DENMARK Law and Practice Contributed by: Morten Krogsgaard and Lennart Meyer Østenfjeld, Moalem Weitemeyer
5.5 Financial Assistance Prohibition on Financial Assistance
registered as pledged ( underpantsat ) to the lender/security agent. The notice is effective upon delivery to the addressee and an acknowledgment is not a per- fection requirement but advisable for evidence purposes. The purpose of the notice is to create a position similar to a possessory pledge, which leaves limited room for the obligor to deal with assets (including voting rights, dividends, pay- ments under receivables and amounts credited to the bank account) without adversely affecting the status of perfection. It is possible to create a security interest over movables by way of a possessory pledge, which is never used in acquisition financing. In order to limit the post-consideration security risk described in 7.2 Claw-Back Risk , perfection should be completed (or in effective process) before utilisation, or in the case of accession, at the same time as accession. Ongoing Filings and Procedures If changing assets under a mortgage over mov- ables (other than a floating charge), the list of mortgaged assets should be updated. A new variable registration fee is not necessarily pay- able on such an update. Mortgages over movables need to be renewed every ten years. No new variable registration fee is payable upon renewal. 5.4 Restrictions on Upstream Security See 5.5 Financial Assistance and 5.6 Other Restrictions .
Danish law generally prohibits a company from providing loans, guarantees or security to third parties for the purpose of acquiring its own shares or those of its parent company. In general, the lapse of time or refinancing does not constitute “whitewash” and the prohibition will apply even following a refinancing as long as the debt utilised for the acquisition is being refinanced. The prohibition also restricts a Danish target from merging with the acquirer while acquisition finance is outstanding. According to rulings from the Danish Business Authority ( Erhvervsstyrelsen ), a Danish company will also be in breach of the prohibition if its for- eign subsidiaries provide loans, guarantees or security for the acquisition debt. Exemption There is an exemption regime under which a Danish company can provide loans, guarantees or security for acquisition debt, subject to cer- tain corporate formalities up to an amount of the distributable reserves (which are then blocked). The exemption has very limited use in practice as the corporate formalities include making the purchase price public. Breach of Regime The consequence of acting in breach of the rules is inter alia that the amount must be returned to the company together with statutory inter- est (which is currently more than 12%). Where repayment is not possible, or where agreements for other financial assistance cannot be termi- nated, the persons who have agreed to or con-
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