Trade Alert: Denmark

Denmark's Prime Minister, Mette Frederiksen, has said that a second lock down is "simply too expensive for Denmark". COVID-19 has caused severe financial problems in Denmark with the GDP contracting by around 2 per cent in the first quarter and 7.4 per cent in the second quarter of 2020. The country's central bank has estimated that the economy will shrink between 3 per cent and 10 per cent overall this year. In response to the financial problems caused by COVID-19, the Danish government has put in place insolvency-related reforms as well as a number of schemes, including self-employed compensation, salary compensation and cost compensation.

INSOLVENCY-RELATED REFORMS

Although no legislative changes have been made to the Danish Bankruptcy Act due to the pandemic, insolvency-related legislation has been passed in order to mitigate the economic consequences of COVID-19. The Ministerial Order no. 393 (the "Order") of 7 April 2020 extends the deadline for submitting annual reports, preventing companies from being subject to compulsory dissolution as a result of the ban on holding and participating in larger assemblies. The Order also extends the deadline for applying for resumption of a company under compulsory dissolution.

In addition, Act no. 211 of 17 March 2020 extends the deadline for payment of income tax, labour market contribution and VAT.  The Danish Parliament has also agreed to postpone some VAT return submission deadlines and to allow taxpayers to apply for repayment of VAT already paid, with the repayment amount being treated as an interest-free loan. Certain conditions need to be met to qualify. 

SELF-EMPLOYMENT COMPENSATION

The Danish government has compensated the self-employed, freelancers and companies with up to 25 full-time employees for 90 per cent of lost revenue caused by COVID-19. The compensation was capped at DKK 23,000 (USD 3,653) per month per person with at least 25 per cent ownership of a company. 

SALARY COMPENSATION

The Danish government has agreed to subsidise up to 75 per cent or 90 per cent of salaries, depending on the employee's terms of employment, for employees who would have been made redundant as a result of their employers' COVID-19 related financial losses. The compensation is capped at DKK 30,000 (USD 4,765) per employee per month.

COST COMPENSATION

The Danish government has also subsidised between 35 per cent and 80 per cent of a company's fixed costs if the company's revenue was expected to decline as a result of COVID-19. The cost compensation was capped at DKK 110m (USD 17.7m). If a company's actual loss turns out to be lower than its expected loss, the company must refund the government.

These measures appear to have worked as the number of bankruptcy filings with the Danish Maritime and Commercial Court is lower this year than at the same time in recent years. It may, however, indicate that the insolvency-related reforms and compensation schemes are keeping afloat companies which, in a non-COVID-19 world, would have been bankrupt by now. As a result, a wave of bankruptcies may follow once the measures expire. 

DISTRESSED DEBT

Prime Minister Frederiksen has cautioned commercial lenders to show patience and leniency in their credit operation. As a result, there has been substantial reluctance to enforce defaulting debt. Distressed debt trading is therefore at a very low level in Denmark at present. 

CHANGE OF FSA PRACTICE ON  CONFIDENTIAL INFORMATION 

The Danish FSA has recently changed its practice on non-performing loans, where previously banks were generally not allowed to pass on information on the individual borrowers when selling a portfolio of loans, meaning that debt was largely bought "blind".

The change of practice means that banks may now provide information on the borrower(s) under the specific loans in the portfolio, provided that this information is necessary to collect the debt (e.g. name, address and size of the loan). The bank's initial credit assessment may not be passed on.

DANISH LEGAL SYSTEM

The Danish Legal System is a hierarchical civil law system with the Danish Constitution ranking first and all other sources of law, including EU directives and regulations, Danish acts and executive orders, ranking below. These non-constitutional sources of law are, in principle, not hierarchal.

Danish law also distinguishes between private and public law, with private law being the main regulator of debt trading. Many of the principles governing debt trading are, however, not codified in a code of law. Instead, they follow general practices of law and court practice. 

SPECIAL THANKS

We appreciate the assistance of Claus Bennetsen at Horten Advokatpartnerselskab with the following discussion on Danish law, regulation and practice.

KEY POINTS FOR TRADERS

• No banking licence required
• Lenders that disburse loans will be subject to the Danish Anti-Money Laundering Act
• Transfer by assignment in whole or in part
• Concept of a trust not expressly recognised
• No withholding tax unless the debt is "controlled debt", in which case 22 per cent withholding tax
• No notarisation requirements

BANKING LICENCE REQUIREMENTS

No banking licence is required under Danish law when acquiring debt or providing loans, provided that the acquirer is not taking deposits from the general public. Danish law does not regulate corporate loans, save for the general provisions in the Danish Law of Contracts which, inter alia, provide that terms of contracts may not be "unfair". Generally, this is not used for contracts between professional entities.

A lender will also be subject to the Danish Anti-Money Laundering Act, requiring the lender to register with the Danish FSA and to have AML procedures in place. As the Act stipulates that it is the activity of disbursing the loan that triggers the requirement, the activity of acquiring debt and consequently being the owner of the debt, does not trigger the registration requirement.

