- Payments take 7 to 30 days on average, but delays of approximately 12 days may be expected. The EU legal framework provides reliable tools when it comes to late payment matters.
- Courts are reliable, although the system provides no fast track proceedings that suitably facilitate the undisputed collection process. Delays and costs otherwise remain significant when a claim is disputed, and EU standard proceedings are not fully applicable in the country.
- Although domestic insolvency law aims at rescuing companies to increase the chance of recovering debts, it provides no limitations as to how much of the debt may be written off in restructuration negotiations and it is rare for unsecured creditors to recover from insolvent debtors in practice.
Collecting in Denmark
Availability of financial information
Main corporate structures
Liability for business debts is determined by legal structures, which are described as follows:
- Very small enterprises often take the form of a Sole Proprietorship (Enkeltmandsvirksomhed), a business entity established by assets contributed and owned by one person acting in their own name, who may be held liable for all debts. Partnerships (Interessentselskab I/S) are founded by at least two partners who are jointly and severally liable for the obligations of the entity, but liability limitations may be put into place through Limited Partnerships (Kommanditselskab K/S) which involve one or more managing partners jointly liable
for the company’s operations and debts together with silent partners liable only in relation to their capital contribution.
- Private Limited Companies (Anpartselskab ApS) are commonly used even though the shares cannot be negotiated nor transferred. Its members are held liable for the company’s debts in relation to their capital contribution. There must be a minimum capital fund of DKK 80,000=EUR 10,756. Public Limited Companies or Joint-Stock Corporations (Aktieselskab A/S) are rather common with large businesses. There is a minimum capital requirement (DKK 500,000=EUR 67,230) and shareholders are not liable for the company’s debts.
- Co-operative Limited Companies (Andelsselskaber med begrænset Ansvar, A.m.b.A) may also be found.
Days Sales Outstanding (DSO)
Late payment interest
The rules in Denmark are stricter than the EU requirements: as a general rule, business-to-business transactions must be paid within 30 calendar days following the invoice due date. Thus, late payment interest may be claimed from the day following the due date. The applicable interest rate ought to be agreed upon as a contractual matter, but the law otherwise provides that interest may be calculated on the basis of the reference rate fixed twice a year (in January and July) by the National Bank of Denmark, increased by at least 8 percentage points.
Debt collection costs
Bank transfers are the most popular payment means as they are fast, secured, and supported by an increasingly developed banking network internationally and domestically. For export transactions, transfers may be guaranteed through Standby Letters of Credit (a bank guarantees the debtor’s credit quality and repayment abilities) which constitute reliable guarantees since they can be triggered as a ‘payment of last resort’ if the client fails to fulfil a contractual commitment.
Generally speaking, obtaining guarantees from local banks is not common. Although checks are considered as debt recognition titles enforceable through a bailiff, they are very rarely used in practice and should be avoided. Negotiating down payments would essentially depend on the amounts at stake, but would be advisable if the commercial partner is in a difficult financial situation.
If the amicable phase fails or if the debtor questions the claim, the option of starting legal proceedings remains. A Writ of Summons must be served by a judicial officer to the debtor ten days prior to filing a claim. The latter is then given two weeks to bring a defence. The court may invite the parties to reach a compromise through mediation (Chapter 27 of the Administration of Justice Act), but hearings would normally take place in order to help the court render a decision (usually within four weeks).
The courts then typically order remedies in the form of damages or specific performance, but punitive damages cannot be obtained unless the parties’ contract provides for a penalty provision. Domestic tribunals are reliable however judicial procedures are lengthy.
It should also be noted that Denmark is not bound by the various dispute settlement mechanisms put in place at the EU level.
Lodging an appeal
Decisions made in second instance may also be brought to the High Court, which would however only consider questions of general public importance. In this case, the Danish Appeals Permission Board must approve the claimant’s leave for appeal.
Appeal must be brought within four to eight weeks following the decision. Decisions from the Maritime and Commercial Court may only be appealed once, before the Supreme Court. Default judgments cannot be appealed.
Enforcing court decisions
How long could legal action take?
The timeframe for legal proceedings in Denmark will always be the same, whether the parties are nationals or foreign. However, difficulties may appear in terms of case management when international disputes are at stake, especially because strict deadlines must be observed for a dispute to go on before the courts.
How much could this cost?
The courts may order that the debtor contributes to the creditor’s costs but rarely award full compensation. Having said this, it is essential for a claimant to mention in the original demand letter whether compensation for costs will be requested of the court. Failing to do this would typically lead the court to reduce the compensation awarded to cover the claimant’s costs.
Fixed legal fees apply when entering legal proceedings:
- Order of payment: DKK 750=EUR 100
- Application fee: DKK 500=EUR 67
Bailiff fees would also apply:
- Principal amount below DKK 100,000: DKK 3,000
- Principal amount in excess of DKK 100,000: 1.5% of the amount
- Fee for presenting the debtor to the court by the police (if debtor is not present at the first hearing): DKK 500.
- Additional fees may apply if the bailiff visits the debtor (DKK 500 to DKK 6,000).
Conditional arrangements, whereby attorneys are not paid upfront but rather receive of a fixed sum upon success, and contingent fees, whereby the legal professionals are entitled to receiving a percentage on the final award, are common. Use of third-party litigation funding companies is allowed though uncommon.
Alternatives to legal action
Alternative Dispute Resolution methods (ADR)
Domestic or international arbitration proceedings also constitute a significant means to avoid ordinary proceedings because they provide for confidential settlement opportunities while arbitral awards are final and enforceable. Arbitrators furthermore have the power to grant interim relief.
It is however essential that the agreement be characterized by an international connection (for example, one party has elected domicile in another country, or the place of execution is located abroad), and that a jurisdiction clause is specifically drafted for this purpose.
Enforcing foreign awards
Enforcement of decisions issued in the EU may however be delicate. Indeed, although decisions rendered in EU states must be enforced through exequatur proceedings under the Brussels I Convention since July 2007 (according to an agreement signed with the EU to this effect in 2005), Regulation (EC) No 1896/2006 which created a European Payment Order procedure facilitating the recovery of undisputed debts is not applicable in Denmark. Having said this, Denmark will implement the Recast Regulation EC 1215/2012 which ought to suppress exequatur proceedings from January 2015.
Denmark is otherwise a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, meaning that its domestic courts ought to recognize and enforce awards rendered through international arbitration proceedings.
The Danish Bankruptcy Act (Act no. 298 of 8 June 1977, now consolidated act no. 588 of 1 September 1986, also known as the Konkursloven), is the result of many years of reform work. Once the debtor (or a creditor) has filed for insolvency, different alternatives may be considered.
Restructuring the debt
Suspension of payments does not theoretically involve administration of the debtors’ estate but in practice, a supervisor is appointed by the Bankruptcy Court. Should the debtor fail to respect the restructuration agreement, a liquidation phase would be considered. The law does not provide for debt write-off limitations.
Winding up proceedings
Cancellation of suspect transactions (clawback)
How long could insolvency proceedings take?
letter stating that debt collection proceedings will be initiated against the debtor.