On 13 September 2019, the Maritime and Commercial High Court ruled in a case concerning the question whether creditors with unsecured claims in a bankruptcy estate could be entitled to vote in the election of a trustee when there was significant uncertainty as to the size of the bankruptcy estate’s assets. Two creditors with unsecured claims wished to remove the appointed trustee. This was denied by the Maritime and Commercial High Court as there were no prospects of dividend to creditors with unsecured claims. 

Section 113(1) of the Danish Bankruptcy Act prescribes that: “The trustee can be elected by the creditors at a creditors' meeting if at least one third of the known creditors eligible to vote are represented and more than half of the votes cast are in favour of the same person (...)”.

However, only the creditors who are expected to obtain dividend are eligible to vote in the election of a trustee. In the specific case, the uncertainty as to the size of the assets available for distribution implied that it could not be determined with certainty whether the creditors with unsecured claims would receive any cover at all.

The uncertainty concerned the valuation of the bankruptcy estate’s assets and two potential claims, including potential proceeds from an earn-out agreement. In the trustee’s statement of the value of the assets, all assets were included at recall value of DKK 1 per asset.

Due to a charge on the assets, it was uncertain whether they represented any value to creditors with unsecured claims. One of the bankruptcy estate’s claims was disputed by an opponent with a doubtful ability to pay, and the estate lacked funds to pursue the claim.

The bankruptcy estate’s other potential claim was based on an "earn-out” agreement, the proceeds of which had been assigned to a third party prior to the bankruptcy. The former management of the bankrupt company had estimated the value of the claim at DKK 761 million, but the trustee was not able to assess whether the bankruptcy could rightly claim the disbursement and what the size of a potential disbursement might be.

THE MARITIME AND COMMERCIAL HIGH COURT: NO PROSPECTS OF DIVIDEND MEANS NO VOTING RIGHTS

The Maritime and Commercial High Court estimated that there were no prospects of dividend to the creditors with unsecured claims. The significant uncertainty as to the size of the assets available for distribution thus meant that a trustee could not be elected as the creditors with unsecured claims held no voting rights.

The decision shows that the trustee appointed by the Bankruptcy Court (in cases where there is no legal incapacity) cannot be removed unless there are prospects of dividend in the bankruptcy estate, and most of the dividend-receiving creditors - calculated according to the amounts of the claims - vote in favour of a different trustee at the creditors’ meeting.

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Nicolai Dyhr

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