Danish Companies allowed to grant Loans to Israeli Parent Companies

Date 4 nov. 2019
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Introduction

Pursuant to the Danish Companies Act, a general prohibition on loans and other financial assistance made by Danish limited companies to their shareholders applies, however, with a number of exemptions. The most important exemption in practice is the right for such companies to make loans and provide financial assistance to their parent companies. In order for this exemption to apply, the parent company must be located in a country listed in the Danish Executive Order on Parent Companies (the “Executive Order”). As of 31 October 2019, Israel has been added to the list of countries comprised by the Executive Order, thus allowing Danish limited companies to make loans and provide other financial assistance also to their Israeli parent companies. The implication of this amendment will be described in the following.

 

The Danish Ban on financial Assistance in general

The Danish rules comprise loans, guarantees and other forms of financial assistance granted to parent companies by companies comprised by the Danish Companies Act, i.e. public limited companies (in Danish “aktieselskaber” abbreviated “A/S”), private limited companies (in Danish “anpartsselskaber” abbreviated “ApS”) and limited partnership companies (in Danish “partnerselskaber” abbreviated “P/S”). The ban is very broad and generally also comprises shareholders in parent companies, other companies controlling the company, management within the group and certain related persons.

 

A very narrow general exemption applies, allowing for loans etc. to shareholders subject to a number of strict limitations and requirements, such as the loan etc. be limited to the distributable reserves presented in the latest annual report and prior approval or authorization from the general meeting. This general exemption is therefore rarely used in practice.


The Parent Company Exemption

The ban on providing shareholder loans etc. does not apply to loans granted to its parent company, provided that the company is either itself a company of the types comprised by the Danish Companies Act or a similar company type in another country listed in the Executive Order. In practice, this is the most important exemption. It should be noted that the decision to grant loans etc. to parent companies, as a general principle of Danish company law, must be considered proper, reasonable and take into account the interests of creditors and any minority shareholders.


Remaining Bans

Danish company law makes a distinction between loans etc. made in connection with acquisition of shares in the company itself or its parent company (“self-financing”) and loans made in any other situations. Loans etc. made for the purpose of self-financing are not comprised by the exemption for parent companies and thus subject to the prohibition. Such loans etc. may only be granted in very limited circumstances, subject to a number of strict requirements, including prior approval by the general meeting, official publication and limitations depending on the free reserves of the subsidiary. Due to the nature of these requirements, a traditional debt-pushdown structure where, following its acquisition, the Danish subsidiary distributes dividends to its parent company, is generally used in Denmark instead.

 

Other Amendments

In addition to Israel, Chile has been added to the list of countries comprised by the Executive Order. Further, Hong Kong has been removed.


Our Assessment

Since Israel received the best OECD risk classification in December 2010 and was also classified as a High Income OECD Country in 2013, it is natural that Israeli parent companies are now comprised by the Executive Order and thus the parent company exemption. The amendment constitutes a welcomed change which will strengthen the possibilities of efficient use of capital on a cross-border basis between Danish subsidiaries and their Israeli parent companies.

 

 

If you have any question or would like additional information regarding any of the above, please feel free to contact Partner Dan Moalem (dmo@mwblaw.dk) or Senior Associate Henning Hedegaard Thomsen (hht@mwblaw.dk).

 

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