Transactional issues

SPV forms

Which forms can special purpose vehicles take in a securitisation transaction?

There are no restrictions under Danish law with regard to the type or nationality of an SPV and, accordingly a non-Danish entity could be used.

If a Danish SPV is elected, it usually takes the form of a public company limited by shares incorporated in accordance with the Danish Companies Act.

SPV formation process

What is involved in forming the different types of SPVs in your jurisdiction?

Public limited companies must have a minimum share capital of 500,000 Danish kroner (or the equivalent euro amount).

In connection with the incorporation of public limited companies, articles of association must be adopted and filed with the Danish Business Authority. The Danish Companies Act sets out the minimum requirements, specifying information that must be included. Danish company law is largely based on a principle of freedom of contract, which allows shareholders to organise their company as they see fit. Consequently, shareholders are free to include provisions relating to issues other than those listed in the Danish Companies Act in the articles of association, subject to compliance with the provisions of the Danish Companies Act.

A public limited company comes into legal existence once it is registered with the Danish Business Authority. Registration of the public limited company with the Danish Business Register is subject to a registration fee of 670 Danish kroner.

Governing law

Is it possible to stipulate which jurisdiction’s law applies to the assignment of receivables to the SPV?

In general, there is freedom of contract to determine which law should govern the assignment, in other words, the sale agreement between the assignor (the originator) and the assignee (the SPV), just as the assignor is free to agree the governing law in relation to the receivable. A different issue is which law governs the question of perfection of the sale when the obligors are domiciled outside of Denmark (to obtain protection against the assignor’s creditors). There is no clear case law on this issue in Denmark, but it has been generally assumed that lex situs applies. The answer therefore depends on the interpretation of the term lex situs. As receivables have no physical domicile, it is normally found that receivables exist in the country where the obligors under the assigned receivable are domiciled.

The legal theory cannot agree on whether the law of the creditor’s (the originator’s) domicile, in this case Danish law, or the laws of the obligors’ domicile apply. A number of scholars have recently argued that where a great number of similar assets are transferred or there is a transfer of receivables, the law of the creditor (the originator) should apply. In a securitisation this seems to make sense, and there is also one supporting case. A Danish law notification should therefore be sufficient, although to avoid any uncertainty, the law of the obligors’ domicile should also be observed if different from Danish law.

Asset acquisition and transfer

May an SPV acquire new assets or transfer its assets after issuance of its securities? Under what conditions?

There are no restrictions under Danish law on an SPV’s ability to acquire new assets or transfer its assets after issuance of its securities. This would usually be subject to the agreed terms and conditions set out in the securitisation documentation.

Registration

What are the registration requirements for a securitisation?

In general, there are no registration requirements for a securitisation.

As mentioned in question 1, Danish banks may, with the permission of the Danish Financial Supervisory Authority, choose to create a refinancing register with respect to a securitisation of bank loans and credits granted to commercial enterprises.

Furthermore, if a bond representative has been appointed to act on behalf of the investors, such bond representative must be registered with the Danish Financial Supervisory Authority.

Obligor notification

Must obligors be informed of the securitisation? How is notification effected?

Notice to the obligor is a perfection requirement, and must be served by the originator or the issuer. No consent is required from the obligor (unless otherwise specifically required in the contract). An acknowledgment, although not required, would minimise the procedural risk of evidencing the notification having reached the obligor.

No particular requirements apply to the form of notice or to the effective service, as it may be served orally or in writing. Danish law operates on the basis of substance over form; however, the notice must be clearly defined and precise in order for the obligor to become fully aware of the transfer. The notice must reach the obligor in order for perfection to be duly obtained, and that burden of proof lies with the one serving the notice. In addition, it may be required that foreign obligors are notified in their languages. Normally, a notice is delivered in connection with or following the sale, but it may be delivered earlier if the receivables can be clearly specified and identified.

What confidentiality and data protection measures are required to protect obligors in a securitisation? Is waiver of confidentiality possible?

