The Bankruptcy Division of the Maritime and Commercial High Court delivered its first ruling on bankruptcy restriction orders in July 2014. The ruling entails intensified efforts against systematic fraudulent bankruptcies.

WHAT IS A BANKRUPTCY RESTRICTION ORDER?

The Bankruptcy Act's rules on restriction orders came into force on 1 January 2014. The primary purpose of the rules is to prevent abuse of the rules on capital companies' limited liability, which has in many cases resulted in major losses for the companies' creditors. 

Members of the management may be subject to restriction orders if they are considered unsuited to participate in the management of a business due to gross negligent management. A restriction order implies that the person is not to participate in the management of a business without being subject to personal and unlimited liability for the company's obligations. For example, a person subject to a restriction order cannot be an executive officer or a board member of a private limited or public limited company. In general, a restriction order is valid for three years.

EXECUTIVE BOARD MEMBER SUBJECT TO A RESTRICTION ORDER FOR THREE YEARS

The bankruptcy court found that the executive board member's business conduct had been grossly negligent, and that the member was unsuited to participate in the management of a business. The member was therefore subject to a restriction order for three years. The bankruptcy court based its ruling on the following:

  • The member had maintained the company's operations despite the fact that the annual reports for the last five years had been subject to reservations concerning continued operations, and the member therefore continued operations beyond the point of hopelessness.
  • The company had primarily repaid the part of the debt for which the member was personally liable. 
  • The member owed a substantial amount of money to the company.
  • The accounting records were not updated and had vanished mysteriously. 
  • The member had participated in the management of 24 companies, of which 22 had been subject to bankruptcy or compulsory dissolution.

It is noted that the member did not provide any response in the matter, and that the ruling was delivered on a written basis.

We will follow the future proceedings concerning bankruptcy restriction orders and the courts' determination of the scope of the rules, and we will keep you updated on any rulings that contribute to the interpretation.

contacts

Piya Mukherjee

Partner

Helle Kofoed Hansen

Senior Attorney