Structure and process, legal regulation and consents

Structure

How are acquisitions and disposals of privately owned companies, businesses or assets structured in your jurisdiction? What might a typical transaction process involve and how long does it usually take?

Private M&A transactions are typically effected by way of share deals, which are generally more tax efficient. Asset acquisitions are sometimes used in smaller transactions, for carve-outs or in connection with restructurings. Statutory mergers or demergers, which generally allow for succession in obligations without third-party consents, are mostly used for pre-M&A reorganisations.

Transactions processes in Denmark are usually structured as bilateral processes (typically strategic deals) or as auction processes divided into two or more phases to narrow down the field of bidders.

The time required to complete a transaction depends largely on the complexity of the deal, required regulatory and third-party consents as well as the number of parties involved. Bilateral transactions without regulatory consent can often be completed within one or two months’ time, while auction processes typically take from three to six months to execute.

Legal regulation

Which laws regulate private acquisitions and disposals in your jurisdiction? Must the acquisition of shares in a company, a business or assets be governed by local law?

Private M&A transactions are largely unregulated in Danish law and are instead subject to general principles of Danish law. Depending on the nature and structure of the transaction, a number of different acts and orders may, however, be of relevance. Often this is the case for the Danish Companies Act, the Danish Competition Act, the Danish Act on Transfers of Undertakings and the EU General Data Protection Regulation, as well as various tax regulations.

There is no requirement under Danish law for an acquisition to be governed by Danish law. Danish legal formalities for the transfer of shares or assets should, however, still be observed by the parties, inter alia, to ensure an effective transfer of title.

Legal title

What legal title to shares in a company, a business or assets does a buyer acquire? Is this legal title prescribed by law or can the level of assurance be negotiated by a buyer? Does legal title to shares in a company, a business or assets transfer automatically by operation of law? Is there a difference between legal and beneficial title?

Danish law does not distinguish between legal and beneficial title. Accordingly, upon a transfer of shares in a company, a business or assets, a buyer acting in good faith will obtain full and unrestricted legal title, subject, inter alia, to any encumbrances that follow by law or contract (provided security has been perfected).

Legal title follows by law and the seller will as a main rule be strictly liable towards a buyer for any deficiencies in the title to the shares, business or assets being transferred.

To be protected from the seller’s creditors and third-party beneficiaries acting in good faith, the buyer should perform the necessary acts of perfection under Danish law in respect of the acquired shares, business or assets. In respect of shares, this entails notification to the company of the transfer of title to the shares in order for the transfer of shares to be recorded in the company’s share register. If the company has issued share certificates, the buyer should furthermore take possession of the share certificates.

Multiple sellers

Specifically in relation to the acquisition or disposal of shares in a company, where there are multiple sellers, must everyone agree to sell for the buyer to acquire all shares? If not, how can minority sellers that refuse to sell be squeezed out or dragged along by a buyer?

As a starting point, each seller must consent to a sale of its shares in a company and cannot be forced to sell its shares.

Pursuant to the Companies Act, a shareholder holding more than 9/10ths of the shares and voting rights of a company will be able to squeeze out minority shareholders. The minority shareholders may dispute the price offered for the shares in a squeeze out, but will not be able to prevent the squeeze out. Statutory mergers and demergers can be effected with two-thirds majority of votes cast and shares represented at the general meeting adopting the transaction.

It is common that minority shareholders undertake contractual obligations, such as drag-along obligations, obliging them to co-sell their shares to a buyer.

Exclusion of assets or liabilities

Specifically in relation to the acquisition or disposal of a business, are there any assets or liabilities that cannot be excluded from the transaction by agreement between the parties? Are there any consents commonly required to be obtained or notifications to be made in order to effect the transfer of assets or liabilities in a business transfer?

Danish law recognises the fundamental principle of freedom of contract, and parties are therefore able to contractually exclude assets and liabilities from a transaction.

As a main rule, the buyer cannot without consent of the relevant counterparty assume the liabilities of the seller in connection with a transfer of a business or assets. Certain exceptions apply, inter alia, with respect to registered encumbrances and taxes on real property, certain rights of tenants and environmental orders known to the buyer.

In the case of an asset transfer that constitutes a transfer of a business or part of a business, the Act on Transfers of Undertakings will apply, entailing that all employees exclusively or mainly working within the target business automatically transfer to the buyer in which case the seller is released from its obligations towards the employees.