The Danish Data Protection Act applies to the processing of personal data relating to private individuals, whether they are consumers or not, and to some extent to corporate entities (primarily in relation to the processing of credit information by credit agencies). Danish data protection law will not prevent the assignment of receivables to the SPV, but there are certain data protection obligations that must be complied with.

The term ‘personal data’ means information about an identified or identifiable physical person. Processing’ is any operation or use of the personal data. A data controller is the person, or persons, who makes decisions about how the personal data is used.

According to the provisions of the act, personal data may only be gathered, and subsequently processed for specifically stated purposes and must be processed in accordance with good data processing practice. The SPV must put in place measures to ensure compliance with the data protection principles set out in the Act, such as the obligations to:

  • keep and process data only for specified and lawful purposes;
  • keep personal data that is adequate, relevant and not excessive;
  • keep data accurate and up to date;
  • not keep data for longer than necessary for the purpose for which the data was collected;
  • inform the data subjects of their rights (see below);
  • process data in accordance with the data subjects’ rights;
  • apply appropriate technical and organisational measures to protect data; and
  • not transfer data outside of the European Economic Area (EEA) unless special conditions are complied with.

If the SPV is acting as a joint data controller, the SPV is also obliged to inform the data subject about the extent of the processing and its purposes, unless the originator has already informed the data subject. The information given to the data subject on the processing shall include a listing of the categories of data processed, the categories of receivers of the personal data and information on the data subjects’ right to insight and correction on the processing. If the SPV only acts as a data processor, a written contract must also be prepared with the originator. The SPV will be categorised as a data processor, if the SPV only processes data on behalf of and under the instruction of the originator. The contract shall stipulate that processing personal data is only to be done under the instruction of the originator. The contract shall furthermore commit the SPV to take appropriate technical and organisational security measures to protect data against accidental or unlawful destruction, loss or alteration and against unauthorised disclosure, abuse or other processing in violation of the provisions laid down in the Danish Data Protection Act. If the SPV is located in another country within the EU, the contract must also stipulate that the provisions on security measures laid down by the law in that country must comply with the SPV. If data is transferred to a country outside the EU, a contract in accordance with the EU Commission’s Standard Contractual Clauses must be made.

In addition, the processing of personal data will require a legal basis. Such legal basis will, with respect to the SPV’s processing of personal data as a data controller, be:

  • the consent of the data subject;
  • the processing is necessary for the fulfilment of a contractual obligation; or
  • an assessment of whether the interest of the SPV overrides those of the data subject.

If the data is of a sensitive nature, processing will generally require consent as a legal basis for processing it. Under Danish law, ‘sensitive data’ is personal data revealing or concerning:

  • racial or ethnic origin;
  • political opinions;
  • religious or philosophical beliefs;
  • trade union membership;
  • health or sex life;
  • criminal offences;
  • serious social problems; and
  • other purely private matters than those mentioned.

The Danish Financial Business Act will apply if the originator is a financial institution. According to the Danish Financial Business Act, all persons acting on behalf of the institution have, as a general rule, an obligation of confidentiality concerning the information obtained during the performance of their duties. The board of the financial institution can, however, chose to divulge information concerning the institution, but not the clients. Client information can only be divulged if the relevant financial institution has obtained an informed consent in writing from the client. This does not apply for usual information on client matters for the performance of administrative tasks. Usual information on commercial clients may also be divulged for the purposes of marketing.

Credit rating agencies

Are there any rules regulating the relationship between credit rating agencies and issuers? What factors do ratings agencies focus on when rating securitised issuances?

When a credit rating agency rates a structured finance instrument (ie, an instrument resulting from a securitisation transaction, Regulation (EU) No. 1060/2009 on credit rating agencies (as amended in May 2011 by Regulation (EU) No. 513/2011 and in June 2013 by Regulation (EU) No. 462/2013)) sets out specific information requirements to be disclosed in the credit rating. The credit rating agency is, among others, obliged to disclose their loss and cash flow analysis, their assessment of the due diligence performed, methodologies, models and key rating assumptions. In addition, the rating agency is obliged on an ongoing basis to disclose all securitisation products submitted for their initial review or preliminary rating. Such disclosure shall be made even though the issuer does not contract with the credit rating agency for a final rating. In addition, three new delegated regulations have been adopted by the European Commission on technical standards for regulating credit agencies, which entered into force in June 2015.

