DENMARK Law and Practice Contributed by: Dan Moalem, Jakob Skafte-Pedersen, Poul Guo and Thomas Enevoldsen, Moalem Weitemeyer
8.4 Restrictions on Manager Shareholders Customary Restrictive Covenants In Danish private equity transactions, management shareholders are typically subject to a set of restrictive covenants (in accordance with statutory limitations), including: • non-compete obligations (commonly 12–24 months post-exit or termination); • non-solicitation of employees (six months from closing); • non-solicitation of customers or suppliers (com - monly 12–24 months post-exit or termination); and • confidentiality undertakings. Non-disparagement undertakings are seen less often but Danish law does not have any statutory restric - tions on such clauses. Form and Documentation Restrictive covenants are usually included in both the management’s employment agreement and the shareholder agreement. This dual anchoring ensures enforceability and allows different remedies depend - Danish courts generally uphold restrictive covenants if they are reasonable in scope, duration and geogra - phy. Non-compete clauses are subject to the Danish Employment Clauses Act, which imposes limitations and, in many cases, requires financial compensation to the employee if invoked through the employment contract. For post-termination restraints in sharehold - er agreements, enforceability depends on proportion - ality and legitimate business interest. Non-solicitation of employee clauses is prohibited except for a period ing on the nature of the breach. Enforceability Under Danish Law of six months from closing of a transaction. 8.5 Minority Protection for Manager Shareholders Minority Protections Are Selectively Granted Manager shareholders in Danish private equity trans - actions typically receive limited minority protection. The primary focus is on economic alignment rather than governance control. Only if the manager is also a founder/large selling shareholder will more specific negotiations and rights be available. Anti-dilution is
Structure of Sweet Equity The sweet equity is often structured through ordinary shares with limited initial value, typically issued by the same BidCo or holding company through which the private equity sponsor holds its investment. Manage - ment may also invest a portion in the same instru - ments as the fund, known as the institutional strip, to ensure partial alignment across the capital structure. Use of Preferred Instruments Preferred equity or shareholder loans are generally reserved for the fund and other institutional investors to create a layered capital structure and/or the com - position of preferred vs sweet equity is 80/20 for the fund and 30 (40)/70 (60) for management. In some cases, preference shares or ratchet mechanisms are used to prioritise return of capital and to incentivise outperformance through waterfall distributions. The structure is typically documented in a sharehold - er agreement and will include detailed provisions on vesting, leaver scenarios, and transfer restrictions. 8.3 Vesting/Leaver Provisions Vesting is Standard in Danish PE Structures Vesting provisions are commonly applied to manage - ment equity in Danish private equity transactions – typically over a period of three to five years. Vesting may apply to all or part of the management’s sweet equity, depending on the size of their investment and seniority. Typical Leaver Classifications Leaver provisions generally distinguish between the following. • Good leavers – usually defined as departure due to death, long-term illness, retirement or termina - tion without cause. Good leavers may either retain vested equity and be obliged to offer unvested shares at fair market value or be obligated to offer all equity at fair market value. • Bad leavers – typically defined as voluntary resig - nation or termination for cause. Bad leavers often have to sell unvested equity at a discount to either entry price or fair value and may be required to sell vested shares at entry price or a discount to fair value.
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