Whereas in public offerings by Danish issuers it seems to be accepted under Danish law that issuers give representations and warranties to the investment banks concerned, it is unclear whether Danish limited liability companies can give representations and warranties to share subscribers in private placements.

This issue is often the subject of debate between the issuer's and investor's legal counsel in private placements. The essence of the problem is twofold. First, liability for breach of representations and warranties towards certain shareholders is inconsistent with the principle of equal treatment of shareholders. Second, it can be argued that representations and warranties are inconsistent with the requirement that funds or other assets contributed to a company by its shareholders be effectively and irreversibly assigned to the company.

Generally, the view of Danish academics and practitioners is that representations and warranties from the issuing company in private placements fall within the scope of legal obligations to which a Danish company can validly commit, since they are required by the international investor community. If so, the legal implications of an issuer giving representations and warranties relate to whether the management and/or directors have acted negligently by allowing the specific representations and warranties to be given by the issuer (eg, if the nature and scope of the representations and warranties are clearly beyond what the market dictates).

To date there are no authoritative rulings on the issue.

Some Danish scholars argue that although the representations and warranties are indeed binding on the company, claims based on the representations and warranties will be ranked junior to other unsecured claims in insolvency proceedings.

For further information on this topic please contact Philip Risbjørn at Bech-Bruun Dragsted by telephone (+45 7227 0000) or by fax (+45 7227 0027) or by email ([email protected]).