The Danish Companies Act A MODERN AND COMPETITIVE EUROPEAN LAW PAUL KRÜGER ANDERSEN EVELYNE J.B. SØRENSEN DJØF PUBLISHING
The Danish Companies Act a modern and competitive European law
Paul Krüger Andersen & Evelyne J.B. Sørensen The Danish Companies Act a modern and competitive European law DJØF Publishing 2012
Paul Krüger Andersen & Evelyne J.B. Sørensen The Danish Companies Act a modern and competitive European law 2013 by DJØF Publishing Jurist- og Økonomforbundets Forlag All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without the prior written permission of the Publisher. Cover: Bo Helsted Print & Binding: Ecograf, Højbjerg Printed in Denmark 2013 ISBN 978-87-574-2489-8 Sold and distributed in Scandinavia by: DJØF Publishing, Copenhagen, Denmark Email: forlag@djoef.dk www.djoef-forlag.dk Sold and distributed in North America by: International Specialized Book Services (ISBS) Email: orders@isbs.com www.isbs.com Sold in all other countries by: The Oxford Publicity Partnership Ltd Email: djof@oppuk.co.uk www.oppuk.co.uk Distributed in all other countries by: Marston Book Services Jurist- og Email: Økonomforbundets trade.orders@marston.co.uk Forlag www.marston.co.uk 2010
Table of Contents Table of Contents The Danish Companies Act a modern and competitive European Act... 13 Abbreviations... 14 Chapter 1. Introduction... 15 1.1. Freedom of choice for companies in Denmark... 15 1.2. Scope of the Danish Companies Act... 16 1.3. Some historical features of Danish Company Law... 17 1.3.1. The Danish Public Companies Act of 1917... 17 1.3.2. The Danish Public Companies Act of 1930... 18 1.3.3. The Danish Public Companies Act of 1973 and the Danish Private Companies Act of 1996... 18 1.3.4. EU harmonisation... 19 1.3.5. Modernisation of Danish Company laws... 24 Chapter 2. Objectives of the Danish Companies Act... 31 2.1. Introduction... 31 2.2. The influence of economic theory: A new paradigm in company law... 33 2.2.1. Overview... 33 2.2.2. Shareholder/stakeholder value in Danish law... 34 2.2.3. A Market for Corporate Control in Danish law... 36 2.2.4. Companies capital structure... 37 2.2.5. Normative and publicity system... 38 2.2.6. Regulation or de-regulation... 38 2.2.7. Recommendations on Corporate Governance in Denmark... 40 2.3. Registration and control... 41 2.3.1. The Danish Business Authority... 41 5
2.3.2. The Danish Commerce and Companies Appeals Board of the Danish Ministry of Business and Industry... 42 2.3.3. The Listing Authority and the Danish Financial Supervisory Authority... 43 Chapter 3. Corporate laws include various types of companies... 45 3.1. Functional division between public companies and private companies... 45 3.2. Listed companies, etc.... 47 3.2.1. Regulation... 47 3.2.2. Regulated markets and alternative markets... 48 3.3. Single-member companies... 49 3.4. Groups... 51 3.5. State-owned companies... 51 3.6. Companies subject to specific legislation or concession... 54 Chapter 4. International company law... 57 4.1. The internationalisation of business and company law... 57 4.2. Rules concerning applicable international law... 58 4.2.1. Denmark applies the incorporation theory... 58 4.3. Cooperation across national borders and transfer of seat... 60 4.3.1. EU rules on establishment... 60 4.3.2. Rules on the primary establishment of companies and transfer of seat, cross-border mergers and divisions... 60 4.4. Secondary establishment... 62 4.5. The international scope of the Danish Companies Act... 63 Chapter 5. Formation of a limited liability company... 67 5.1. Purpose of the rules of formation... 67 5.1.1. Founder requirements... 68 5.1.2. Memorandum of association... 68 5.1.3. Articles of association... 71 5.1.3.1. The company s name... 73 5.1.3.2. Registered office (hjemsted)... 74 5.1.3.3. The company s object(s)... 75 5.1.4. Shareholders agreement... 77 5.2. Subscription for and payment of share capital... 78 5.2.1. Shares subscription... 78 5.2.2. Payment of share capital... 79 5.2.3. Application for registration of the company... 81 6
