Bankruptcy – what really happens and how fast does it actually go?

Almost every person that has ever tried to start their own company, knows the fear of running out of money.

When you have a company, the technical term for that, is to go “bankrupt” – or to be declared “bankrupt”.

The whole process leading up to being bankrupt, we call a bankruptcy.

This blog only explains the bankruptcy process for limited liability companies (IVS, ApS and A/S).

For sole proprietors a bankruptcy can be much more serious.

A seperate blog will be written about this.

If you are interested in closing your LTD company, without going bankrupt, then listen to our podcast here: Podcast about closing a LTD

You risk going bankrupt, when your debts are higher than your assets

Just because you have a short period of time, where you run out of money, does not mean that you are bankrupt.

Very often entrepreneurs somehow always manage to pay their bills.

Maybe they get a loan from someone.

Or maybe they all of a sudden get a new client.

Usually things turn out just fine.

But if you keep having more costs than income, then over time, you will be stearing more and more towards a bankruptcy.

We operate with 2 terms, that each defines, if you can go bankrupt.

1: Solvency

You are solvent – and therefore have solvency – if you have more assets than liabilities (debt).

Imagine that you owe the bank 10.000 DKK, but you have 11.000 DKK standing on a bank account.

If you would simply transfer the money from one bank account to the other bank account, there would still be 1.000 DKK left on your bank account.

This means you are solvent.

Or written in another way; you can pay all your liabilities (debt).

2: Insolvency

You are insolvent – and therefore have insolvency – if you have more liabilities (debt) than assets.

Imagine that you owe the bank 11.000 DKK, but you have 10.000 DKK standing on a bank account.

If you would simply transfer the money from one bank account to the other bank account, there would still be 1.000 DKK left that you owe to the bank.

This means you are insolvent.

Or written in another way; you are not able to pay all your liabilities (debt).

When you stop paying your bills

When you stop paying your bills, for whatever reason, then at some point, your creditors will get tired of waiting for their money.

If you are not paying, because you are not satisfied with a product or a service delivere, then make sure to write the creditor.

So there can be no doubt, that you have expressed your dissatisfaction.

Sometimes maybe a settlement can be reached.

If you keep failing to pay, and no complaints have been made by you about the product or service, then the creditor can take you to court.

The first reminders

Once you start receiving the first reminders, then it is time to act.

And in that sense, it is not relevant of you have money or not.

Take action.

Take action – speak with your creditors

If you are not satisfied with a product or service delivered, write a mail and state what the problem is.

And also suggest a solution.

Maybe a discount will solve your problem.

If the main reason is a lack of money, then call the creditor, and explain the situation.

Be honest.

Most companies understand, that we can all have bad times.

The worst is having a client that does not call, and continue to not pay.

A client like that, most companies will take to court.

If a client has called, and explained the situation, chances are that the debt will be cancelled.

Naturally it depends on how much the debts is.

And the circumstances regarding your lack of payment.

Use leverage to make settlements

By being completely honest and transparent about your situation, you can often use this as leverage.

Send your PnL (profit and loss statement) and balance to the creditor.

Show them your financial situation.

If they can see, that you do not have any money, chances are they are not going to court.

This is because they will have to pay for the court, and their own lawyer as well, if your company has no money.

Try instead and use this to get a settlement.

Maybe a discount.

Or a payment plan.

Most creditors will understand, that it is better to get something than nothing.


And try to save your company.

Setting up a new company – moving activities and assets

You can decide to setup a new company.

That can happen before or after the bankruptcy starts.

Often it makes very good sense to do it before.

Especially if you owe the tax office money.

Otherwise you might be in a situation later, where the tax office will refuse to register a new company from VAT or as an employer, unless you deposit an often large amount as a security deposit (usually 100.000 – 200.000 DKK).

The good new is, that this security depost can be used to pay for VAT or employee taxes in the new company, once the registration is in place.

Repaying loans, bank credits and suppliers prior to a bankruptcy

Repayments you do prior to a bankruptcy, can always be questioned.

This is because you are not allowed, to have some “favourite” creditors, which gets paid while others do not get paid.

Sometimes a curator will look 1-2 years back in time.

And he has the power to reverse repayments, and ask creditors to refund the money to the company.

In terms of banks, then repayments of a credit f.ex., can only be deemed invalid, if you tell the bank before, that you have problems.

So avoid telling the bank, that you are on the verge of a bankruptcy, if you do not want the money to go back to the curator.

Often credits in the bank is signed with personal assets as collateral.

So people often pay these credits first.

To avoid having to pay themselves.

So be careful who you tell in the bank.

If they know you will go bankrupt anytime soon, they are not allowed to accept the repayment.

Someone needs to take action

Before you can be taken to court, then someone naturally needs to take action.

And this can take a long time.

The first letter from the court

Make sure that your accounting is done

Be prepared for the bankruptcy.

This is done by having your accounting done.

In addition to serving as a tool for the curator, it will also help you not being banned from managing future companies.

We call this a “bankruptcy quarantine” – read more about a bankruptcy quarantine below.

Court day

When a creditor has contacted the court, then you will receive information about a court day.

Normally you are able to participate via a telephone session as well.

But make sure to contact the court, if you want to participate via a telephone session.

And if you are not able to come on the date, then also make sure to call the court.

Failing to show up in court, can get you arrested.


The curator is a lawyer which is appointed by the court.

The job of a curator, is to try and secure as much money as possible for the creditors.

You no longer control the company – including the bank account

Once the bankruptcy process starts, then you are no longer in control.

From now on the curator makes the decisions.

It also means that your acces to the bank account will not work anymore.

If you have a shop, then most likely you will find, that the locks will be changed.

Often without any warning.

This is because the curator wants to make sure, that you do not remove any assets from the shop.

Receivables from clients

If you have any receivables from your clients, that has not yet been paid in full, then your clients will need to pay to the curator.

And not to you.

Other assets

The curator will try to sell all the company assets.

Often the price is low, since it has to go fast.

You can also buy the assets from the company

If the price for the asset is low, then remember that you can also buy the assets from the curator.

Just place an offer on the assets you want to buy.

How long time does a bankruptcy process last?

From the time a creditor takes you to court, it can take 1-2 months before a court date is set.

If you add the time, from when you started failing to pay the creditor, then often 3-6 months is already gone.

A curator usually works on a bankruptcy for 1-2 years.

Sometimes even longer.

The end of the bankruptcy

Once the curator is done, he will send an overview of the bankruptcy:

How much money was realised from the assets.

How much will be paid to the creditors.

That will end the bankruptcy.

And the company will change status on CVR to being “bankrupt”.

The aftermatch

Usually you will not hear more from the curator or court, once the bankruptcy is finished.

The company is closed.

And the last unpaid debts dissapeared with the company closure.

Banned from managing companies

If you are shown to have conducted your management in a bad way, f.ex. failing to do your accounting ongoing, then you will often be banned frmo managing other companies for a duration of 3 years.

We call this a “bankruptcy quarantine”.

Should you breach the bankruptcy quarantine later, then you can be fined.

And in very bad situations you can be imprisoned for 6 months.

Do you have any questions about bankruptcy in Denmark?

Please send us an email:

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