METHOD OF TRANSFER

Under Danish law, rights arising from a contract, including any receivables, may be transferred or assigned in whole or in part to any third party without the consent of the borrower unless the loan agreement provides otherwise. Obligations under a contract may generally not be transferred without the consent of the other party. In the case of credit facilities, the obligation to pay out any undrawn parts of the facility may not be transferred without the consent of the borrower, whereas a fully drawn facility may be transferred without borrower consent.

Generally, the transfer of receivables does not require notification to the borrower in order to ensure validity or enforceability, provided that the transfer is validly agreed betweenthe parties and made in accordance with the terms of the credit agreement. However, as notification to the borrower ensures that: (i) payments with releasing effect may only be made to the assignee of the receivables; and (ii) protection is achieved against any other assignees in case of an assignor assigning the receivable to more than one assignee and against the assignor's creditors levying execution, notification to the borrower is generally recommended and given.  

SECURITY AND TRUSTS / AGENCY

The concept of a trust is not expressly recognised under Danish law (save for in the Danish Anti-Money Laundering regulation) and Denmark is not a party to the 1986 Hague Convention on Trusts. Security agents are, however, recognised and used in Danish lending transactions as agents on behalf of the lenders as beneficiaries. Therefore, the terms "trust" and "trustees" are not generally used in Danish law, which instead refers to bondholder representatives and security agents.

A power of attorney in favour of the security agent is generally granted to act on behalf of the lenders. The security agent is also used for holding and enforcing any security relating to the receivables on behalf of the lenders in accordance with its power of attorney. In the case of share pledges, the notice of the pledge to the company must contain, and the share register of the company must be updated with, all the names of the pledgees. When using a security agent, it is sufficient to register the security agent and not the names of each individual lender. For practical reasons, however, the names of the individual lenders are usually listed in an annex to the share register.

TAX AND STAMP DUTY CONSIDERATIONS

Generally, non-resident lenders are not subject to Danish withholding tax on interest payments and capital gains on debt, except when the debt in question is "controlled debt" (i.e. where a lender and borrower are within the same corporate group), in which case the interest payments will be subject to a 22 per cent withholding tax.

Denmark has entered into international tax treaties with most of the countries in the world, with the notable exceptions of France and Spain with whom Denmark has terminated its tax treaties. This may lower the overall tax rate in cases where the interest payments or capital gains are taxable in Denmark.

Mortgages over real estate and other security to be registered in the Danish Chattel Register (e.g. floating business charges over non-itemised groups of assets) are subject to a registration duty. The registration duty in connection with the transfer of ownership of a property is a fixed fee of approximately EUR 235 plus 0.6 per cent of the purchase price. In the case of mortgages, the registration duty is a fixed fee of approximately EUR 220 + 1.5 per cent of the amount of the mortgage. In the case of floating business charges it is a fixed fee of approximately EUR 235 + 1.45 per cent of the charge amount.

FORMALITIES, NOTARY REQUIREMENTS AND ENFORCEABILITY

As mentioned above, formal notification to the borrower is required for a security to be enforceable, in competition against other assignees or the assignor's creditors levying execution and to receive payments. However, no formal notification of the borrower is required for the transfer to be generally enforceable.

Certain types of debt and security are enforceable without any prior legal procedure if they have been drafted to comply with the specific requirements therefor. Notaries do not play any role in business transactions in Denmark. 

NOTABLE TRANSACTIONS

OI SA ("Oi")

Brazilian telecommunications company, Oi, has been in a major debt restructuring process since 2018. Earlier this year, the company announced a proposal to amend its bankruptcy plan, delaying its first quarter results to focus on preparing the amendment documents. The proposed amendment will see Oi's assets separated into four units and urges creditors to offer new loans to the company and to seek higher bids for assets up for sale. Oi is looking to sell a 51 per cent share of its fibre unit, InfraCo, in an auction in the first quarter of 2021. It is also in talks to sell its mobile assets, with the current bid standing at BRL 16.5bn, and has decided to sell its television operation for BRL 20m.  Creditors will vote on the amendment proposal at a meeting on 8 September 2020.    

VALLOUREC SA ("Vallourec")

French steel pipe manufacturer, Vallourec, released its second quarter results on 29 July 2020, reporting a revenue of EUR 843m, a 22 per cent decline year-on-year, and an EBITDA of EUR 43m, compared with EUR 102 m in Q2 2019. The company largely attributed the results to the impact of the unprecedented oil and gas market situation in North America, highlighting that Vallourec’s results in other regions showed strong resilience.   

