Bill on Securitization of Loans and Trustees when issuing Corporate Bonds going out for Consultation, among other Things

Date 11 jul. 2013
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28 June 2013, the Danish Minister for Business and Growth launched a public consultation on a  draft bill.

Parts of the bill are based on recommendations from the Committee on corporate bonds as a source of finance for small and medium-sized enterprises (hereinafter "the Committee") which was established in December 2011 and submitted its report in November 2012.  The bill includes a modification of the Danish Financial Business Act making it possible for banks to create refinancing registers in order to securitize loans. The bill also proposes an amendment to the Danish Securities Act which introduces rules on the use of trustees in connection with the issuance of debt securities (including corporate bonds).

The introduction of new requirements has also been proposed concerning the composition of the board of a fund or association that owns a mortgage company. The purpose of the new requirements is to avoid any conflict of interest between the board of the association or the fund and the underlying mortgage company to the extent possible. The bill entails that the board of such a fund or association cannot be appointed by or constituted by a majority of people who in one way or another are associated with the underlying mortgage company or subsidiaries. Additionally, it has been proposed that the underlying mortgage company’s President of the Board of Directors be banned from also being a member of the board of the fund or association that owns it.

The bill also contains a completely new definition of insurance holding company and mixed-activity insurance holding company which from now on will need to calculate the solvency requirements pursuant to insurance legislation rather than banking legislation as is the case today. Further, the bill contains a number of additional changes to the Danish Financial Business Act, Securities Act, Land Act, Managers of alternative investment funds Act etc., as well as certain other Acts.

In the following, we focus solely on the legislative amendments regarding refinancing registers and trustees in issuance of corporate bonds, respectively.

Refinancing Registers
The bill contains a proposal for new provisions (Sections 152i-152y), in particular on refinancing registers in the Danish Financial Business Act (Act No. 705 of 25 June 2012 (as amended)).

If passed, the bill will involve, inter alia, that

  • a financial institution may transfer loans and credits granted to businesses, as well as rights under the loans’ collaterals and guarantees  granted by the bank to a legitimate entity which can then issue securities on the basis of the transferred assets;
  • the bank alone may transfer assets to a legitimate entity which must be an assigned company, another bank, an insurance company, or a company pension fund;
  • the bank can only transfer assets to a legitimate entity if the bank does not exercise significant influence over the legitimate entity, i.e. (i) the bank may not own more than 20% of the voting rights, or (ii) one or more members of the bank’s (or bank group’s) board or executive board must not be a member of the board of the legitimate entity;
  • the legitimate entity must appoint an independent supervisor for every refinancing transaction. The independent supervisor must be registered with the Danish FSA;
  • the bank's agreement with the legitimate entity to transfer ownership to the assets will be considered final when the assets have been entered into a refinancing register. In the register the bank must register assets sold by the bank to the legitimate entity indicated in the refinancing register;
  • the bank must apply to the Danish financial Supervisory Authority for an authorization before creating a refinancing register. In connection with this, it is proposed that the Danish Financial Supervisory Authority establish and maintain a public list of banks authorized to create a refinancing register;
  • after a sale of assets that are introduced into a refinancing register the bank is still in charge of the administration of the assets in relation to the debtors. The bank will be able to set-off against the debtor, even if the asset is introduced into a refinancing register;
  • pursuant to the bill a legitimate entity will be able to either sell all the assets acquired in a refinancing transaction, to another legitimate entity in one bulk, or sell back assets individually to the bank that originally introduced the assets into a refinancing register;
  • the legitimate entity may issue securities on the base of and if needed secured by assets in a register. The securities must have a denomination of at least EUR 100,000. In this context, it is proposed that the bank is jointly liable with the legitimate entity for losses caused by defects in the tender documents.

It has been unclear whether a trustee, as an agent for the bondholders, could obtain the necessary powers to take legal action on behalf of or with consequences for the bondholders. Furthermore, there have been doubts about the validity of the so-called 'no-action' clauses and whether the agent could hold mortgages on behalf of the bondholders.

Hence, the bill proposes inserting Chapter 2a into the Securities Trading Act (Act No. 219 of 20 February 2013 (as amended)).

If the bill is passed, it will involve, inter alia, that

  • a trustee must be a capital company or a foreign company with a similar legal form and must be registered with the Danish Financial Supervisory Agency’s register;
  • a trustee can be appointed either by the issuer of the bonds or by the holders to care for all holders’ interests. The terms for the trustee's duties and powers shall be included in either the bond conditions or in an agreement that binds the bondholders. The bill cites a number of examples of powers that the trustee may have. Consequently, the trustee can be empowered to:
    • enforce and execute the bondholders' claim against the issuer, including security rights;
    • manage the bondholders’ assets;
    • to bring proceedings on behalf of the bondholders in matters relating to the bonds; and / or
    • to represent the bondholders in case of the issuer's bankruptcy or restructuring;
  • the issuer may pledge a security to the trustee on behalf of the  current bondholders. When the security has been pledged to the trustee, the trustee may exercise all the powers that are commonly attributed to a mortgagee. This will apply equally to agents or other representatives of creditors in other collective debt ratios than the bond issuer (syndicated loans, club loans).

The consultation period for the bill expires on 12 August 2013. There has not yet been set a date for the implementation of the bill, but we expect that the bill will be tabled in the fall of 2013.

Should you have any questions or wish further information on the above, please contact partner, Christoffer Galbo ( or Junior Associate Ted Rosenbaum (

The above does not constitute legal counseling and Moalem Weitemeyer Bendtsen does not warrant the accuracy of the information. With the above text, Moalem Weitemeyer Bendtsen has not assumed responsibility of any kind as a consequence of a reader’s use of the above as a basis of decisions or considerations.