Possibility of extraordinary distribution of dividends

Possible distribution of dividends at a time other than at the annual general meeting

The Danish Parliament has adopted a new law that makes it possible to distribute dividends at a different time than at the Annual General Meeting.

The Act has effect for decisions on the distribution of dividends made after July 1, 2004.

Henceforth, the general meeting of limited liability companies may authorize the board of directors to distribute dividends several times a year.

A number of conditions must be met:

• The authorisation shall be granted for one period at a time. Shareholders may, after the end of the period, decide whether to extend the authorisation.
• The authorisation expires automatically at the next Annual General Meeting.
• Authorisation to the Board of Directors may be granted at both an ordinary and an extraordinary general meeting and requires only a simple majority of votes, unless it is stated in the company's statutes that the resolution requires a qualified majority.
• The General Assembly may decide certain limitations on the authorization. For example, an upper ceiling for how much can be distributed.
• The authority must be recorded in the statutes.
• The Company shall prepare a financial statement, (intermediate balance sheet) showing that the Company has free reserves available for the distribution. It can be, for example, a half-year financial statement or another periodical statement.
• It is a requirement that the auditor of the company has reviewed the interim balance sheet and that the auditor makes a statement that this reflects the financial situation of the company.
• The Company's Board of Directors may not distribute extraordinary dividends until the amendment to the Articles of Association is registered and made public.

Payment of dividends during liquidation

The new rules also allow dividends to be paid during liquidation when the company has sufficient funds that the liquidator does not find it objectionable.

Also, in the event of liquidation, the payment of dividends must be made on the basis of an audited annual report or an interim balance sheet reviewed by the company's auditor.

Release of overdraft funds

Finally, the new rules allow reserves held on an overdraft fund in limited liability companies to be distributed.

These reserves have been tied up in the past and could only be released by a capital reduction or by covering deficits.

In the future, the excess price in the subscription of shares will be part of the company's free equity, as it is in private limited companies.

Our Comment

In many situations, in practice, there arises a need to make distributions at times other than at the annual general meeting. This is especially the case when restructuring, generational change or simply the sale of the company is being prepared.

If the balance sheet of the operating company is substantially self-financed, the financing needs of the buyer will be correspondingly large, since in principle money for money must be paid.

Good advice

For example, there could be the following options for preparing a sale, etc.:

• An extraordinary distribution to the Company's shareholders to slim the Company's balance sheet. After this, the shares could be sold at a lower price. That is, you avoid selling a cash box.
• A tax-free exchange of shares, creating a holding company that owns the shares of the original operating company. The distribution of dividends can then be made tax-free to the holding company. New shareholders can then subscribe for shares in the operating company at a lower price. However, the holding company must retain the voting majority for a 3-year period.

Illustration: In a share exchange, a holding structure arises. After distribution, new shareholders may, in the event of a capital increase, subscribe for new shares in the operating company.

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Article No 2004-8 April 21

Source: Law No 226 of March 21, 2004

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Disclaimer

‍The above information is for guidance purposes only, and we accept no responsibility for decisions made based on this information without prior individual advice. We accept no responsibility for errors or omissions.

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