Vallourec's balance sheet showed a net debt of EUR 2.33m, an increase from EUR 2.27m at end of Q1 2020, and a liquidity position of EUR 1.54m, a decline from EUR 1.78m at the end of Q1 2020. The group had initially intended to tackle its EUR 1.7bn RCF maturities due February 2021 through a EUR 800m capital increase combined with a new EUR 800m credit line. However, these refinancing operations were unsuccessful due to adverse market conditions related to the COVID-19 crisis. Vallourec has stated that it is in continuing discussions, particularly with its shareholder, France’s investment arm Bpifrance, and its banks, to define a new refinancing plan. In order to facilitate discussions with all stakeholders, a consultation of bondholders was launched on 2 September 2020 to obtain consent allowing Vallourec to request the appointment of a mandataire ad hoc without constituting an event of default. Vallourec has confirmed that it has not yet decided to request the appointment of a mandataire ad hoc and therefore continues to comply with its obligations under the relevant bonds.

The group has also confirmed its 2020 outlook, expecting to generate a positive free cash flow for the second half of the year, largely driven by a significant working capital release, and targeting EUR 130m in gross savings for 2020, having already achieved EUR 51m in the first half of the year. 

CARLSBERG GROUP ("Carlsberg")

On 13 August 2020 Danish Brewer Carlsberg became the first large brewer to reinstate full-year financial guidance since the start of the COVID-19 pandemic. The company, which has a EUR 2bn revolving credit facility due in June 2024, reported in its H1 2020 Financial Statement that organic operating profits would drop 10 per cent to 15 per cent in 2020, after an 8.9 per cent fall in the first half.

Carlsberg also announced that it had decided not to initiate the second tranche of its share buyback programme due to continued uncertainty, the pending Marston’s transaction (see below), the acquisition of brand rights and possible other inorganic opportunities. The first tranche of the share buy-back, amounting to DKK 2.5bn (USD 397m) was concluded on 7 August 2020 at an average share price of DKK 863 (USD 137). 

Shares in the world's third largest brewer slid 5.8 per cent following the issue of the H1 2020 Financial Statement and as the group warned of renewed lockdowns in its key markets of China and Western Europe and increased spending on marketing.

Chief executive, Cees ‘t Hart, stated that the company had demonstrated it's resilience following a 12.6 per cent drop in sales to DKK 29bn (USD 4.6bn) in the first half of 2020, pointing to the reinstatement of its guidance and increased marketing spending "as a sign of its confidence”. 

On 22 May 2020, it was announced that the UK arm of Carlsberg had formed a joint venture with British pub operator Marston's to form a GBP 780m brewing and distribution company, Carlsberg Marston’s Brewing Company, allowing the companies to merge operations and achieve an expected annual savings of GBP 24m. Marston’s will have a 40 per cent stake in the joint venture and receive a cash payment of GBP 273 million, while Carlsberg will own the remaining 60 per cent.  Marston’s has said that the partnership values its brewing business at up to GBP 580m and Carlsberg UK’s brewing business at GBP 200m. The transaction is presently being investigated by the Competition and Markets Authority.

NETS A/S ("Nets")
 

As reported in our France Trade Alert in May 2020, Scandinavian payment group, Nets, announced in August 2019 that it would sell three parts of its business to Mastercard Inc ("Mastercard"). The deal was, however, referred to the EU Commission for threatening competition. Earlier this month, on 17 August, the EU Commission approved the acquisition of Nets' account-to-account payment business by Mastercard. To address concerns regarding competition, Mastercard and Nets offered to transfer a global licence for Nets' "Realtime 24/7" technology to a suitable purchaser. The EU Commission's decision regarding the acquisition is conditional on the transfer of such licence as well as the transfer of relevant personnel and services.

PREMIER OIL PLC ("Premier Oil")

In an attempt to end concerns regarding Premier Oil's finances, the UK oil company has agreed terms for refinancing of its USD 2.9bn debt facilities. The refinancing, which remains subject to shareholder approval, extends maturities on the company's loans from May 2021 to March 2025. Premier Oil is also looking to raise USD 530m from its shareholders. USD 230m will be used to finance the acquisition of various North Sea assets from BP. The acquisition was announced in January 2020 but, following the collapse of oil prices, the deal was renegotiated. The remaining USD 300m of the shareholder funds will be used to pay off some of the company's debt, which currently stands at USD 2.4bn. This additional USD 300m was not expected by the market and, as a result, Premier Oil's share price fell by 20 per cent on the morning of the announcement. The company's senior creditors will underwrite USD 205m of the additional funds and will convert debt to equity if funds cannot be raised from shareholders. Premier Oil's net debt for the year will be near to USD 1.6bn with the company's equity having a market value of just GBP 300m.

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DISCLAIMER:

This publication is for general purposes and does not provide comprehensive or full legal advice. It is based upon public information available at the time of publication and is subject to change. Brown Rudnick LLP does not accept any responsibility for losses that may arise from reliance upon information contained in this update. This publication is intended to give an indication of legal issues upon which you may need advice. The contents of this update may not be relied upon as accurate or sufficient and full legal advice should be taken in relation to specific trading situations.

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Information contained in this Alert is not intended to constitute legal advice by the author or the lawyers at Brown Rudnick LLP, and they expressly disclaim any such interpretation by any party. Specific legal advice depends on the facts of each situation and may vary from situation to situation.