For contracts, general principles under Danish law prescribe that rights, but not obligations, can be assigned without the consent of the counterparty. Accordingly, the consent of the beneficiary will be required for an assignment of contractual obligations of the seller as part of a business or asset transfer unless otherwise specifically permitted, for example, by the terms of the contract in question.

Consents

Are there any legal, regulatory or governmental restrictions on the transfer of shares in a company, a business or assets in your jurisdiction? Do transactions in particular industries require consent from specific regulators or a governmental body? Are transactions commonly subject to any public or national interest considerations?

Apart from merger control, there are generally no regulatory or governmental restrictions on a transfer of shares in a company, a business or assets in Denmark, except for such restrictions in regulated industries applying to both Danish and foreign investors.

Transfers of shares in a company, a business or assets in certain industries require specific consent from or filings with the Danish authorities. Such industries notably include the financial sector, certain energy businesses, residential real estate, national security and the weapon industry.

Except for the aforementioned, acquisitions of companies, businesses or assets are not commonly subject to public or national interest considerations in Denmark.

In recent years, Danish pensions funds have played a more active role in M&A taking up minority investments alongside, for example, private equity investors (eg, within infrastructure). While there is no formal requirement of domestic investors, such investors may benefit public perception of larger private equity driven acquisitions in some sectors.

Are any other third-party consents commonly required?

Shares in Danish companies are freely transferable unless otherwise stipulated in the articles of association, agreed between shareholders or restricted by third parties such as lenders or pledgees. Any such restrictions on the transfer of shares will often appear from the company’s articles of association or shareholders’ register.

Shareholders and third-party stakeholders may hold pre-emption rights to acquire the shares or assets. A selling shareholder may also have to observe any contractual tag-along rights of other shareholders entitling other shareholders to co-sell their shares to the buyer subject to certain terms and conditions.

The prevailing view under Danish law is that the directors or offices of a company, as applicable, may decide to sell all or a substantial amount of the assets of a company without obtaining the consent of the shareholders unless an amendment is required of the company’s objects as codified in the articles of association. However, in practice, the consent of the shareholders is often sought to avoid any uncertainty about the authority (and potential liability) of the directors or officers.

Regulatory filings

Must regulatory filings be made or registration (or other official) fees paid to acquire shares in a company, a business or assets in your jurisdiction?

Aside from merger control filings where applicable thresholds are exceeded, no regulatory filings are required to acquire shares in a Danish company. However, both the shareholder and the company subsequently have to observe certain registration and notification requirements.

A shareholder whose shareholding exceeds or falls below thresholds of 5, 10, 15, 20, 25, 50, 90 or 100 per cent or one- or two-thirds of the share capital or voting rights of a company must notify the company thereof. Furthermore, holders of bearer shares constituting less than 5 per cent of the share capital or voting rights of an unlisted public limited company must register their shareholding with the Danish Business Authority.

Danish companies are obliged to register and continuously update information on ultimate owners as well as on shareholders holding more than 5 per cent of the share capital in the Public Shareholders’ Register kept by the Danish Business Authority.

In the case of a statutory merger or demerger involving a Danish company, the merger or demerger plan as well as the decision to effect a merger or demerger must be filed with the Danish Business Authority. Certain exceptions to the requirement to file a merger or demerger plan apply in mergers and demergers involving private limited companies only.

Ownership interests in certain groups of assets are registered in Danish public registers. Such registrations are typically not required for the transfer to be valid inter partes, but may be required for the buyer to protect its interest in and to the assets against the seller’s creditors and third-party beneficiaries acting in good faith.

The Danish merger control regime applies to all transactions whereby:

  • two or more previously independent undertakings merge into one undertaking;
  • one or more persons who already control at least one undertaking, or one or more undertakings - by an agreement to purchase shares, assets, or by any other means - acquires direct or indirect control in whole or in part of one or more other undertakings; or
  • a full-function joint venture is formed.

