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Corporate HR Legal

Corporate and stock issues in regards to the coronavirus

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Legal news
calendar 28 April 2020
globus Denmark

The Danish containment measures raises several corporate issues for public traded companies in relation to distribution of dividend and the implementation of ongoing or planned share repurchase programs. We have compiled an overview of the most pressing matters, which companies should consider in weathering the storm of the corona crisis.

Assembly ban and general assembly meetings

The ban on assembly has prevented the organization of and participation in larger private as well as public assemblies, gatherings etc. where the number of participants is more than 10 people. The ban is currently applicable until 10 May 2020. One of the consequences of the assembly ban has been that it is not possible for companies to conduct their general assembly meetings in due time to approve the company’s yearly financial report, which must be submitted to the Danish Ministry of Business Affairs in accordance with the deadlines stated in Article 138 (1) of the Danish Financial Statements Act.  Consequently, the Danish Ministry of Health has decided to extend the deadline for submission of the approved annual fiscal report, which will be applicable to all companies mentioned in the Danish Financial Statements Act.

According to the recently implemented Deadline Notice, companies can submit their yearly fiscal reports within the last eight weeks after the ban on assembly has been lifted. However, the following conditions must be met if a company wishes to take advantage of the extension:

1) The company cannot have held a general assembly meeting prior to the assembly ban, where the annual fiscal report was approved

2) The company has more than 10 owners

3) The articles of association of the company does not give permission for the company’s general assembly meetings to be held electronically.

You can read more about the assembly ban and general assembly meetings here.

Distribution of dividends

The main rule in the Danish Companies Act is that dividends to the shareholders are distributed based on the annual accounts. Despite the current situation, a company can still distribute dividends to its shareholders if the rules of the Danish Companies Act are met. However, the company's management must keep in mind that the distribution of dividends is within the limits of what can be considered as being financially responsible for the company, given its current financial position. The company’s management has an obligation to always ensure that the company has sufficient “distributable reserves”, so that the company is able to meet its obligations in terms of the company’s ongoing and future obligations.

In assessing whether the company's financial resources are adequate, the company's management must assess the company's budgets. If the company is financially affected by the corona crisis, the company should consider laying out a new budget taking such downturns into account. The new budget should form the basis for the management’s assessment of whether or not dividend distribution would be considered economically viable for the company.

The company’s management has the right to reduce or completely stop the distribution of dividends, even if the general assembly has made a corporate decision to distribute dividends to the company's shareholders. However, if dividends have been announced by the company, this decision cannot be cancelled. In the absence of any Articles of Association on this matter, dividend payments are due at the time of the general assembly’s decision to distribute them. From that moment, the company's shareholders will have a claim against the company.

In relation to banks, the Danish Financial Supervisory Authority has indicated that under the current circumstances the banking sector should avoid degrading the banks’ capital base by paying dividends or issue share repurchases. However, this is merely a recommendation.

Distribution of dividends and compensation for fixed expenses

In the gradual opening of Denmark, the Danish parliamentary parties have entered into an agreement, which extends the government's economic aid packages to struggling Danish companies and employees. The agreement states, among other things, that the compensation scheme for companies' fixed costs is extended by one month from 8 June 2020 to 8 July 2020. In addition, the compensation scheme is extended, which e.g. entails that the threshold for loss of turnover is lowered from 40% to 35% and the compensation ceiling is raised from DKK 60 million to DKK 110 million.

The agreement also states that companies, which have received more than DKK 60 million in compensation for fixed expenses in the extended period (i.e. until 8 July 2020) may not distribute dividends or repurchase own shares in 2020 and 2021. If a company acts against the declaration, the Danish government may demand a full repayment of the compensation given to the company in accordance with the fixed compensation scheme.

Assembly ban and general assembly meetings

The ban on assembly has prevented the organization of and participation in larger private as well as public assemblies, gatherings etc. where the number of participants is more than 10 people. The ban is currently applicable until 10 May 2020. One of the consequences of the assembly ban has been that it is not possible for companies to conduct their general assembly meetings in due time to approve the company’s yearly financial report, which must be submitted to the Danish Ministry of Business Affairs in accordance with the deadlines stated in Article 138 (1) of the Danish Financial Statements Act.  Consequently, the Danish Ministry of Health has decided to extend the deadline for submission of the approved annual fiscal report, which will be applicable to all companies mentioned in the Danish Financial Statements Act.

According to the recently implemented Deadline Notice, companies can submit their yearly fiscal reports within the last eight weeks after the ban on assembly has been lifted. However, the following conditions must be met if a company wishes to take advantage of the extension:

1) The company cannot have held a general assembly meeting prior to the assembly ban, where the annual fiscal report was approved

2) The company has more than 10 owners

3) The articles of association of the company does not give permission for the company’s general assembly meetings to be held electronically.

You can read more about the assembly ban and general assembly meetings here.

Distribution of dividends

The main rule in the Danish Companies Act is that dividends to the shareholders are distributed based on the annual accounts. Despite the current situation, a company can still distribute dividends to its shareholders if the rules of the Danish Companies Act are met. However, the company's management must keep in mind that the distribution of dividends is within the limits of what can be considered as being financially responsible for the company, given its current financial position. The company’s management has an obligation to always ensure that the company has sufficient “distributable reserves”, so that the company is able to meet its obligations in terms of the company’s ongoing and future obligations.

In assessing whether the company's financial resources are adequate, the company's management must assess the company's budgets. If the company is financially affected by the corona crisis, the company should consider laying out a new budget taking such downturns into account. The new budget should form the basis for the management’s assessment of whether or not dividend distribution would be considered economically viable for the company.

The company’s management has the right to reduce or completely stop the distribution of dividends, even if the general assembly has made a corporate decision to distribute dividends to the company's shareholders. However, if dividends have been announced by the company, this decision cannot be cancelled. In the absence of any Articles of Association on this matter, dividend payments are due at the time of the general assembly’s decision to distribute them. From that moment, the company's shareholders will have a claim against the company.

In relation to banks, the Danish Financial Supervisory Authority has indicated that under the current circumstances the banking sector should avoid degrading the banks’ capital base by paying dividends or issue share repurchases. However, this is merely a recommendation.

Distribution of dividends and compensation for fixed expenses

In the gradual opening of Denmark, the Danish parliamentary parties have entered into an agreement, which extends the government's economic aid packages to struggling Danish companies and employees. The agreement states, among other things, that the compensation scheme for companies' fixed costs is extended by one month from 8 June 2020 to 8 July 2020. In addition, the compensation scheme is extended, which e.g. entails that the threshold for loss of turnover is lowered from 40% to 35% and the compensation ceiling is raised from DKK 60 million to DKK 110 million.

The agreement also states that companies, which have received more than DKK 60 million in compensation for fixed expenses in the extended period (i.e. until 8 July 2020) may not distribute dividends or repurchase own shares in 2020 and 2021. If a company acts against the declaration, the Danish government may demand a full repayment of the compensation given to the company in accordance with the fixed compensation scheme.

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