Legalisation of loans to shareholders and members of management  

Good news for Danish businesses, which will finally be able to grant loans to shareholders and members of the management in connection with the adoption of a new bill (introduced on 5 October 2016). Legalisation of these loans will increase flexibility and make the competition within the EU more equal.

The new bill means that loans granted by the company's distributable reserves  and on market terms will be legal. This will increase the flexibility of Danish trade and industry. The bill will also place Danish companies in an equal competitive situation compared to the rest of the EU where such loans have been legal for a long time in most Member States.

At the moment, the Companies Act prohibits these loans as well as security for loans to shareholders, members of management and connected persons. The bill is expected to come into force on 1 January 2017.

The conditions for legal grants of loans to shareholders and members of management

Companies can only grant these loans provided that:

  • the loan may be held within the company's distributable reserves and on market terms; 
  • the decision to grant a loan is made either by the general meeting or the company's central management body with an authorisation from the general meeting;
  • the decision to grant a loan is not made until after the presentation of the company's first annual report.

The company's capital resources must always be solid also after the granting of the loan.

One chance to make the illegal legal

Companies that have granted loans to shareholders and members of management contrary to legislation will get one chance to make their actions legal.

To avoid liability these companies must decide on the next general meeting after 31 December 2016 to maintain a loan which complies with the above conditions.

Responsibility and control

The central management body is responsible for the loans being granted legally.
This means that either the board of directors or the executive board is responsible for the conditions in relation to these loans being legally complied with.   
 
The company's auditor as well as the Business Authority will check whether the conditions are being complied with.

Amendment of the Financial Statements Act

As a consequence of the bill, the Financial Statements Act will have to be adapted.

The Act must regulate that the granting of a loan to a shareholder or a member of management requires the equivalent to the total loan. The purpose is to ensure that the annual report clearly shows that the company used the distributable reserves to grant a loan.

Registration with the Public Register of Major Shareholders

Notwithstanding that it is already a statutory requirement that specific owners are registered in the Public Register of Major Shareholders, it is the experience of the Business Authority that this requirement is not always met.

In addition to making loans to shareholders and members of management legal, the bill will therefore also make it a requirement that new companies are registered with the Public Register of Major Shareholders.
Existing companies risk compulsory dissolution if they fail to register.

Since June 2015, companies have been obligated to register owners holding minimum 5 % of the shares or voting rights with the Public Register of Major Shareholders.

For more information, see our article The Public Register of Major Shareholders.

Uncertainty as to capital increases in entrepreneurial companies

There has been uncertainty as to how capital increases in entrepreneurial companies are carried out.

To clarify this uncertainty, the bill specifies that capital increases in entrepreneurial companies can take place by way of cash contributions or transfer of the company's reserves to share capital.

contacts

Lise Lotte Hjerrild

Partner

Henning Aasmul-Olsen

Partner

Jonas Eigil Nielsen

Attorney