DENMARK Law and Practice Contributed by: Morten Krogsgaard and Lennart Meyer Østenfjeld, Moalem Weitemeyer
tinued with transactions in contravention of the rules will be liable for any loss suffered by the company. Upstream Loans Until the end of 2024, there were additional restrictions on the provision of upstream loans to parents and shareholders. These restrictions are no longer applicable. Limitation Language Compliance with the financial assistance regime is typically ensured by incorporating limitation language. This language ensures that the guar- antee and security do not extend to obligations that cannot be guaranteed or secured in com- pliance with the regime. This is usually done by referencing the relevant rules. The directors of a Danish limited company are under an obligation to ensure that the financial resources of the company are adequate at all times. This includes ensuring that the company has sufficient liquidity to meet its current and future liabilities as they fall due. The directors are therefore required to continuously assess the financial position and ensure that the existing capital resources are adequate. In relation to the proposed provision of financial assistance, the directors must consider whether the risk assumed is proportionate to the finan- cial capacity (also forward-looking) in light of its business operations and commercial and finan- cial obligations. “Corporate Benefit” The directors must consider whether “corporate benefit” will accrue to the company. The term “corporate benefit” is not well-defined under 5.6 Other Restrictions Adequate Capitalisation
Danish law, but the main criterion is likely to be the risk of granting security and/or guarantees weighed against the benefit (financial, commer- cial, strategic or otherwise) the company obtains from the transaction. Case law has confirmed that an obvious lack of benefit may render a guarantee void. A reference to the corporate benefit of the group as a whole without demonstrating any benefit to the com- pany itself has no merit of substance. Breach of Regime Management and directors who, in the perfor- mance of their duties, have intentionally or negli- gently caused damage to the company are liable to pay damages. They also have to do so where damage is caused to shareholders or any third party. Limitation Language There are no “safe harbour” rules the directors can rely on in exercising their duties. However, it is market practice to mitigate the risk of personal liability by capping upstream and cross-stream guarantees, often by references to the higher of the equity of the company at the time of provi- sion of the guarantee or security and enforce- ment. 5.7 General Principles of Enforcement Notice Requirement for Enforcement The lender/security agent is generally required to give eight days’ notice by registered mail to the security provider, requesting that the provider fulfil the claim due before selling the collateral assigned or pledged. This requirement cannot be waived in advance of enforcement. However, in respect of shares over limited companies and bank accounts, they can be drafted in a way that they are considered “financial collateral” and can
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