DENMARK Law and Practice Contributed by: Morten Krogsgaard and Lennart Meyer Østenfjeld, Moalem Weitemeyer
Simple Guarantee A simple guarantee ( Simpel Kaution ) is a type of guarantee where the guarantor is only liable for the debt if the principal debtor cannot pay. The creditor must attempt to collect the debt from the principal debtor first. Only if this fails can they demand payment from the guarantor. Loss Guarantee A loss guarantee ( Tabskaution ) is a form of guar- antee where the guarantor is only responsible for covering the loss that the creditor suffers if the principal debtor cannot pay. The guarantor’s liability is limited to the actual loss incurred by the creditor. Prevalence in Acquisition Finance Transactions Suretyship guarantees are the most common (almost exclusive) type of guarantee used in acquisition finance transactions. Guarantor Coverage Guarantees will normally be required from all “material companies” within the acquired group as well as any group company that becomes “material company” following completion. The target group will also be subject to an ongoing guarantor coverage test. This test is based on an aggregate and individual percentage of the group’s assets and/or earnings, ensuring that a significant portion of the group’s value is cov- ered by guarantees and security. 6.2 Restrictions Upstream guarantees are restricted by the pro- hibition against financial assistance. Upstream and cross-stream guarantees are also subject to the “corporate benefit” requirement.
See 5.5 Financial Assistance and 5.6 Other Restrictions for further details. 6.3 Requirement for Guarantee Fees Guarantee fees are not a validity or enforceability requirement and are considered to be encom- passed by transfer pricing policies. Guarantee fees are not commonly regulated within the guarantee itself and are instead addressed when calculating the taxable income. 7. Lender Liability 7.1 Equitable Subordination Rules Denmark is a civil law jurisdiction and does not have equitable subordination rules in its corpo- rate laws or insolvency laws. However, prefer- ential treatment of related parties is addressed under the voidance/claw back regime in insol- vency law, where extended hardening periods may apply. The company law provisions concerning the liability of directors and shareholders as well as general tort law may also apply and may result in damages in case of a loss. 7.2 Claw-Back Risk There is a certain claw back or voidance risk if an obligor is affected by Danish insolvency pro- ceedings. Voiding or claw back may particularly affect: • payments, repayments and prepayments: significant amounts made within the last three months prior to the commencement of insol- vency proceedings (or two years if made to a related party); • post consideration security rights: security rights (whether by charge, guarantee, indem- nity or otherwise) created within the last three
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