A transaction subject to the Danish merger control regime must be notified to the Danish Competition and Consumer Authority (DCCA) if the following thresholds are met:

  • the aggregate annual turnover of the undertakings involved is at least 900 million Danish kroner and the total annual turnover in Denmark of at least two of the undertakings concerned is at least 100 million Danish kroner; or
  • the total annual turnover in Denmark of at least one of the undertakings concerned is at least 3.8 billion Danish kroner and the total worldwide annual turnover of at least one of the other undertakings is at least 3.8 billion Danish kroner.

Special thresholds apply to transactions in the telecommunications sector.

If the transaction meets the turnover thresholds set out in the EC Merger Regulation, the transaction must be notified to the European Commission instead.

A transaction triggering a notification requirement may not be implemented prior to clearance from the DCCA or the expiry of the applicable waiting periods unless a derogation is applied for and obtained.

Notification to the DCCA can be made either as a standard notification or a simplified notification. The latter is aimed at transactions that are deemed unproblematic and generally allows for less information to be submitted to the DCCA.

After the DCCA’s receipt of a complete notification and the filing fee, the DCCA has up to 25 working days (extendable to 35 working days in cases where the parties offer commitments) to clear the transaction or to initiate a second phase. The second phase can last up to 90 working days (with a possibility under certain circumstances for the DCCA to extend the second phase by up to two times 20 working days).

The filing fee to the DCCA is 0.015 per cent of the parties’ turnover in Denmark (however, not exceeding 1.5 million Danish kroner) for a standard notification and 50,000 Danish kroner for a simplified notification.

Advisers, negotiation and documentation

Appointed advisers

In addition to external lawyers, which advisers might a buyer or a seller customarily appoint to assist with a transaction? Are there any typical terms of appointment of such advisers?

Irrespective of the size of the transaction, parties will typically appoint auditors to assist with financial, accounting and tax aspects, including financial and tax due diligence. Financial advisers such as investment banks are often appointed in larger transactions to assist with process management as well as strategic and valuation aspects. Business consultants with requisite knowledge of the industry of the target may be engaged to, inter alia, assist with commercial or ESG due diligence and specialists advisors may also - depending on the target - be involved in insurance due diligence. For targets that rely heavily on intellectual property (IP) rights, IP consultants may be involved, for example to consider scope of patents, freedom-to-operate, etc.

The fees of financial advisers often reflect the transaction value and are usually calculated as a percentage of the transaction value. Other professional advisers typically charge by hourly rates.

Duty of good faith

Is there a duty to negotiate in good faith? Are the parties subject to any other duties when negotiating a transaction?

There is no statutory duty to negotiate in good faith under Danish law; however, general principles of Danish law impose a duty to act honestly during negotiations.

A seller is furthermore subject to a duty of loyal disclosure entailing that it must disclose relevant information about the target company, business or assets that the seller knows or should know, and that is relevant for the buyer’s assessment of the company, business or assets.

The principle of caveat emptor is also recognised under Danish law. Accordingly, a buyer should make such reasonable investigations as the seller requests, and the seller is generally exempted from liability for any defects that the buyer is aware of or reasonably should have been aware of had such investigations been undertaken.

The directors and officers of a Danish company shall act in the company’s interest. Under Danish law, the interest of a company can include not only the interests of the company and its shareholders, but also the interests of third-party stakeholders such as creditors and employees. The Companies Act also imposes certain duties on directors and officers, including to not confer an unjust advantage to one or more shareholders at the expense of other shareholders or the company.

Documentation

What documentation do buyers and sellers customarily enter into when acquiring shares or a business or assets? Are there differences between the documents used for acquiring shares as opposed to a business or assets?

The basis for effecting a Danish private M&A transaction will usually be a share or asset purchase agreement. Save for such differences that follow from the subject matter of the transaction, there are no material differences between the documents used for acquiring shares as opposed to a business or assets. Danish purchase agreements are often relatively simple documents compared to Anglo-Saxon standards, but are similar in structure.

Non-disclosure agreements are usually entered into between the parties irrespective of the transaction type. Other pre-contractual documents such as term sheets and non-binding offers are also common. Completion of a transaction is typically documented by a written ‘closing memorandum’ reflecting the actions taking place at closing.

Are there formalities for executing documents? Are digital signatures enforceable?

There are no specific signing formalities for Danish law documents, including no notarisation or apostille requirements. However, it should be ascertained and documented that the signatories of a party are duly authorised to do so.

Signed documents can be exchanged in PDF form under Danish law.

