Page 9. “Denmark Company Liquidation”
INSOLVENCY
A limited company and other legal entities can be declared bankrupt, or may enter into solvent liquidation. Upon completion of the bankruptcy proceedings or liquidation, the legal entity ceases to exist. To avoid bankruptcy, a company may seek an arrangement with its creditors.
Restructuring
A limited company or any other legal entity with financial problems can seek an arrangement with its creditors to avoid bankruptcy.
In order to have time to investigate the possibilities of an arrangement, the company – or any other legal entity – can decide to suspend their payments for a period by giving notice to the court and the creditors.
When receiving such notice the court will immediately appoint a supervisor to watch over the interests of the creditors.
The company – or any other legal entity – may offer their creditors a voluntary composition if all creditors can accept the offer.
In such a situation where not all creditors will accept a voluntary composition, a composition approved by the court may be enforced on the minority of the creditors by the majority of the creditors.
Bankruptcy
A petition for bankruptcy can be filed by a creditor or by the company – or any other legal entity – itself.
The bankruptcy decree is declared by the court upon a hearing if the court is satisfied that the company is insolvent. A company is insolvent when it cannot pay its debts by their due dates and when this inability to do so is not just temporary.
Responsibility
When issuing a bankruptcy decree the court will appoint a receiver/trustee of the bankruptcy estate.
The receiver is the only person entitled to represent the bankruptcy estate and is obliged to realise all the company’s assets. In co-operation with the major creditors the receiver may decide to carry on the business of the company for a limited period.
The receiver investigates the causes of the bankruptcy, examines whether the company has violated the law and audits the company’s books.
When all assets are realised, all outstanding issues solved and the claims have been approved, the receiver will prepare the accounts of the bankruptcy estate. Upon the approval of the court (and the creditors) the receiver will pay out dividend payments in the order of priority of the creditors and the company ceases to exist.
Scope of responsibilities
The partners or the board members and managing director shall assist the receiver and inform him of all the company’s assets and debts.
Liquidation
The owners of a company can decide for the company to enter into solvent liquidation. The owners will choose a liquidator to be in charge of the company.
Furthermore the court can decide for a company to be taken into solvent liquidation upon request from the Danish Commerce and Companies Agency. In this instance a liquidator is appointed by the court.
The liquidator shall make sure that all out-standing creditors are paid, and distribute the remaining assets to the owners, upon which the company shall then be dissolved.
DISPUTE RESOLUTION
A dispute may be settled in court or by arbitration.
Arbitration clauses can be common in business-tobusiness agreements. Undisputed claims may be quickly settled by a summary procedure.
Litigation and arbitration
Arbitration can be widely used in the commercial arena in Denmark. Many business-to-business agreements can include an arbitration clause and will also be common in standard-form contracts.
Most of the arbitration proceedings shall be conducted in accordance with the Danish Act on Arbitration and the Danish Institute of Arbitration.
In the event the parties in dispute have not agreed to settle the matter by way of arbitration, the dispute shall be resolved in court. The court may assist the parties in reaching a settlement of the dispute and may also appoint a mediator. If the parties cannot reach a settlement, the court will resolve the matter.
Arbitration and court proceedings are normally instituted by written submissions from both parties followed by a preliminary hearing. Written preparation of the case may, if necessary, continue after the preliminary hearing. Once the case is prepared the arbitrators, or the court, will hear the case at a final hearing. The arbitrators, or the court, shall then pass their judgment. If the case has been tried by the court, the party who is dissatisfied may appeal the judgment. One of the major differences between arbitration and court proceedings is that court proceedings are normally conducted in public while arbitration shall be private. In addition, arbitration shall usually provide a quicker and more expedient way of dealing with a dispute than court proceedings do, because the parties cannot appeal the decision of the arbitration tribunal.
Arbitration can, however, be more expensive than a court action, because the parties would be responsible also for the fees of the arbitrators.
We hope that the information in this guide has proved useful in providing a brief overview on how to establish a business in Denmark, the options available to companies and their rights and obligations when conducting business in Denmark. Should you require further information with regard to any of the matters dealt with in this guide or if you have specific concerns or questions, please do not hesitate to contact us.
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