvency proceedings filed by a creditor, but if the court also finds the company to be insolvent, the debtor cannot block either of the mentioned proceedings. A petition for involuntary ordinary in-court restructuring filed by a creditor will, however, most likely entail the side-lining of the current management. With the exception of the new rules on preventative restructuring, Danish insolvency law is limited in its application to insolvent debtors – ie, debtors who are unable to service their debts as they fall due, and where this inability is not merely temporary. The Dan - ish criteria for insolvency are based on the principle of illiquidity, as opposed to the principle of insufficiency. A debtor is deemed insolvent when it cannot fulfil obli - gations as they fall due, and when this is not merely temporary. Therefore, a balance sheet deficit is not a
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