Final adoption of the new rules for restructuring in Denmark

The most recent changes to our Bankruptcy act was adopted earlier this month. The new set of rules is largely based on an EU Directive and entered into force on the 17th of July 2022.

Preventive restructuring

The rules introduce a completely new concept called “preventive restructuring”. The new rules will act as an alternative to the current restructuring process, where the preventive option is less intrusive on a number of points. This gives businesses an additional opportunity to “save” the existing business through restructuring.

A preventive restructuring process can be initiated:

  • without public filling – ie. without the obligation to publish the process and inform all known creditors
  • without “freezing” floating charges
  • without the Bankruptcy Court appointing an administrator/restructurer to approve all significant business decisions

However; the new rules do not prevent the business’ creditors from taking other common recovery steps such as going through the bailiff’s court. Further recovery steps can be halted by the Bankruptcy Court through a petition to do so. 

The general rules on restructuring apply in parallel with the new rules on preventive restructuring. In other words, a creditor may continue to file for bankruptcy or regular restructuring proceedings as an alternative – also if preventive restructuring has already been initiated. 

New voting rules

In addition to this completely new set of rules on preventive restructuring, the underlying EU directive and the newly adopted Danish legislation also contains completely new voting rules. Perhaps slightly inspired by the US Chapter 11 proceedings, the new legislation will allow for the possibility of creating voting classes. The new voting classes are voluntary for all small and medium-sized businesses. In addition, a majority of creditors must vote in favor of a proposed restructuring settlement, while with the current rules it is sufficient that a majority of creditors do not vote against the adoption of the proposal.

In restructuring proceedings, it has always been the creditors who decide whether the proceedings should be adopted. The new rules provide – as mentioned – the opportunity to divide a business’ creditors into different voting groups with common interests (for example, public sector creditors, financial creditors, secured creditors, suppliers, etc.). This allows a restructuring proposal to be voted through if there is a majority for the proposal within the groups. As a result, a majority in 3 out of 4 groups can force their will, even if the 4th group may constitute by far the largest creditor/creditors in terms of the actual debt. 

For Danish practitioners, it is a whole new way of thinking about restructuring – and some would say an upset concerning the general creditor democracy, we have been accustomed to.

However, a proceeding will not be confirmed by the Bankruptcy Court if it does not follow the equal treatment principles of the Bankruptcy Act, or if a creditor is disadvantaged by the adoption of the proposal more so than by bankruptcy proceedings.

At Sundgaard Advokater, we welcome this new way of working and look forward to its possibilities. We hope and believe that the rules can help save otherwise healthy businesses that have experienced hardship due to the recent challenges during the COVID-19 pandemic or rising global costs.  If you have any questions about insolvency law issues in Denmark – or need legal advice in general – you are very welcome to reach out to us at Sundgaard.

Contributing Advisors