Debt Recovery in Denmark

• In Denmark, transactions take on average 7 to 30 days although delays of about 12 days may be anticipated. The EU legal framework offers effective tools when it comes to matters of late payment.

• Reliable courts and a program offers fast-track trials for undisputed disputes below DKK 100.00. However, delays and costs remain substantial when an argument is challenged and EU norm procedures do not operate in full in the region.

• Although domestic insolvency legislation seeks to redeem businesses and increase the likelihood of debt recovery, it does not place any limits on how much debt can be written off in settlement agreements and in reality it is unusual for unsecured creditors to benefit from insolvent debtors.

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1. Summary

1.1. General financial information

1.1.1. Relevant and reliable financial information may be obtained through private structures, credit reporting agencies and the public CVR homepage. Traders need to be licensed with the Municipal Trade Office which can provide details when a fee is paid.

1.2. Key legal structures

1.2.1. Corporate debt responsibility is defined by legal structures which are listed as follows:

• Rather limited companies sometimes take the form of a Sole Proprietorship (Enkeltmandsvirksomhed), a corporate body formed by assets donated and operated by a person acting on their own account who may be held liable for all debts. Partnerships (Interessent Selskab I/S) are established by at least two partners who are jointly and severally liable for the entity's obligations, however liability limits may be defined by Limited Partnerships (Kommanditselskab K / S) which include one or more jointly liable managing partners for the company's operations and debts together with silent partners who are liable only in relation to the capital fund.

• Entrepreneurs can create an Entrepreneurial Company (Iværksætterselskaber IVS) where the capital funds vary from DKK 1 to DKK 49,999. Through investing 25 percent of its annual profit, the organization will develop the resources until it hits DKK 50,000. With the minimal money there is freedom, and the investor is only responsible for the capital budget.

• Private Limited Companies (Anpartsselskab ApS) are popular even if the securities are not negotiable or transferable. The leaders are responsible for the company's obligations in addition to their allocation to the money. There has to be DKK 50,000 minimum capital investment. Public limited partnerships or joint-stock companies (Aktieselskab A / S) are typical among large enterprises. There is a minimum capital allocation (DKK 500,000) and the loans are not paid by the owners.

• There may also be co-operative limited partnerships (Andelsselskaber med begrænset Ansvar, A.m.b. A).

1.3. Regulatory framework

1.3.1. The legal system is regulated by the Administration of Justice Act and consists of a series of judges, of which the main are: 24 District Judges, two High Courts, the Maritime and Commercial Court and the Supreme Court. There are no courts specifically devoted to business cases, therefore all disputes must usually be put to District Courts (Byret), although the Maritime and Business Court will generally be able to deal with international trade issues, patents, rivalry (as well as insolvency concerns in the Copenhagen region).

2. Receiving payments

2.1. DSO - Days Sales Outstanding

2.1.1. Payment terms are often calculated on an actual month plus 30 days basis in Denmark. Payments take on average 7 to 30 days but delays of about 12 days can be anticipated.

2.1.2. Caution may be appropriate to the degree that local businesses' paying activity has deteriorated over the past two years.

2.2. Late interests

2.2.1. The 2011/7/EU Recast Directive, which stipulates that payments must be received in the EU within 60 days, was transposed into Danish legislation by way of the Renteloven statute, which was in effect on 1 March 2013. In Denmark the regulations are more strict than the EU requirements: as a general rule, business-to-business purchases must be made within 30 calendar days of the due date of the invoice.

2.2.2. Therefore compensation on late payment may be asserted from the day after the due date. The applicable interest rate should be agreed as a contractual matter, but otherwise the law provides that interest may be calculated on the basis of the reference rate fixed by the National Bank of Denmark twice a year (in January and July), increased by at least 8 percentage points.

2.3. Costs of debt collection

2.3.1. The regulation also entitles borrowers to obtain a fixed EUR 40 payout for their collection costs, in accordance with the Directive. The Danish Ministry of Justice calculates collection costs beyond this sum which depends on the size of the principal amount.

2.4. Protecting ownership

2.4.1. Title preservation (RoT) laws aimed at maintaining possession of the retailer of property until the relevant invoice has been paid in full are seldom used in Denmark as the procedures are highly detailed and restrictive. However, sophisticated RoT laws which attempt to retain ownership in lieu of transition or selling to a third party are not legitimate.

2.5. Payments

2.5.1. The most common methods of payment are as follows: Bank transfers are the most prominent means of payment, as they are quick, safe and sponsored internationally and domestically by an increasingly integrated banking network. Mobile application payment is also getting more and more popular.

2.5.2. Transfers may be assured for export transactions by Standby Letters of Credit (a bank guarantees the credit worthiness and repayment capability of the debtor) which constitute reliable guarantees since they can be activated as a' payment of last resort' if the borrower fails to fulfill a contractual obligation.

