Ban on companies’ payment of dividends or completion of share buy-backs if they receive more than DKK 60 million in compensation

By Philip Graff, Filip Patrzalek Kaas, Ted Rosenbaum

04-2020

The Government and all the parties in the Danish Parliament have agreed to adjust and extend the economic aid packages to the Danish economy. The changes entail a limitation on companies’ ability to pay dividends or to carry out share buy-backs if the companies use the compensation scheme relating to fixed costs and receive more than DKK 60 million in compensation. 

The agreement extends the compensation scheme relating to fixed costs to 8 July 2020. The agreement also extends companies’ ability to receive compensation by decreasing the threshold value of the minimum decline in turnover to 35-60% before such company may be granted a 25 % compensation of their fixed costs (previously 40-60%). The other steps and associated compensation rates are maintained. In addition, the requirement that a company must have fixed costs of at least DKK 25,000 for a period of three months to receive compensation is reduced so that companies from now only are required to have fixed costs equivalent to at least DKK 12,500 for a three-months period to receive compensation. 

In addition, the maximum compensation amount that may be granted is raised from DKK 60 million to a total of DKK 110 million. 

Bird and Bird has previously described the compensation scheme here.

For companies to benefit from the extended and increased compensation scheme, companies must apply again. However, to apply again the companies must declare solemnly that the companies will not pay dividends or carry out share buy-backs in the fiscal years 2020 and 2021. The limitations, however, only apply to companies that receive more than DKK 60 million in compensation in 2020 in pursuance of the compensation scheme relating to fixed costs.

Should a company later want to release itself from such limitations as to dividends, the company must repay aid exceeding DKK 60 million received under the scheme. 

If the company nevertheless chooses to pay dividends, the state may demand full repayment of the compensation amount received. In addition, the company may be fined for fraudulent misrepresentation.

The agreement is expected to be passed by the parliament within the next few weeks. When the agreement is adopted, conditions such as dividends within a group, intra-group loans, etc., are expected to be described.

Link to the Ministry of Finance’s press release may be found here.

Bird & Bird encourages anyone with questions about the above to contact the Head of Bird & Bird in Denmark, Casper Moltke-Leth, Associate Ted Rosenbaum or Junior Associate Filip Kaas.

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