What does it mean when a company faces a compulsory dissolution in 2023?
When a limited liability company (in Denmark, most often ApS or A/S) fails to submit the annual report on time, the Danish Business Authority will request the Danish Maritime and Commercial High Court to dissolve the company after a while.
This is called a compulsory dissolution (in Danish: “tvangsopløsning”).
Before this request is sent to the Danish Maritime and Commercial High Court, the company will have received a reminder from the Danish Business Authority in e-Boks (the company’s digital inbox) stating an ultimate deadline to submit the annual report to avoid the compulsory dissolution.
Usually, the compulsory dissolution starts around 2-3 months after the original deadline for submitting the annual report.
So, if f.ex. the annual report for 2022 is due 30.6.2023; if not submitted on time, the management should expect to receive a letter in e-Boks from the Danish Business Authority with an ultimate deadline to submit the annual report, most likely in August or September 2023.
Sometimes it can be even sooner.
Other times later.
This will depend solely on the Danish Business Authority.
Therefore, checking e-Boks when you are late with the annual report is essential, so you are 100% sure about the ultimate deadline to submit the annual report.
Otherwise, you might end up in a situation with compulsory dissolution.
What can you do if the compulsory dissolution has started?
When the Danish Maritime and Commercial High Court requests the Danish Business Authority to initiate the compulsory dissolution, there is a 3-month window to reassume the company.
You will receive a copy of the request in e-Boks.
A liquidator is appointed
After the compulsory dissolution has started, a liquidator is appointed by the Danish Maritime and Commercial High Court to look after the general public’s interest and potential company creditors.
The liquidator is not the attorney of the company and/or the shareholders, and you are encouraged to seek your own counsel if you need legal assistance.
What are the requirements to reassume the company?
If a company is faced with a compulsory dissolution, it is possible to apply for a reassumption of the company (in Danish: “genoptagelse”) using the rules in Section 225 of the Danish Companies Act.
To reassume a company, there are some basic requirements:
1: During the last five years, the company cannot have been in a similar situation with a compulsory dissolution
2: A certified public accountant (auditor) must issue a declaration that the required minimum share capital is present
For an ApS, the required minimum share capital is 40.000 DKK.
For an A/S, the required minimum share capital is 400.000 DKK.
Also, the auditor shall state that the company has issued no illegal shareholder loans.
3: The reason for the compulsory dissolution has to be resolved
F.ex. the missing annual report should be submitted to the Danish Business Authority.
4: The shareholders must decide to reassume the company
The liquidator must also approve this decision if a liquidator has been appointed.
What can trigger a compulsory dissolution?
The most common reason is the failure to submit the annual report on time.
But also other situations, like not having a director appointed, can result in a forced dissolution.
What should you do if the minimum share capital is no longer present in the company?
If the company has had a deficit in the past or lost the share capital in other ways, steps will need to be taken to restore the share capital.
It can be done by decreasing or increasing the share capital, depending on the situation.
Or sometimes converting a loan from the shareholder to share capital.
What documents should be prepared by your accountant?
Your accountant will assist in finalising the accounting for both the previous and the current year.
The accounting must be updated to document that the share capital remains.
Also, the annual report for the previous year needs to be prepared.
This is done by your accountant or an auditor (if you have an audit requirement).
You will need these three documents from the accountant:
1: Annual report for the previous year
2: Balance for the current year
The accounting should be updated for the current year showing that the share capital is still present.
If that is not the case, you must decide how to restore the share capital.
3: Tax return for the previous year
What documents should be prepared by the auditor?
You will need these three documents from the auditor:
1: Minutes from an extraordinary general meeting, where it is decided that
– The company is reassumed
– The annual report is approved and signed by the reinstated management (not the liquidator)
– The reinstated management must present the management’s review (not the liquidator’s)
– The previous management is reinstated
– The auditor is chosen as the chairman (not the liquidator)
The reinstated management must sign the minutes (not the liquidator).
2: A declaration with a high level of assurance regarding the company’s capital, cf. Section 231 (1) of the Danish Companies Act
3: A declaration with a high level of assurance regarding (the absence of) unlawful loans to the shareholders, cf. Section 231 (1) of the Danish Companies Act
What documents should be prepared by the liquidator?
When the documents mentioned above have been drafted, the documents are forwarded to the liquidator for review, comments and final approval.
You will need this document from the liquidator:
1: Written consent to reassume the company
The reassumption is submitted on VIRK
Once all the documents mentioned above are prepared, a request to reassume the company will be uploaded to VIRK.
The auditor often does this.
Important: This request has to be submitted at the latest three months after the Business Authority made the original request to start the compulsory dissolution.
What costs should you expect to reassume a company?
Costs for accountant
You should expect to have costs for updating the accounting and preparing the annual report as well as the tax return for the previous year.
If your company did not have any activities in the previous year, the cost for the accountant would likely be around 5.000 DKK + VAT to prepare the accounting documents.
If you had some transactions but still very little activity, the cost is probably around 10.000 DKK + VAT.
The fee is agreed upon with the accountant.
Cost for auditor
Generally, we see costs of around 10.000 DKK – 20.000 DKK + VAT for the auditor’s work.
The fee is agreed upon with the auditor.
Cost for liquidator
Generally, we see costs of around 10.000 DKK – 20.000 DKK + VAT for the liquidator’s work.
The fee is agreed upon with the liquidator.
Fine to the management for being late with the annual report
Each member of the management should expect a personal fine of 3.000 DKK for being late with submitting the annual report. The fine is sent to the personal e-Boks of the director(s).
Fine to the company for being late with the tax return
The company should expect a fine of 5.000 DKK for submitting the tax return for the previous year late.
These costs should be covered when considering the presence of the share capital
These costs are included when considering the presence of the share capital.
It means that if the company cannot cover the costs and still maintain the required minimum capital, the company will need to increase the share capital, and the shareholder will need to deposit more capital into the company.
Read more about the compulsory dissolution
(This blog was updated last time: 18.1.2023)