Section 95 of the Danish Insolvency Act encompassed sales director's salary claim

Date 9 maj. 2011

 

On 9 March 2011, The Danish Maritime and Commercial Court delivered judgment in the case P-67-10. The case concerned whether the salary claim of an employee, “E”, with the title of sales director, was encompassed by Section 95 of the Danish Insolvency Act.

 
Facts of the case

In June 2008, E sold his firm to the company “C” and subsequently, E was employed with the company as sales director. E’s daily work was performed from the address at which E had previously been running his own business. E was neither registered as manager nor as a member of the board of directors with The Danish Commerce and Companies Agency. Furthermore, E did not attend board meetings.

 

In connection with the employment, negotiations regarding a transfer of shares were conducted, according to which a private limited company would take over 49% of C on behalf of E. However, the agreement was never concluded.

 
In connection with his work, E had entered into an agreement on behalf of the company regarding an unpaid placement. Furthermore, E and the manager signed a letter of acceptance regarding transfer of a contract to the company.


Moreover, as a part of his job, E had done proactive client work and sometimes drawn up offers for clients. E had neither had the authority to do purchases, nor access to the company’s cards or accounts. He was not involved in management decisions, such as hiring and dismissing employees.


The legal foundation

Section 95 of the Danish Insolvency Act deals with salary claims and other remunerations performed as a service to the debtor. In other words, this means that the employee must be subordinated to a superior. Employees with executive positions in the company and employees who generally perform their work independently are not encompassed by Section 95 of the Danish Insolvency Act. In this context, the key factor is the substance of the employee’s position and the not his title.


The court’s explanatory statement

The Danish bankruptcy court based its decision on the fact that E was not registered as manager at the Danish Commerce and Companies Agency, and that he did not participate in board meetings or take part in management decisions, such as hiring and dismissal of employees. Furthermore, the court based its decision on the fact that E did not have access to the company’s cards or accounts, and that the company’s purchases and invoices were handled by the parent company.


In this context, the court did not attach importance to the fact that negotiations had been conducted regarding a transfer of shares. Similarly, the agreement regarding an unpaid placement and the signing of the letter of acceptance was not of importance. The fact that E’s daily work was performed from the address at which E had previously been running his own business was likewise not of decisive importance. The fact that E was not subject to the Danish Holidays Act could also not be regarded as important to the verdict.


The verdict’s influence
The employee’s title is not decisive when deciding whether a salary claim is encompassed by The Danish Insolvency Act’s section 95. On the other hand, it is the substance of the employee’s position which must be assessed.


For that reason, the salary claim of a sales director may be encompassed by The Danish Insolvency Act’s section 95 if the employee has not had management competence. 


A salary claim will not necessarily fall outside the Danish Insolvency Act’s Section 95 if an employee can make and sign agreements on behalf of the company. Thus, an employee may have the right to perform transactions on behalf of the company, though this right may be limited, and at the same time keep his salary claim a privileged claim.

 

 

If you have any questions or require additional information on priviledged claims or bankruptcy in general, please contact Partner Thomas Weitemeyer (twe@mwblaw.dk or Junior Associate Tim Rosenkrantz Buur (tbu@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 a reader’s use of the above as a basis of decisions or considerations.