Change of rules regarding shareholder loans

On 5 November 2024, the Minister for Industry, Business and Financial Affairs presented a bill to amend certain laws and regulations in the area of the Ministry of Industry, Business and Financial Affairs, including an amendment of the Danish Companies Act. The purpose of the bill is to minimise and eliminate time-consuming supervisory activities and legislation to the extent deemed justifiable. Among other things, the bill entails that the provisions of the Danish Companies Act on shareholder loans are repealed.

On 5 November 2024, the Minister for Industry, Business and Financial Affairs presented a bill to amend certain laws and regulations in the area of the Ministry of Industry, Business and Financial Affairs, including an amendment of the Danish Companies Act. The purpose of the bill is to minimise and eliminate time-consuming supervisory activities and legislation to the extent deemed justifiable. Among other things, the bill entails that the provisions of the Danish Companies Act on shareholder loans are repealed.

Current conditions for shareholder loans under the Danish Companies Act

The conditions under company law for shareholder loans that are proposed repealed are set out in sections 210-212 of the Danish Companies Act, introduced by Act no. 1546 of 13 December 2016. The rules marked a break with the previous general prohibition on companies providing financial assistance to their shareholders and D&Os. 

Since the amendment, companies have been able to provide financial assistance by directly or indirectly making funds available, granting loans or providing security (shareholder loans) if it takes place as part of a normal business transaction, or the company has observed and fulfilled the conditions under company law that (i) the assistance must be within the company's free reserves, (ii) the assistance must be provided on normal market terms, (iii) the decision must be made at the general meeting or with the general meeting's authorisation, and (iv) the decision must be made after the presentation of the company's first annual report.

The proposed scheme

If the bill is adopted without amendments, the mentioned company law conditions for shareholder loans will be repealed.

In practice, this means that companies will be able to provide financial assistance to shareholders or D&Os,

including granting loans to their shareholders and D&Os on terms agreed between the company as lender and the shareholder or D&O as borrower, without having to observe specific conditions. 

However, the management is still obliged to ensure that shareholder loans are at all times sound in relation to the company's finances, that the company has adequate capital resources, and that the transaction is otherwise on commercial terms. In addition, the bill does not entail changes to the Danish Companies Act's rules on self-financing, which must also still be observed when a company grants shareholder loans. 

The Ministry of Industry, Business and Financial Affairs has assessed that the company law conditions for shareholder loans can be safely repealed without compromising the protection of the company's creditors, as the management is still obliged to comply with any other rules on risk management and adequate capital resources. 

The amendment is expected to become effective on 1 January 2025.

Advisory services

The proposed amendment will allow companies to provide shareholder loans without further restrictions than those following from EU company law rules, including the rules on self-financing. The bill thereby reduces both the regulation under company law and the Danish Business Authority's supervisory activities.

However, the company's management will still be obliged to ensure that the company maintains adequate capital resources, that the loan is sound, that it is granted in the company's interest and that it is not otherwise likely to give certain shareholders an undue advantage to the detriment of other shareholders or the company.   

Poul Schmith/Kammeradvokaten has extensive experience in advising on company law matters, including the relationship between the company and its shareholders and provision of capital, and can assist in navigating the new opportunities.

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