Digital signatures are as a main rule enforceable to the same degree as traditional signatures.

Due diligence and disclosure

Scope of due diligence

What is the typical scope of due diligence in your jurisdiction? Do sellers usually provide due diligence reports to prospective buyers? Can buyers usually rely on due diligence reports produced for the seller?

The seller will usually grant the buyer access to a data room with information about the target company, business or assets. In line with legal custom in Danish private M&A transactions, the buyer will almost always conduct some sort of due diligence and not only rely on the contractual disclosures of the seller.

There has been an increase in the use of vendor due diligence reports in recent years, with financial vendor due diligence reports being more common than legal vendor due diligence reports. In auction processes, buyers and in some cases financing parties are sometimes given reliance on vendor due diligence reports, but often with very limited liability of the advisers having prepared the report.

Liability for statements

Can a seller be liable for pre-contractual or misleading statements? Can any such liability be excluded by agreement between the parties?

The seller can be held liable for pre-contractual or misleading statements under Danish law.

As a main rule, the parties can agree to exclude liability for pre-contractual or misleading statements, and the exclusion of pre-contractual statements is also in line with Danish market practice. However, the Danish courts may deem such an exclusion of liability void if it conflicts with general standards of reasonableness.

Publicly available information

What information is publicly available on private companies and their assets? What searches of such information might a buyer customarily carry out before entering into an agreement?

The Danish Business Authority’s register contains basic corporate information about Danish companies and also provides access to published annual reports.

A number of Danish public registers contain information about title or encumbrances on assets, or both, including the Danish Land Charges Register, the Danish Register of Persons (which, for example, lists floating charges) and the Danish Motor Vehicles Securities Register. The database of the Danish Patent and Trademark Authority contains information about title to trademarks, patents, utility models and designs. The aforementioned registers are not necessarily fully updated, and may therefore not reflect the current legal ownership of the assets. There are no central registers on pending lawsuits or on guarantee commitments.

Overviews of authorisations granted by Danish authorities can often be found on the authorities’ respective websites.

Impact of deemed or actual knowledge

What impact might a buyer’s actual or deemed knowledge have on claims it may seek to bring against a seller relating to a transaction?

Owing to the principle of caveat emptor, the seller is, in principle, exempted from liability for claims that the buyer became aware of or should have become aware of based on a reasonable investigation of the target company, business or assets as requested by the seller. This general principle does, however, leave room for interpretation.

Danish purchase agreements will often list the information disclosed to the buyer and describe to what extent the seller’s representations and warranties are qualified by such disclosure. The prevailing Danish market practice is that information fairly disclosed to the buyer (including any such information in the data room) qualifies the seller’s representations and warranties. Disclosure letters are rarely used in Danish M&A transactions, but do appear in some transactions involving foreign buyers.

Pricing, consideration and financing

Determing pricing

How is pricing customarily determined? Is the use of closing accounts or a locked-box structure more common?

Both ‘locked-box’ and ‘closing account’ mechanisms are used in Danish private M&A transactions. There is no particular preference in the market, and the choice of mechanism is determined and negotiated on a deal-by-deal basis.

Form of consideration

What form does consideration normally take? Is there any overriding obligation to pay multiple sellers the same consideration?

There are generally no restrictions under Danish law as to the form or composition of the consideration in private M&A deals. In statutory merger and demergers, the consideration must be the same for all shareholders. In addition to cash, share considerations and vendor loans are sometimes used. Private equity acquirers often require substantial reinvestments from private individual sellers.

There is an equal treatment principle under the Companies Act; however, individual shareholders are free to derogate and accept any alternative consideration offered by a buyer. Shareholders’ agreements would typically require that shareholders are offered the same consideration and on the same terms.

Earn-outs, deposits and escrows

Are earn-outs, deposits and escrows used?

Key performance indicator-based earn-outs and other types of deferred consideration are often used in Danish transactions to bridge price gaps. Tax implications have to be considered, as Danish tax laws may require capitalisation and upfront taxation of deferred compensation elements. Escrows, restrictions on distribution, equity requirements and guarantees from ultimate owners are some of the most common mechanisms used to seek to cover credit risk in relation to post-closing claims.

Financing

How are acquisitions financed? How is assurance provided that financing will be available?

