Disqualification rules to be amended on 1 July 2024 - Public access to records of imposed disqualification orders
Since 2014, it has been possible to institute disqualification proceedings against individuals who were formerly involved in the management of a bankrupt company or undertaking if they have been grossly negligent in their business practices.
Public access to the records of imposed disqualification orders
Under current rules, only select authorities have access to the records of imposed disqualification orders. With the upcoming amendments, public access will be granted to the records of active imposed disqualification orders.
The new rules adopt the most transparent model, among the four proposed by the Bankruptcy Court, providing the highest level of public access to these records.
The purpose of public access is to enhance transparency regarding imposed disqualification orders, which the Ministry of Justice expects to reduce administrative burdens, simplify processes, and mitigate the financial risks faced by economic operators and consumers. The Ministry of Justice expects that full transparency will act as a strong deterrent, encouraging economic operators to avoid being grossly negligent in their business practices. Public searches will be limited to names of individuals subject to disqualification. It will not be possible to retrieve a complete list of active disqualification orders.
Listing of situations constituting grossly negligent business conduct
The new rules enumerate a number of situations that may justify the imposition of a disqualification order. Situations include significant disregard of obligations under tax, customs and duty legislation, and gross neglect of accounting and bookkeeping obligations, as well as fronting a company and facilitating the reduction of the debtor's total assets and continuation of operations leading to significant creditor losses.
The list is not exhaustive, as other business practices may also constitute grossly negligent practices, depending on the circumstances, including by neglecting the statutory obligation to cooperate with the trustee.
This new list largely codifies existing legal standards.
The trustee commences disqualification proceedings
Under the amended rules, the trustee is only required to notify the bankruptcy court when new disqualification proceedings are initiated. Under the current rules, the bankruptcy court will need to consider a recommendation from the trustee. Moving forward, the trustee must commence legal proceedings within four weeks of submitting a creditor statement detailing the reasons for the initiating disqualification proceedings.
Extension of the disqualification period. Possibility of making a settlement
Under the current rules, disqualification is typically imposed for a period of three years, with a possibility of reducing the term if special circumstances apply.
The amendment retains the three-year disqualification period but introduces greater flexibility in adjusting the length of the disqualification period. Under the new rules, the disqualification period may be imposed for up to five years if the former member of management has been grossly negligent in their business conduct. For instance, the comments to the bill highlights that fronting a company, in violation of an existing disqualification order, is considered grossly negligent business conduct.
The new rules clarify the conditions under which pending disqualification proceedings may be settled. Settling disqualification proceedings has previously been debated. The new rules permit settlements concerning the length of the disqualification period. However, any settlement must be fair, taking into account the facts of the case, and must be upheld by a disqualification order from the Bankruptcy Court.
The disqualification period under a settlement must be at least one year. Therefore, a settlement seeking to annul a disqualification order is not permitted. The comments to the bill suggest that a settlement may be contingent on the former member of management compensating the creditors of the bankrupt estate, either in full or in part, for their losses.
Extension of the scope of the disqualification rules
Currently, disqualification rules are limited to bankrupt estates. The amendments extend their scope to include resigning members of management in companies undergoing restructuring finalised through the ratification of a compulsory composition order. Preventive restructuring, however, is not included.
The new rules also refine the definition of an "undertaking", which will now be described as a "commercial activity". This term encompasses all legal entities inherently operating as economic operators or engaged in business activities with a significant economic volume. A "significant economic volume" is defined as having an annual gross turnover of DKK 150,000 or more from such activities.
Accordingly, certain activities, such as an association collecting membership fees, will not be included. However, if a sport club operates a canteen, sells merchandise, or rents out facilities to non-members, these activities will be considered commercial if they reach a significant financial scale.