5.2.4. Registration of the company... 83 5.3. Shelf companies... 84 5.4. Electronic registration... 84 Chapter 6. The shares... 87 6.1. Clarification of the term... 87 6.1.1. Issuing of shares... 88 6.1.2. Shares with different rights... 89 6.1.3. Shareholder rights... 90 6.1.4. Disclosure of company ownership public register of shareholders and notification of significant shareholdings... 91 6.1.5. Transfer of shares... 93 6.1.6. Restrictions on transfer... 95 Chapter 7. Financing of companies... 97 7.1. Introduction... 97 7.2. Capital increase... 98 7.2.1. Introduction... 98 7.2.2. Capital increase in connection with an initial public offer. 99 7.2.3. Conversion... 100 7.2.4. Bonus shares... 101 7.2.5. The shareholders pre-emption right... 102 7.3. Intermediate forms... 103 7.3.1. Convertible debt instrument... 103 7.3.2. Profit-sharing debt instruments... 105 7.3.3. Warrants and other intermediate forms... 105 Chapter 8. Capital protection... 109 8.1. Introduction... 109 8.2. Capital reductions... 110 8.2.1. General rules... 110 8.2.2. Depreciation to cover loss... 112 8.2.3. Amortisation... 112 8.3. Loss of capital... 113 8.4. Own shares... 114 8.4.1. Legal development... 114 8.4.2. The implementation of the Capital Directive... 114 8.4.2.1. Full liberalisation... 114 8.4.2.2. The authorisation requirement... 115 7
8.4.2.3. Exemptions... 116 8.4.2.4. Other rules that have been maintained... 116 8.4.3. Consequences of acquiring own shares... 117 8.4.4. Problems relating to securities law... 117 8.4.5. Acquisition and sale of own shares... 118 8.5. Financial assistance using the limited liability company s own funds... 118 8.5.1. Self-financing... 119 8.5.2. Financial assistance to parent companies, shareholders, members of the management and others... 120 8.5.3. Consequences... 121 8.5.4. Compliance test/verification... 122 8.6. Dividends and consolidation... 122 8.6.1. Which amounts can be distributed as dividends?... 122 8.6.2. Consolidation requirement... 125 8.7. Consequences of unlawful distributions... 125 Chapter 9. The Danish governance system... 127 9.1. A flexible governance system... 127 9.2. The traditional Danish model... 128 9.3. The new Danish management model... 129 9.4. Features common for both systems... 130 9.5. The company s management... 131 9.5.1. Composition and function... 131 9.5.1.1. The board of directors/supervisory board... 131 9.5.1.2. The executive board... 134 9.5.1.3. The tasks of the supervisory board... 135 9.5.2. Duties and responsibilities of the management... 136 9.5.3. Right of representation and power to bind the company... 138 9.5.4. Conflict of interests between the management and the company: duty of loyalty... 139 9.5.4.1. Disqualification... 141 9.5.4.2. Insider dealing and market manipulation... 142 9.5.4.3. Economic assistance ( shareholder loan )... 145 9.5.4.4. Takeover-bids... 145 9.5.4.5. Duty of confidentiality... 145 9.5.4.6. Remuneration... 146 Chapter 10. Employee co-determination... 149 10.1. General background... 149 8
10.2. Representation at board level... 152 10.2.1. The purpose: communication with and influence within the company s supreme governing body... 152 10.2.2. The representation... 153 10.2.3. Employees right to access to information, if there is no representation... 155 10.2.4. The legal position of employee representatives... 155 10.2.5. Employee influence as a shareholder equity-based and share-based remuneration... 158 Chapter 11. The general meeting... 161 11.1. Introduction... 161 11.2. Shareholders right to participate and take decisions at general meetings... 162 11.3. Ordinary and extraordinary general meetings... 164 11.4. Conduct at general meetings... 165 11.4.1. Notice of general meetings... 165 11.4.2. Agenda... 166 11.4.3. Access to the general meeting... 167 11.4.4. Voting rights... 169 11.4.5. Chairman... 171 11.4.6. Voting... 172 11.4.7. The right to ask questions... 173 11.5. Electronic communications and electronic general meeting... 174 11.5.1. Introduction... 174 11.5.2. Electronic general meetings... 175 11.5.3. Electronic board meetings... 178 11.5.4. Electronic communications... 178 Chapter 12. Minority protection... 179 12.1. Overview and key principles... 179 12.2. Individual rights unanimity rules... 181 12.3. Qualified majority... 181 12.3.1. Amendments to the articles of association... 181 12.3.2. Section 107(2) of the Companies Act... 182 12.3.3. Statutory provisions for dividends and the displacement of the legal relationship between equity classes... 183 12.3.4. Restrictions on voting rights, voting ceiling... 185 12.3.5. Right of redemption as a result of statutory changes (CA Section 110)... 186 9