Private equity transactions are financed by mix of equity, bank lending and (often) seller financing. Structured lending or bond issues are very rare in a private M&A context. Denmark has an efficient and low-cost mortgage financing system that is often utilised in acquisitions involving real estate. General financing conditions precedent are usually not accepted, and sellers will typically require evidence of ‘certain funds’ upfront. Private equity buyers typically provide ‘equity commitment letters’ covering the entire purchase price at signing.

Limitations on financing structure

Are there any limitations that impact the financing structure? Is a seller restricted from giving financial assistance to a buyer in connection with a transaction?

Financial assistance from targets (but not from sellers) is generally prohibited under Danish corporate law. In practice, however, these restrictions play a limited role as ‘debt push-down’ can be swiftly effected post-closing through dividend distributions. Recent amendments in the Companies Act now allow for financial assistance from the target; however, strict limitations and cumbersome procedural requirements imply that these rules are very seldom used in practice.

Conditions, pre-closing covenants and termination rights

Closing conditions

Are transactions normally subject to closing conditions? Describe those closing conditions that are customarily acceptable to a seller and any other conditions a buyer may seek to include in the agreement.

Closing conditions are typically limited to governmental consents (including merger control), the legality of the transaction and in some cases compliance with pre-closing covenants. ‘Material adverse change’ conditions are rare in a Danish private M&A context. Conditions relating to ‘third-party’ consents are also quite rare, but may be negotiated in situations where the target’s material contracts contain change-of-control provisions.

What typical obligations are placed on a buyer or a seller to satisfy closing conditions? Does the strength of these obligations customarily vary depending on the subject matter of the condition?

Parties generally have a ‘best’ or ‘reasonable endeavours’ obligation to assist in satisfying closing conditions. In relation to ‘merger control’ conditions, the strength of the obligation is typically negotiated in detail. ‘Hell-or-highwater’ conditions are not uncommon in cases where only limited antitrust risk is identified. Generally, buyers will be obligated to grant the seller access and consultation rights in relation to merger filing processes.

Pre-closing covenants

Are pre-closing covenants normally agreed by parties? If so, what is the usual scope of those covenants and the remedy for any breach?

The typical pre-closing covenants in a Danish private M&A context would probably be described as ‘very light’ when compared with Anglo-Saxon standards. However, much depends on the purchase price mechanism (‘locked box’ means stricter covenants) and whether the deal is insured (which would typically also mean stricter covenants due to the difficulty of obtaining coverage for breaches between signing and closing). Remedies for breach of pre-closing covenants are generally limited to seeking damages, although in some cases, material covenant breaches will trigger termination rights pre-closing.

Special attention should be paid to pre-closing covenants in transactions subject to antitrust clearance. In such transactions, pre-closing covenants should be subject to restrictions under antitrust law and generally not comprise any ordinary course matters in order to avoid violation of pre-implementation rules (gun-jumping).

Termination rights

Can the parties typically terminate the transaction after signing? If so, in what circumstances?

Transactions subject to merger control will typically be terminable by both parties if approval is not obtained prior to an agreed ‘long-stop date’. Non-compliance with closing obligations and in some cases material breaches of significant pre-closing covenants will typically also trigger termination rights. Fraud will typically always allow for termination irrespective of contract language.

Are break-up fees and reverse break-up fees common in your jurisdiction? If so, what are the typical terms? Are there any applicable restrictions on paying break-up fees?

Break fees are rare, but are sometimes seen in the context of financing conditions or merger-control conditions (ie, where the buyer has undertaken the risk to obtain approvals). There are no statutory limitations on break fees in a private M&A context, but such provisions will be subject to a general standard of reasonableness. In a share deal, any such fee may not be imposed on target itself.

Representations, warranties, indemnities and post-closing covenants

Scope of representations, warranties and indemnities

Does a seller typically give representations, warranties and indemnities to a buyer? If so, what is the usual scope of those representations, warranties and indemnities? Are there legal distinctions between representations, warranties and indemnities?