2.5.3. Generally speaking, it is not usual to get assurances from the local banks. Although tests are called debt identification titles enforceable through a bailiff, they are very seldom employed and should be prevented in action. Negotiating down payments would rely, in turn, on the amounts involved, but would be beneficial if the business partner were in a difficult financial position.

3. Collecting payments

3.1. Amicable action. Negotiating opportunities for amicable settlement should always be seen as a strong alternative to formal proceedings. Before starting legal proceedings against a debtor, asset assessment is important as it allows verification as to whether the firm is still active and whether the chances of recovery are good. Moreover, it is essential to be aware of the solvency status of the debtor: if insolvency proceedings have been initiated, the enforcement of a debt (see below) is indeed impossible.

3.2. Legal proceedings.

3.2.1. Ordinary proceedings. There is no formal payment order procedure in Denmark aimed at resolving undisputed claims but since 2008, small claims not exceeding DKK 100,000 are typically dealt with in simplified proceedings by District Courts (forenklet inkasso). An enforcement order would generally be issued within 14 days, although friendly (unchallenged) files could usually be resolved within three to eight months, but greater delays are expected for more complex cases (see below).

3.2.2. If the amicable process fails, or if the debtor challenges the argument, there is the right to begin legal proceedings. A Writ of Summons must be issued ten days before filing a claim by a judicial officer to the claimant. Then the latter is given two weeks for a defence. Should the debtor fail to file a defence, a default judgment would be awarded by the court. Therefore, the court may allow the parties to reach a compromise by mediation (Chapter 27 of the Administration of Justice Act), although proceedings must normally take place to support the court (usually within four weeks) in making a decision.

3.2.3. Usually, the courts then grant relief in the form of interest or actual compensation but punitive damages can not be received unless a liability clause is provided for by the settlement of the parties. However, judicial procedures are lengthy, domestic tribunals are reliable. It should also be remembered that Denmark is not constrained by the various mechanisms of dispute settlement put in place at EU level.

3.2.4. Required documents. Copies of invoices, statement of account, letter of debt collection stating that if the debt is not settled within 10 days and, if possible, correspondence between the parties concerned, the claim will be forwarded to debt collection.

3.2.5. Time limitations. As a general rule, business claims must be brought before the court within three years (one year for transportation claims), beginning with the invoice due date. The courts are very stringent on matters relating to deadlines and would most likely prevent legal action if the restrictions are not upheld.

3.2.6. Precautionary measures. Precautionary measures can help to protect the interest of the borrower until a final and enforceable decision is made. In addition, the courts can require temporary remedies (injunctions) ex parte (without both parties' presence) to prevent irreparable damage (deposit, order to do something, maintenance of the status quo, security of rights, etc.), to procure or protect proof. In general, it is necessary to demonstrate an emergency situation which demonstrates the need for such steps.

3.2.7. Appeal lodging. The lodging of a first-instance appeal decision may be appealed to the High Court, which is competent to deal with factual and legal issues. Second-instance decisions may also be brought before the High Court which, however, would only consider matters of general public importance. The Danish Appeals Permission Board must, in this case, approve the leave to appeal of the claimant.

3.2.8. Appeal must be submitted within four to eight weeks of the judgment being made. Maritime and Commercial Court decisions may be appealed only once, before the Supreme Court. Unable to appeal default judgments.

3.2.9. Award enforcement. A verdict shall be enforceable as long as it becomes definitive (i.e. when all the sites of appeal are exhausted). If the losing party fails to comply with the decision, the defendant may have it implemented within two weeks of execution through the Bailiff's Court. Enforcement proceedings can take the form of a payment arrangement or forfeiture (and auctioning) of the debtor's assets (all debtor-owned property and licensed vehicles as mobile assets).

3.2.10. The duration of a judicial action. Simplified trials will usually take six months, but regular legal proceedings usually take one year to make a full and enforceable decision before the courts. Enforcement can then, on average, take another six to twelve months.

3.2.11. In Denmark, the timeframe for legal proceedings will always be the same whether the plaintiffs are citizens or foreigners. Nonetheless, problems that occur in case management where foreign conflicts are at risk, particularly when there must be clear deadlines for a conflict to continue before the courts.

3.2.12. The costs of the procedure. The courts might require the debtor to add to the expenses of the borrower but rarely give full compensation. Having said that, it is important for an applicant to specify in the original letter of demand whether the court would seek reimbursement for costs. Failure to do so would typically lead the court to cut back on the payout given to cover the costs of the applicant. In comparison to the expenses herein, compensation for attorneys in each case must also be weighed.

