On 5 October 2016, a bill was tabled by Mr Troels Lund Poulsen, the Danish Minister for Business and Growth, to amend the Companies Act and the Financial Statements Act (the "Bill")1.
The most significant changes proposed by the Bill are the following: -
The possibility of granting shareholder loans
It is proposed to improve the possibilities for companies lawfully to place funds at the disposal of, grant loans to or provide security for shareholders or the management ("shareholder loans") provided that:
(i) the shareholder loan is within the company's distributable reserves;
(ii) the decision is passed either by the general meeting within an amount approved by the board of directors2, or by the board of directors at the authority of the general meeting; and
(iii) the decision is passed after the presentation of the company's first annual report.
This proposal represents an improvement of the current possibility for granting shareholder loans under which this possibility is only feasible within the context of normal business transactions, through self-financing or to certain parent companies. These possibilities will remain unchanged and can still be applied, regardless of whether the above conditions are met.
The management must ensure that the conditions for granting the shareholder loan are met, and that the company continually has adequate financial resources.
Moreover, the auditor must ensure that the conditions are complied with in connection with the preparation of the annual report. The shareholder loan will have to be stated as a non-distributable reserve in the "reserve for loans and securities" item under the equity in the annual accounts. This reserve can only be reduced concurrently with the shareholder loan decreasing or being redeemed.
The Bill does not involve a change of the tax rules, and therefore certain recipients of a shareholder loan will still be taxed pursuant to section 16 E of the Tax Assessment Act.
Change of the requirements for shareholder registration
Newly formed companies: It is proposed that registration be performed - not later than at the time of incorporating a new company - of all shareholders holding major shareholdings or of the fact that there are no shareholders with such holdings. The Bill therefore does not envisage a new duty with regard to shareholder registration but brings forward the time at which such registration must be performed.
Existing companies: The Bill emphasises that also changes in registered shareholdings resulting in the fact that no shareholders any longer hold a major shareholdings must be registered as soon as possible.
It is proposed that any failure to notify the Danish Business Authority's Public Register of Shareholders should result in the Danish Business Authority being entitled to enforce a dissolution of the company. This also applies to companies that merely after the registration delete their shareholders. Companies that do not have shareholders with major shareholdings will therefore have to give notification thereof in order to ensure that it appears that this is the reason why no shareholders are recorded in the Public Register of Shareholders.
Capital increases in entrepreneurial companies ("IVS companies")
It is proposed that it be emphasised that a capital increase in an entrepreneurial company also can be effected by transferring the company's reserves to the share capital. This does not constitute a fundamental change but merely a clarification of the fact that a capital increase can be effected both by way of cash contribution and by way of transfer from the reserves which did not clearly emanate from the previous wording.
Reintroduction of the exemption rule in the Financial Statements Act
The Bill reintroduces the former exemption whereby companies in reporting classes C and D may be exempted from disclosing information concerning equity and result in certain subsidiaries and associated companies, provided that the subsidiary or the associated company:
(i) is under no obligation to present an annual report, and the parent company owns less than 50 % of the equity;
(ii) is included in the parent company's group accounts; or
(iii) is recognised in the parent company's annual report under the equity method.
If the Bill is adopted in its current form, the provisions will enter into force on 1 January 2017. Therefore, it is not possible to grant shareholder loans under the new rules until after this date. However, there is a possibility that illegal shareholder loans granted before 1 January 2017 can be rendered compliant if the company at the first general meeting held after 31 December 2016 at the latest elect to maintain the shareholder loan and ensures that the conditions are met. Furthermore, the Danish Business Authority may in certain cases request that companies immediately and within a reasonable period of time render complaint capital loans granted before 1 January 2017.