Rating agencies are generally concerned about the variety of legal risks associated with the securitisation emanating from the SPV location and the type of assets securitised. In particular, they are concerned about the speed and ease of enforcement and the jurisdiction that will govern insolvency proceedings. The agencies will also take other factors into account, such as the historic performance of the securitised assets, any credit enhancement, liquidity facilities and the credit standing of the administrative parties, and the structure and legal integrity of the transaction.

Directors’ and officers’ duties

What are the chief duties of directors and officers of SPVs? Must they be independent of the originator and owner of the SPV?

A public limited company must choose between two different types of management structure:

  • a board of directors and a management board; or
  • a supervisory board and a management board.

The management board shall consist of at least one general manager, appointed by the board of directors, or the supervisory board. A legal entity is not eligible for election as a general manager.

There are no specific rules under Danish law that stipulate that the board of directors and the management must be independent of the originator and owners of the SPV. However, in order to keep, in particular, the originator and the SPV as two separate legal entities and avoid the risk of assets being consolidated, it is advisable that the board of directors and the management of the SPV are independent from the originator (see question 32).

The board of directors is responsible for supervising the management board, establishing general policies and making decisions on extraordinary transactions, and shall, inter alia, consider from time to time whether the financial position of the company is sound in the context of the company’s operations.

The board of directors must ensure proper organisation of the company’s business, and ensure, among others, that:

  • the bookkeeping and financial reporting procedures are satisfactory, having regard to the circumstances of the company. The annual report shall be submitted for approval at the annual general meeting;
  • adequate risk management and internal control have been established, and that the company has adequate insurance coverage;
  • they supervise activities and ensure that the company is managed in compliance with the articles of associations, policies and guidelines, and applicable rules and regulations;
  • the board of directors receives ongoing information as necessary about the company’s financial position;
  • the executive management performs its duties properly as directed by the board of directors; and
  • the financial resources of the company are adequate at all times, and that the company has sufficient liquidity to meet its current and future liabilities as they fall due. The board of directors is, therefore, required to continuously assess its financial position and ensure that the existing capital resources are adequate.

The supervisory board, if any, is responsible for supervising the management board. As opposed to the board of directors, the supervisory board is not responsible for establishing general policies and making decisions on extraordinary transactions, and it may not bind the company.

The management board is in charge of the day-to-day operations of the public limited company. Since the SPV’s business activities will usually be limited to those related to the securitisation transaction and with no employees, the management board will only have limited duties. The management of the SPV will usually be independent from the originator, ensuring that the SPV operates on a stand-alone basis in order to achieve insolvency remoteness. The management’s main tasks may be provided by a corporate service provider.

Risk exposure

Are there regulations requiring originators and arrangers to retain some exposure to risk in a securitisation?

Under Danish law, there are no general rules requiring originators and sponsors to retain a net economic interest in their securitisation transactions.

However, under Regulation (EU) No. 575/2013, risk retention rules apply to certain institutions (namely credit institutions and investment firms) located within the EEA. The EU risk retention rules prohibit affected investors from becoming exposed to the credit risk of a securitisation unless the sponsor, the originator or the original lender in the transaction discloses that it will retain an interest of not less than 5 per cent of the securitised exposures. Should an affected investor invest in a securitisation transaction that does not meet the risk retention, due diligence and disclosure requirements of the EU risk retention rules in any material respect by reason of such investor’s negligence or omission, the competent authorities must impose a proportionate additional risk weight against the relevant securitisation position equal to no less than 250 per cent (capped at 1,250 per cent) of the original risk weight of that position.

It should be noted that similar risk retention rules apply to EU insurance companies through Solvency II and alternative investment funds via AIFMD.