• Order of payment: DKK 700
• Payment fee: DKK 400
• Set bailiff payments would also apply:
• Key sum below DKK 3,000: DKK 300
• Major amount above DKK 3,000: DKK 300
• Main amount above DKK 3,000: DKK 300 + 0.5 per cent of the total above DKK 3,000.
• Fee by police to bring the debtor to the trial (if the debtor is not available at the first hearing): DKK 400.
• If the bailiff visits the debtor (DKK 400 to DKK 5000) additional fees can apply.
• In cases over DKK 100,000, the set legal fees are:
• Legal fee: DKK 500
• Premium fee: DKK 250 + 1.2% of the amount above DKK 50,000 If the dispute has to go to legal, the additional costs are:
• Trial fee: DKK 750
• Actual fee: 1.2% of the sum above DKK 50,000

3.3. Alternatives to legal action

3.3.1. Domestic or international arbitration hearings are also an essential means of avoiding ordinary litigation because they provide for secure mediation options when formal and enforceable arbitration awards are needed. Additionally, the arbitrators have the power to grant temporary relief.

3.3.2. Foreign forums. It is not popular in Denmark to use a global venue to get a verdict in debt-related cases because the courts are effective in providing prompt rulings. Nevertheless, while Denmark is not a signatory of the Rome I Regulation on the law applicable to contractual obligations, the country has ratified the Hague Convention of 15 June 1955 on the law related to the international sale of goods, which stipulates that contracts be regulated by the law preferred by the parties, the general meaning of the arrangement and the circumstances of the case.

3.3.3. Nevertheless, it is important that the arrangement be distinguished by a foreign relation (e.g. one party has chosen domicile in another country, or the place of execution is situated abroad), and that a jurisdiction provision be drawn up specifically for this purpose.

3.3.4. Award enforcement. As stated above, it is rather rare to use foreign mechanisms to extract enforceable rulings against domestic debtors as domestic courts are successful. Nevertheless, international judgments taken against foreign debtors may be accepted and implemented in Denmark given the issuing nation is also a party to a bilateral or multilateral arrangement drafted for that reason.

3.3.5. However, enforcement of EU-issued decisions can be delicate. However, while judgments made in EU Member States have to be followed by exequatur proceedings under the Brussels I Convention since July 2007 (according to an agreement signed with the EU in 2005 to that effect), Regulation (EC) No 1896/2006 creating a European Payment Order mechanism enabling the recovery of undisputed debts does not extend in Denmark. That said, Denmark has introduced Recast Regulation EC 1215/2012 which seeks to abolish exequatur prosecutions from January 2015 onwards.

3.3.6. Denmark is a signatory to the 1958 New York Convention on the Recognition and Compliance of International Arbitral Awards, implying that awards granted by international arbitration proceedings should be accepted and upheld by its domestic tribunals.

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4. Managing insolvent debtors

4.1. Insolvency in Denmark

4.1.1. Unless the inability to pay is immediate, a debtor in Denmark is deemed insolvent if they are unable to fulfill their obligations when they fall due on payment. The Danish Bankruptcy Act (Act No. 298 of 8 June 1977, currently combined Act No. 588 of 1 September 1986, also named the Konkursloven Law), is the culmination of many years of legislative effort. Once the debtor (or creditor) has applied for insolvency, there may be several options to explore. These were negotiated at the creditors' cost (unfair activities, undervalue transactions, etc.).

4.2. Insolvency proceedings

4.2.1. Insolvency proceedings. Out-of-Court proceedings Because judicial proceedings are successful, there are limited options for settlement outside the courts. Informal arbitration may take place by structured arrangement arrangements (Akkord), whereby the debts owed to the creditors are solely recognised and payment instalments can be negotiated without a court. It reduces costs and restricts negative advertising on the financial difficulties of the business, but such deals are rarely made and appear to be used in action mostly as informal instruments for bargaining.

4.2.2. Debt restructuring. The act offers a restructuring mechanism known as the suspension of payment proceedings (Reconstruktion) which primarily protects the debtor from compliance claims for a limited period of time (moratorium) and enables it to stabilize its financial situation. Suspension of compensation does not technically require the management of the debtor's assets because, in fact, the bankruptcy court appoints a monitor. If the debtor fails to comply with the settlement deal a period of liquidation would be called. The law does not provide for limitations on debt write-offs.

4.2.3. Winding up proceedings. Finally, a bankruptcy proceeding (Konkurs) may begin. The corporation is managed by an administrator / trustee named by the creditors in order to sell the properties at the highest possible price and transfer the proceeds of the sale to the creditors in their priority order.

4.2.4. Priority rules. Cases must be filed within four weeks of declaration claiming that bankruptcy proceedings have been initiated by the debtor. Creditors must be able to prove the allegation with relevant documents, but preference criteria would usually apply during the allocation to creditors of the proceeds from the sale of the properties. Secured creditors would be treated first, then prioritized over unsecured debtors that have no cumulative promise to be repaid.

4.2.5. Cancelation of fraudulent transactions. Transactions dating as far back as one year before the claimant joined the insolvency proceedings may be liable to cancelation because they have been made to the disadvantage of the creditors (unfair activities, undervalued payments, etc.).

4.2.6. Duration of  insolvency process.Insolvency cases in Denmark are lengthy and could last well over a year.

4.2.7. Required documents. Copies of invoices, financial statements and correspondence indicating that debt collection proceedings against the debtor will begin.