The scope of a seller’s warranties is negotiated on a deal-by-deal basis, but may comprise all aspects of the target’s business including compliance with laws (subject typically to a materiality qualifier). It is customary to include a general disclosure warranty that references the loyal disclosure standard applicable under general principles of Danish contract law. Danish drafting tradition tends to favour shorter and general wording, but this does not mean warranties cannot provide sound protection for buyers. The term ‘representations’ is practically never used in a Danish context, and courts would likely not distinguish between representations from warranties but instead focus on the purpose of the agreement. The term ‘indemnity’ is typically used for unqualified and unlimited hold harmless obligations in relation to specific matters. Loss definitions and limitations will typically vary between warranties and indemnities, with indemnities providing for full compensation on a kroner-for-kroner basis.

Limitations on liability

What are the customary limitations on a seller’s liability under a sale and purchase agreement?

Danish private M&A contracts typically contain limitations on liability in the form of caps, baskets, de minimis thresholds and also time limitations. In uninsured deals, caps typically range from 10 to 30 per cent of the enterprise value, and the time bar is typically 12 to 24 months with the exception of taxes (seven years or applicable period of statutory limitation) and title (unlimited). Liability limitations may also be built into the definition of loss (indirect losses are often excluded) and loss-mitigation obligations. Danish contract law is based on a number of uncodified principles that apply in addition to the contract and may impact its interpretation. In many cases, more detailed definitions of loss and mitigation obligations may be omitted as the parties will instead rely on the more ‘fairness-oriented’ principles of Danish law.

Transaction insurance

Is transaction insurance in respect of representation, warranty and indemnity claims common in your jurisdiction? If so, does a buyer or a seller customarily put the insurance in place and what are the customary terms?

The use of warranty and indemnity (W&I) insurance has increased substantially in recent years. W&I insurance is very often used in deals involving private equity or in deals with private individual sellers. In auction processes, the sell-side would typically be preparing the insurance (ie, by engaging a broker and drafting a fully covered set of warranties) and the favoured buyer would take over the process and ultimately put in place the insurance.

W&I insurance is clearly impacting deal terms. In private equity transactions, W&I insurance is now used to create ‘clean exits’, effectively limiting all recourse for breach of warranties to the W&I insurance. While W&I insurance often provides very good general warranty coverage, the standard exclusions (such as cybercrime, certain environmental claims, data protection, transfer pricing, fines, breaches between signing and closing) mean that buyers are effectively taking on added risks in these areas compared with typical uninsured deals. Sharing of the cost is negotiated on a deal-by-deal basis. It is not uncommon that a certain base coverage is split equally and that the cost of any additional protection is carried by the buyer.

The terms of the W&I insurance vary from deal to deal, but the coverage period for general warranties is typically two years and seven years for fundamental warranties and tax. The insurance cap, basket (non-tipping or partly tipping) and de minimis are negotiated on a case-by-case basis. A ‘new breach’ insurance covering breaches between signing and closing can be taken out separately.

Post-closing covenants

Do parties typically agree to post-closing covenants? If so, what is the usual scope of such covenants?

Typical post-closing covenants include non-compete and non-solicitation provisions. Non-compete provisions typically have a duration of two to three years. Non-solicitation provisions in relation to salaried employees are subject to a six-month statutory limit. Other typical post-closing covenants would include access to books and records (typically covering the period of statutory filing obligations) as well as discharge and indemnification of the seller’s representatives (excluding gross negligence and fraud).

Tax

Transfer taxes

Are transfer taxes payable on the transfers of shares in a company, a business or assets? If so, what is the rate of such transfer tax and which party customarily bears the cost?

There are no stamp duties or transfer taxes payable on the transfer of shares in a Danish company.

The transfer of real property is typically subject to a stamp duty of 1,660 Danish kroner plus 0.6 per cent of the purchase sum. A stamp duty is also payable on the transfer of certain other assets where the transfer is to be recorded in a public register. The buyer is liable for the stamp duty and customarily bears the costs.

Corporate and other taxes

Are corporate taxes or other taxes payable on transactions involving the transfers of shares in a company, a business or assets? If so, what is the rate of such transfer tax and which party customarily bears the cost?

Except for shareholdings of less than 10 per cent in a listed company, a transfer of shares in Danish limited liability companies is tax exempt for entities subject to corporate taxation.

A transfer of assets constitutes a taxable event. Individuals are subject to withholding tax at a rate of 27 or 42 per cent, depending on the amount of capital gain. Companies subjected to corporate taxation on their capital gain are taxed at a rate of 22 per cent.

