This content is from: Local Insights

Denmark

Danish law on taking securities does not permit floating charges, or similar pledges or mortgages of an undetermined plurality of assets.

Based on a report by the Danish Commerce and Companies Agency, the Danish Ministry of Justice has introduced a Bill to the Danish parliament allowing companies and other business entities to establish a floating charge. It is anticipated that the Bill will be passed in the summer session of parliament and become law in 2006.

Under the Bill a company or a business entity can grant a floating charge over all assets that the company owns and will own. Floating charges will be limited to certain categories of assets but will include all future assets within those categories and not prevent or restrict a normal change or renewal of the charged assets.

The chargeable categories of assets are receivables, goods, raw material, equipment, inventory, livestock and IPR. Not included in the floating charge are real estate with fixtures and equipment, ships above five gross tonnages, aircraft, and some other categories of assets for which Danish law already provides a specific way of pledging or mortgaging.

A floating charge is established by registering an indemnity bond with the Danish central registry office. The registration fee is DKr1,400 ($238) plus 1.5% of the secured amount. The level of this duty might impact the use of a floating charge in certain circumstances.

When the floating charge is registered, the assets are secured and protected against the claims of the company's creditors or contractual rights to the assets established later - regardless of whether the later claimant is in good faith or not. This was not previously the case.

The Bill also creates a form of floating charge that relates only to taking security over the receivables of the company or business entity originating from sales of goods and services. The proposed legislation on floating charge in receivables is identical to the rules that apply to a general floating charge.

It is not possible to establish a floating charge in favour of a person or company closely related to the grantor of the security. In case of insolvency, the floating charge crystallizes so that the charge will be limited to the assets included at the date of the bankruptcy notice. Assets acquired afterwards are not covered by the floating charge.

Rasmus Skovsgaard Haugaard

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