12.4. The general clause... 186 12.5. Minority rights... 188 12.6. Legal consequences of void resolutions passed at the general meeting... 189 Chapter 13. Accounting and auditing... 191 13.1. Annual report... 191 13.1.1. The Financial Statements Act introduction... 191 13.1.2. Features of the annual report... 191 13.1.3. Structure and components of the annual report... 193 13.1.4. Quality requirements and basic assumptions... 194 13.1.5. Recognition and measurement (valuation rules)... 196 13.1.6. Business combinations... 196 13.1.7. Publication and control... 197 13.1.8. The Financial Statements Act and the Companies Act... 197 13.2. Audit... 198 13.2.1. Legal framework... 198 13.2.2. Requirements applying to auditors auditors as the public s representative... 199 13.2.3. Auditing: objectives and scope... 200 13.2.4. Audit exemptions for small companies... 202 13.2.5. Audit committees... 203 13.2.6. Liability of auditors... 204 13.2.7. Special examination... 205 Chapter 14. Liability for damages and criminal liability... 207 14.1. Liability for damages... 207 14.1.1. Who can be liable?... 207 14.1.2. Liability for damages in connection with the formation of the company... 208 14.1.3. The liability in tort of members of the management... 208 14.1.3.1. Liability towards the company... 211 14.1.3.2. Liability towards single shareholders... 214 14.1.3.3. Liability towards single creditors... 214 14.1.4. Shareholders liability... 215 14.1.5. Actions for damages... 216 14.1.6. Criminal liability and other legal consequences... 217 Chapter 15. Groups of companies... 219 15.1. The group concept... 219 10
15.2. Definition of groups of companies... 220 15.3. Formation of a group... 223 15.4. Managerial rights of the parent company... 223 15.4.1. Protecting the subsidiary s creditors... 224 15.4.2. Liability, lifting the corporate veil and identification... 226 15.4.3. Minority shareholders of the subsidiary... 227 15.4.4. Employee representation at group level... 230 15.5. Consolidated accounts and more... 231 Chapter 16. Dissolution and restructuring... 233 16.1. Dissolution versus restructuring... 233 16.2. Dissolution of private and public companies by declaration... 235 16.3. Bankruptcy or solvent liquidation?... 235 16.4. Solvent liquidation... 237 16.4.1. The purpose of the rules applying to liquidation... 237 16.4.2. Compulsory dissolution and voluntary liquidation... 237 16.4.3. Appointment of the liquidator... 238 16.4.4. Commencement of the liquidation... 238 16.4.5. Liquidation... 239 16.4.5.1. The tasks of the liquidator... 239 16.4.5.2. Accounts... 239 16.4.5.3. Settlement of debts... 240 16.4.5.4. Realisation of assets... 241 16.4.5.5. Distributions and dividends... 242 16.4.5.6. Liability of liquidators... 242 16.4.6. The legal effect of liquidation... 242 16.4.7. Termination of the estate... 243 16.4.8. Resumption of business... 243 16.4.9. Restoration... 244 16.4.10. Compulsory dissolution... 244 16.5. Mergers... 245 16.5.1. Introduction... 245 16.5.2. Merger conditions... 246 16.5.3. Resolution to implement a merger... 248 16.5.4. Legal effects of a merger... 249 16.5.5. Protection of the positions of shareholders and creditors.. 250 16.6. Division... 251 16.6.1. Introduction... 251 16.6.2. Definition and types of divisions... 252 16.6.3. Division procedure... 252 11
16.6.4. Simplifications applying to private companies... 253 16.6.5. Protection of the shareholders and creditors interests... 254 16.7. Cross-border mergers and divisions... 255 16.8. Majority takeover and takeover bid... 256 16.8.1. Mandatory offers according to Section 31 of the Securities Trading Act... 257 16.8.2. Offer document: mandatory and voluntary bid... 258 16.8.3. Duties of the board in the event of takeover bids... 258 16.8.4. Agreements on bonuses and similar benefits and payments... 260 16.9. Conversion... 261 The Danish Companies Act... 263 Index... 375 12