Vol 0 (2004) - Issue 2

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The Restructuring of Danish Business Activities

Introduction

Many foreign companies with business interests in Denmark organize their Danish business activities through incorporation of fully owned subsidiaries in the form of private limited companies or public limited companies.
During recent years, a number of limited companies have met dire financial straits due to the general recession of the Danish economy and have found themselves in need of financial support from their respective parent companies.
Regardless of whether the conclusion of the parent company, based on strategic and financial considerations, is to shut down or continue supporting its Danish subsidiary, such conclusions have legal impacts that need to be considered during the evaluation process.
For instance, in a shut-down or down-scaling of the activities, attention must be given to the employees of the company, the position of the creditors and the potential liability of the management responsible for carrying out the decisions taken. In a continuation of support to the subsidiary, e.g. by way of loans, debt cancellation or conversion of debt into share capital, attention must be given to tax implications, etc.
Even if the financial situation of the subsidiary cannot be turned around, the parent company may want to continue the operations.
In the following we will focus on the possibility of dissolving the debtor subsidiary of the parent company and restructuring the operations by way of a transfer of the business. The transfer may be made to an ‘acquiring vehicle’ incorporated for this purpose by the parent company.

Restructuring by way of a business transfer

The shareholders or managers of an insolvent company are entitled to purchase the business. A transfer to the management or shareholder may, in the case of certain types of business, prove to be the best (or only) possible way of selling the assets, e.g. in the event of enterprises carrying out business within development of intellectual property rights such as software, biotech, etc. However, creditors will often find it odd that the same group of people carry out the exact same business, usually from the same premises, without paying the creditors.
Thus, special attention must be given to the terms of the transfer agreement, the implications for the creditors and the potential liability of the decision makers that may arise if the transaction does not meet the interests of the creditors or does not comply with the principles of Danish insolvency law. Moreover, such transactions may be invalidated in the event that the subsidiary goes bankrupt.
A business transfer may be effected before any formal insolvency proceedings have been initiated or in combination with suspension of payments or bankruptcy of the subsidiary as the following will show: