New Requirements for the Retention of Corporate Documents by Danish Companies

Date 13 aug. 2020
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Under the Danish Companies Act (the “Act”) Danish limited companies are obligated to ensure that a number of corporate documents are prepared and kept. As part of the general increased focus on compliance and control with respect to such companies, recent legislation has been introduced, requiring corporate documents to be kept for a period of five years following the end of the accounting year, in which the documents have been prepared. The new requirements enter into force on 1 January 2021. Failure to comply with the requirements may in severe cases ultimately result in the compulsory dissolution of the company in question, in addition to fines being imposed. The consequences for the companies and resulting matters to be considered in connection with M&A transactions are the focus of this article.

 

Background
Danish company law is based on a principle of allowing companies to carry out most corporate actions themselves, including the filing and registration of events such as incorporation, amendments of articles and change of management without this being subject to control or verification except on a random check-basis. This has the advantage that most corporate events can be filed by the companies or their advisors on-line using the IT system of the Danish Business Authority (the “Authority”). Following such filing, registration usually occurs automatically within a few hours. Although this system is generally very efficient and provides many advantages to the companies and in connection with M&A-transactions requiring corporate changes, the system also imposes a great responsibility on the companies and other persons making the filings, to make sure that the filings are made in accordance with applicable law and duly documented. The legislator has thus considered it necessary to impose additional requirements with respect to the retention of corporate documents, especially for the purpose of allowing a possible subsequent verification. This step should be seen in connection with a general increased focus on compliance under Danish company law, including with respect to the correct registration of management and corporate address. It is usually part of M&A transactions that a number of filings are to be made in connection with closing, including with respect to address and new management. These are typically handled by the buyer’s advisors, but each party should ensure that the registrations are duly documented. 

 

Companies comprised by the new Requirements

The new requirements apply to companies comprised by the Act, i.e. private limited companies (in Danish: “anpartsselskaber” abbreviated “ApS”), public limited companies (in Danish: “aktieselskaber” abbreviated “A/S”) and limited partnership companies (in Danish: “partnerselskaber” abbreviated “P/S”). In addition, similar requirements have been introduced with respect to other Danish company types not comprised by the Act, such as limited partnerships. In M&A-transactions, it is customary to incorporate a Danish “BidCo” in the form of an ApS-type company as buyer. A buyer should therefore consider the documentation requirements with respect to both the target company and the Danish part of the buyer’s company structure. 

 

Corporate Documentation

The concept “corporate documentation” generally comprises the documents that are required to be prepared pursuant to the Act, e.g. articles of association, memorandum of association, minutes of general meetings, minutes of management meetings and rules of procedure. The Act permits a company to voluntarily prepare certain documents, and to the extent these are prepared, they also form part of the corporate documentation. In addition, certain underlying documentation is considered corporate documentation, such as documentation for the due payment of share capital. The documentation prepared usually forms part of the closing documentation. However, it is important to ensure that the relevant part thereof is also available subsequently with the corporate records of the company.

 

Electronic Retention and Retrieval of Documents

While it is a requirement that certain documents must be signed by shareholders, members of management or other parties, there is no requirement to keep the original signed document in a physical form. Accordingly, it is customary that documents are signed in counterparts and kept as scanned PDF-files only. Regardless of whether documents are stored physically or electronically, it must at all times be possible for the management of the company to retrieve these and provide relevant Danish public authorities with access upon request. If documents are kept in a physical form only, they must be kept in Denmark, but this requirement does not apply if the documents are also kept in electronic form. No geographic requirements apply with respect to the storage of documents kept in electronic form. It should be ensured that corporate documents following closing of an M&A-transaction can be retrieved as part of the corporate documentation otherwise to be kept. Since not all documentation prepared at closing constitutes “corporate documentation”, it may be useful to prepare a separate binder or electronic file.

 

Additional Documentation Requirements

Upon incorporation of a company comprised by the Act, the company is obligated to provide documentation, stating that the share capital, or part thereof as applicable, has been paid to the company, such documentation to be filed with the Authority upon incorporation. This documentation requirement will now also apply to subsequent capital increases. In case of payment in cash, it is customary that the amount is initially paid to the client account of the law firm assisting in connection with the transaction, thus allowing a representative of the law firm to verify the payment. In case of non-cash contribution, it should be noted that a valuation report prepared by an auditor is generally required to be made public.

 

Increased Control and Sanctions

The Authority is entitled to request documentation confirming that filings made are in compliance with the Act. Accordingly, the fact that a corporate resolution has been registered with the Authority does not rule out subsequent control and verification and does not constitute an approval thereof. Once a registration has been made, however, the Authority is generally reluctant to amend or cancel such, since the registration in question has been made public and thus may have been relied upon by third parties. As a starting point, the Authority will thus usually seek to resolve the matter by obtaining any missing information. However, if this does not resolve the issue, the Authority may delete a registration and impose a fine on the management. In severe cases, where the company fails to provide correct documentation or the documentation is insufficient, the Authority may decide to initiate proceedings resulting in the compulsory dissolution of the company. It is therefore of great importance that any company receiving a request for information from the Authority handles such as a matter of urgency.

 

Our Assessment

The new provisions increase the focus on compliance with record-keeping and documentation obligations of Danish companies. While companies have always been obligated to keep corporate documentation available, the increased control contemplated, and potential sanctions mean that the consequences of non-compliance may have very severe consequences. In connection with M&A transactions, the new provisions will likely increase the focus on the part of a due diligence process concerning corporate documentation. Further, appropriate warranties and indemnifications should be included to address missing or incomplete corporate documentation, along with the potential consequences thereof.

 

If you have any questions or would like more information about the above, please do not hesitate 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 assumed responsibility of any kind as a consequence of any reader’s use of the above as a basis for decisions or considerations.