There is no value added tax (VAT) on the transfer of shares. A transfer of assets is as a main rule subject to Danish VAT of 25 per cent; however, the transfer is VAT-exempt if the assets transferred constitute a business. This will be the case for most M&A transactions.

Employees, pensions and benefits

Transfer of employees

Are the employees of a target company automatically transferred when a buyer acquires the shares in the target company? Is the same true when a buyer acquires a business or assets from the target company?

In the case of a transfer of shares in a target company, employees will not experience a change of identity of their employer, and the employees will, therefore, continue their employment with the target company after completion of the transaction on unchanged terms. Danish collective bargaining agreements typically do not impact the transaction process in share deals.

In the case of an asset transfer that constitutes a transfer of a business or part of a business, the Act on Transfers of Undertakings will apply. Under the Act, all employees that exclusively or primarily work in the target business will automatically transfer to the new employer, unless the employees use their individual right to object to the transfer (which has not yet materialised as an issue in Danish law). The automatic transfer entails that all rights and obligations under individual employment agreements and collective bargaining agreements are automatically transferred to the buyer (being the new employer).

The Act does not apply to executive managers reporting to the board of directors (eg, the chief executive officer of the company), and a separate agreement must be entered into for such managers to effect a transfer to the buyer.

Notification and consultation of employees

Are there obligations to notify or consult with employees or employee representatives in connection with an acquisition of shares in a company, a business or assets?

There are no general employee consultation obligations in the case of an acquisition of shares.

In the case of an asset transfer, it follows from the Act on Transfers of Undertakings that employees or their representatives affected by the transfer must be informed of:

  • the date or proposed date of the transfer;
  • the reasons for the transfer;
  • the legal, economic and social implications of the transfer for the employees; and
  • any measures envisaged in relation to the employees.

The information must be given in due time prior to the transfer (ie, before the completion of the transfer). The ‘due time’ requirement is a flexible term allowing the parties to determine the timing of the information process with due regard to confidentiality and transaction planning in general. The transfer may also trigger an additional obligation to consult the employees or their representatives prior to the transfer. However, the additional obligation to consult applies only to companies with at least 35 employees.

Transfer of pensions and benefits

Do pensions and other benefits automatically transfer with the employees of a target company? Must filings be made or consent obtained relating to employee benefits where there is the acquisition of a company or business?

In the case of a transfer of shares, no transfer of pensions and other benefits will occur and, accordingly, no filings must be made, just as no consent from the employees needs to be obtained in this situation.

In the case of an asset transfer, the Act on Transfers of Undertakings will apply, and all rights under individual employment agreements and collective bargaining agreements, including pension and other benefits, will automatically transfer to the new employer. The underlying agreements with third-party benefit providers such as insurance companies or pension providers are not automatically assigned to the buyer and, consequently, the buyer (being the new employer) must either ensure an assignment or enter into new agreements with such insurance companies and pension providers.

Provided that the new employer continues to provide pension and other benefits, no filings must be made just as no consent from the employees needs to be obtained.

Defined benefit schemes are normally not used in the Danish market.

Update and trends

Key developments

What are the most significant legal, regulatory and market practice developments and trends in private M&A transactions during the past 12 months in your jurisdiction?

Key developments36 What are the most significant legal, regulatory and market practice developments and trends in private M&A transactions during the past 12 months in your jurisdiction?

There has been a continued high level of activity within private M&A across a range of sectors, including in particular technology and infrastructure. Private equity funds remain very active and Danish pension funds’ alternative investment arms also continue to be significant players making minority investments (equity or debt).

Although Denmark is by tradition not a litigious country, there has been a slight increase in M&A litigation - both in relation to purchase price adjustments as well as breach of seller’s warranties. In the past year, the first major payout under W&I insurance occurred, when FSN Capital was paid the full €50 million insurance limit for damages related to its acquisition of Gram Equipment from Procuritas.

W&I is a factor to be considered in almost all private M&A deals. The price of W&I insurance has been decreasing, making W&I a viable option also in lower value deals.

On the regulatory side, new rules on incentive programmes have been adopted, entailing, among others, increased contractual freedom in relation to good and bad leaver scenarios. Furthermore, certain restrictions now apply to the possibility of agreeing upfront that the employer can buy back shares from the employee at a price below market price.