Compulsory dissolution
Public limited companies (A/S) and private limited companies (ApS) must comply with a number of rules about the company’s management, audit and annual report. If the rules are not complied with, the Danish Business Authority may ask the courts for compulsory dissolution of the company.
A company must have a legal management, which is responsible for what the company does. If, for example, an executive officer resigns or dies, a new executive officer must be appointed, and the Danish Business Authority must be informed so that the authorities know who is responsible for the company. Likewise, there are rules about audit and the submission of annual reports with the company’s financial statements.
If these rules are not complied with, the Danish Business Authority may decide to compulsorily dissolve the company. The Danish Business Authority will then send the case to the bankruptcy court, which will be responsible for the practical dissolution of the company. The bankruptcy division of the district court with jurisdiction over the place where the company’s registered office is situated is responsible for compulsory dissolution – in Greater Copenhagen (Copenhagen, Frederiksberg, Glostrup and Lyngby judicial districts), however, the Maritime and Commercial Court of Copenhagen considers cases of compulsory dissolution.
What types of companies are limited liability companies?
Public limited companies (A/S), private limited companies (ApS), entrepreneur companies (IVS) and limited partnership companies (P/S) are called limited liability companies because the owners have provided an amount as security when the company was established. In limited liability companies, the owners are not personally liable for the company’s debts, but on the other hand the company must comply with a number of requirements.
How can a company be compulsorily dissolved?
There are three methods to compulsorily dissolve a company:
Informal dissolution
Insolvency
Liquidation
The method used by the bankruptcy court depends on whether the company has assets and whether the company is insolvent.
What is informal dissolution?
Informal dissolution means that a company is closed without any dissolution proceedings as such. This may for instance be the case if the company has no assets that can pay for the dissolution proceedings, and no one will provide security for the costs. The bankruptcy court will not use informal dissolution if further investigations are required – for example about whether disqualification investigations should be initiated against one or more persons in management.
What is insolvent dissolution?
The bankruptcy court may dissolve a company if the company is insolvent, i.e. the company cannot pay its creditors as agreed as and when their claims fall due, and if the company has assets of a certain value.
In case of insolvency, all assets are sold and the proceeds are distributed among those who are owed money. If there seems to be too few assets to cover the costs of the insolvency proceedings, someone typically has to provide security for the costs before the bankruptcy court will commence insolvency proceedings.
If voidable transactions are suspected in connection with previous deals or payments in the company, the bankruptcy court may also commence insolvency proceedings although apparently there are no assets in the company.
What is dissolution by liquidation?
If a company’s assets are deemed to be able to cover the company’s debts to its creditors and the costs of the dissolution proceedings, but the company does not comply with the rules for doing business, the bankruptcy court may compulsorily dissolve the company by liquidation.
In this type of compulsory dissolution, the bankruptcy court appoints a liquidator to sell all the assets in the company and pay all the company’s debts. When everything has been made up and the liquidation proceedings and the company’s debts have been paid, the proceeds are distributed among the company’s owners.
The liquidator also has the possibility of presenting a petition for the company to be wound up if it turns out that liquidation is not possible.
Can a business in the process of compulsory dissolution resume its activities?
When the Danish Business Authority requests the bankruptcy court to compulsorily dissolve a company, it is because the company does not comply with the legal requirements for doing business. In some cases, the Danish Business Authority may allow a company in the process of compulsory dissolution to resume its activities.
How is compulsory dissolution effected?
When the bankruptcy court receives a petition for compulsory dissolution from the Danish Business Authority, the bankruptcy court assesses whether a representative of the company’s management should be summoned to a meeting. If so, the representative must make a statement on the company’s assets and liabilities and other circumstances.
Based on the company’s finances and any other significant information about the company, the bankruptcy court decides how the company is to be dissolved.
Sidst opdateret: 31. august 2024