Legal aspects when buying a business in Denmark

Legal aspects in M&A when buying a Danish company

Should a m&a advisor be informed about the Legal landscape?
Legal aspects are of high importance when buying a business. Your advisor needs to be up to date with the legal framework that applies to M&A transactions in Denmark. Here we mention some aspects that you need to consider when acquiring a company in Denmark. In general a part of the legal environment is similar to international law. We also touch upon some of the legal regulations for M&A projects in Denmark that are clearly different.

General Legal M&A introduction when buying a Danish business

It is important for the parties involved in a transaction to agree on the structure of the acquisition and the relevant assets included in the scope, before the commencement of any negotiation process. The provisions concerning the incorporation and organisation of public limited companies and private limited companies are organised under and subject to the provisions of the Companies Act. The validity and binding effect of agreements under Danish law do not depend on certification by a notary. This depends only on the intention of the parties. There is no special law or regulation regarding the content of transaction agreements in connection with the acquisition of shares or assets of a company. The Sale of Goods Act applies to the acquisition of shares or assets. There are no general prohibitions on foreign acquisitions of Danish enterprises or on domestic M&A, although restrictions do apply in respect of certain industries such as the defence industry.

Legal contents around the LOU (Letter of Understanding) and the SPA (Share Purchase Agreement)

In Danish M&A transactions, like in most other countries, many type of preliminary agreements exist. The most common legal documents being used are a non-disclosure agreements ("NDA") and pre closing type of contracts. These pre closing type of contracts can be named a letter  of understanding ("LoU"), a memorandum of understanding ("MoU"), a letter of intent ("LOI"), a term sheet or a heads of agreements. The distinction between the different types of preliminary agreements is mostly naming although a term sheet and a heads of agreement are normally shorter compared to the other mentioned agreements. The terms "memorandum of understanding", "letter of intent" and "term sheet" usually regulate non-disclosure, intent to sell a company, valuation and exclusivity. There is limited law on the binding nature of these contracts. In case of conflicts a judge would look at the intention of the party (or parties) having signed the letter to determine whether a contract is binding or not. This mostly depends on the wording being used.

Legal M&A regulations in Denmark

M&A transactions in Denmark include the acquisition of both private and public limited companies which are carried out by the transfer of shares or assets. Transactions include management buy-outs ("MBO") and management buy-ins ("MBI"). Transactions in the Danish market carried out by private equity funds are usually carried out as leveraged buy-outs ("LBO").
Most transactions are share transfers rather than asset transfers. Asset transfers are occasionally carried out subsequent to a transaction to carve out or spin off certain assets and liabilities. Purchasing assets generally has the advantage of only assuming liabilities that are specified in the business transfer agreement. The buyer can use the assets as security for acquisition finance in an asset transfer.
All M&A transactions and joint ventures must comply with Danish competition (antitrust) law and EU competition law. Danish competition law is to a large extent based on comparable EU competition law. M&A transactions and joint ventures, where the combined aggregate annual turnover in Denmark of all the undertakings concerned exceeds DKK 900 million, will be subject to the prior approval of the Danish Competition Council in accordance with the Danish Competition Act.1

Human Resources M&A regulations in Denmark

Human resource issues related to private M&A transactions are regulated by the Act on Employees' Legal Status on Transfer of Undertakings. In relation to the Act on Employees' Legal Status on Transfer of Undertakings the buyer will be obliged to accept and continue the existing salary and employment conditions of all the employees related to the transferred business unit.

Specific Legal M&A aspects when buying a Danish business

A buyer can squeeze out minority shareholders if the buyer holds more than 90% of the share capital and voting rights in a (public limited company) and the shareholder and the board of directors of the company jointly decide to do this. The minority shareholders have a right to demand that the price at which their shares are acquired be fixed by an independent valuator appointed by the local court. If you are interested in further specific legal clauses related to M&A please do get in touch.