DENMARK Law and Practice Contributed by: Dan Moalem, Jakob Skafte-Pedersen, Poul Guo and Thomas Enevoldsen, Moalem Weitemeyer
6.8 Allocation of Risk Private Equity Sellers Aim for Clean Exits
Common triggers include failure to obtain required regulatory approvals, failure to secure financing, or failure to complete the transaction within an agreed longstop date. Typical Size and Structure Where break fees are used, the agreed amount is gen - erally between 1–3% of the equity value. They are often structured as liquidated damages and become payable upon breach of clearly defined obligations. Danish law does not prescribe statutory limits for break fees, but their enforceability is subject to gen - eral contract law principles, such as reasonableness, proportionality and good faith. In practice, excessive or punitive fees may be challenged or found unen - forceable. Reverse break fees are not common in private-equity transactions. 6.7 Termination Rights in Acquisition Documentation Termination Rights Tied to Regulatory and Closing Conditions In Danish private equity transactions, the acquisition agreement typically includes mutual termination rights if closing has not occurred by a specified longstop date, including if mandatory condition precedent, is not satisfied by the longstop date, provided the failure of such satisfaction is not caused by the party wishing to terminate. Apart from that, only material breaches such as not delivering the shares unencumbered or not paying the purchase price at closing would allow a termination by the non-defaulting party. Typical Longstop Date The longstop date is usually set between three and six months after signing, depending on the anticipated regulatory approvals and complexity of the deal. In transactions involving multiple jurisdictions, complex merger filings with phase 2 investigations expected and/or complex FDI reviews, longer long-stop peri - ods may be agreed and can be between more than 12–24 months. Right to extensions may also be pre- agreed if specific conditions are progressing but not yet fulfilled.
In Danish transactions involving a private equity seller, the allocation of risk is typically more seller-friendly than in corporate-to-corporate deals. Private equity sellers seek a clean exit with minimal post-closing liability. This is reflected in limited warranty packag - es, short limitation periods and low caps on liability. The widespread use of W&I insurance further shifts risk away from the seller. This applies no matter if the buyer is private equity-backed or a corporate. Buyers More Focused on Downside Protection When the buyer is private equity-backed, there is often a stronger focus on legal protections, including robust warranties, covenants and indemnities when buying from a corporate. Corporate buyers with sec - tor-specific knowledge about the target may be less risk-averse as they can valuate the risks of the target better. Corporate Sellers Often Accept Broader Exposure Corporate sellers, especially strategic divestors, may be willing to provide broader warranties and accept greater liability to facilitate a deal. This is particularly the case where ongoing commercial relationships or reputational considerations are involved. Overall, private equity involvement tends to create sharper risk allocation boundaries, with greater reli - ance on market tools like W&I insurance, locked-box pricing and limited recourse structures. 6.9 Warranty and Indemnity Protection Warranties From Private Equity Sellers via W&I Private equity sellers in Denmark typically provide a broad set of warranties on exit when backed by W&I insurance. These generally include title and capacity warranties, often referred to as fundamental warran- ties, tax warranties, and business warranties. Specific indemnities are rarely provided by private equity sellers, unless there are known risks that can - not be insured or ring-fenced otherwise. Private equity sellers usually resist general indemnity obligations, and risk is instead allocated through disclosure and insurance, including in respect of tax. The use of spe - cific risk insurance, eg, for an identified tax exposure,
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