New control package to strengthen company and accounting controls
In May 2020, the Danish Parliament passed a bill entailing amendments to the Danish Financial Statements Act, the Danish Companies Act, the Danish Act on Certain Commercial Enterprises, the Danish Act on Approved Auditors and Audit Firms and various other acts.
The bill is a so-called control package, designed to strengthen the company and accounting controls and thereby provide the Danish Business Authority with more efficient options in their capacity as control authority to act against financial fraud and promoting a responsible business environment. The control package will enter into force in its entirety on 1 January 2021.
After a short presentation of some of the other changes, the focus of this newsletter will be on the control package requirements for companies’ storage of company documents, since the introduction of this requirement will have a practical importance for all companies.
Other initiatives of the control package
The control package contains several measures to strengthen company and accounting controls. This section describes a few selected examples.
Tightening of accounting controls
The control package enjoins inter alia accounting controls by requiring companies which, in accordance with section 32 of the Financial Statements Act, have chosen not to disclose their revenue in the annual report, to report the revenue to the Danish Business Authority in connection with the submission of the annual report. This report, which is confidential and exempt from disclosure, will be used to check whether companies present their annual report according to the correct accounting class.
In addition, the control package provides the Danish Business Authority with the opportunity to retract published annual reports if they contain serious flaws and deficiencies.
Tightening of company controls
The control package intensifies company controls in several ways. To combat the use of so-called straw men, the control package e.g. includes a requirement stipulating that the registered executive board of the company must consist of individuals who effectively act as directors.
In addition, the control package includes several initiatives enabling the Danish Business Authority to control the information reported by the companies so that their accuracy is ensured as best as possible.
The adoption of the control package also means that in the event of any future cash capital increases, proof of payment of the share capital must be provided. This already applies today in the case of cash establishment of companies.
Obligation to store company documents
The control package imposes the executive board of each company to store company documents in a safe manner for a period of at least five years from the end of the financial year to which the documents relate. The obligation to store company documents applies to company documents prepared in the financial year beginning 1 January 2021 or later.
Company documents
The control package adds a definition of "company documents" to the definition clause of the Companies Act. It follows that company documents are the documents and appendices which the company is required to have prepared subject to the Companies Act or rules laid down in the Companies Act.
This broad definition includes deed of establishment, articles of association, rules of procedure, protocols of general meetings, documentation concerning information on ownership and proof of payment of the share capital. Since requirements for proof of payment of share capital in the case of cash capital increases will be introduced, as previously mentioned, the obligation to store company documents in relation thereto will apply in the case of cash establishment as well as in the case of capital increases.
Since the definition is not confined to the documents and appendices prepared by the company but covers all documents and appendices which the company is obligated to have prepared, this will also apply to documents prepared by e.g. an accountant in accordance with the Companies Act. This includes e.g. a valuation report subject to section 36 of the Companies Act.
However, not all documents relevant to the company are covered by the obligation to store company documents. Since this only applies to documents or appendices which the company is obligated to have prepared subject to the Companies Act or rules laid down in the Companies Act, it does not generally apply to the storage of accounting records covered by The Bookkeeping Act.
Voluntarily prepared documents, which are prepared in connection with decisions in relation to company law, also constitute company documents covered by the obligation to store company documents as they are regarded as an appendix to the decisions relating to company law. As information, assessments and similar information related to accounting will often be included as part of the decision basis when making decisions relating to company law, these documents could therefore be subject to the obligation to store company documents.
However, other documents which have been prepared voluntarily, but not included in decisions in relation to company law, will not constitute company documents and therefore not be subject to the obligation to store company documents.
The contents of the obligation to store company documents
Company documents must be stored in such a way that they can easily be made available in Denmark to public authorities, which have the right to access such documents.
Company documents can be stored electronically or in paper form. If the documents are not stored electronically, hard copy storage must take place in Denmark. This is to ensure that documents can be retrieved within a reasonable time irrespective of the storage method. If company documents are stored electronically, it is worth noting that the control package does not stipulate any requirements concerning the physical location of servers, etc. used for the electronic storage of company documents.
The obligation to store company documents should also be observed in relation to the company’s termination, dissolution or changes to the executive board. If the company is terminated, the control package requires the most recently registered executive board to ensure that company documents remain stored in accordance with the law. If the company is dissolved by intervention from the bankruptcy court, the court may decide that other parties than the most recently registered executive board must retain company documents. If the company's executive board resigns in other cases, the members of the resigning executive board must ensure that company documents for the period until the resignation date are stored subject to applicable law and provided in connection with the appointment of the new executive board.
Sanctions
In relation to the obligation to store company documents it should be noted that both missing and improper storage of company documents can be subject to a fine and, in the worst case, a compulsory dissolution of the company.
Fines will in general be issued to the company but can also be issued to the responsible persons in the company, if they intentionally or recklessly contributed to an offence which is not of an immaterial nature.
Compulsory dissolution is an extreme sanction reserved for serious cases in which the company has fundamentally not complied with the obligation to store company documents. If the company can rectify the matter, the company could be granted a deadline before the company becomes subject to compulsory dissolution.
Entry into force
While parts of the control package have already entered into force on 1 July 2020, several parts of the control package, including its obligation to store company documents, enter into force on 1 January 2021. It is our recommendation that the respective executive boards familiarise themselves with the rules on the obligation to store company documents and the other initiatives of the control package.
The control package is available in its entirety here.
For further information:
Niels Walther Rasmussen, Attorney, Partner
Telephone +45 3319 3722
Mobile 45 4010 0151
e-mail: nwr@mazanti.dk
Jens Ahrendt, Attorney, Partner
Telephone +45 3319 3756
Mobile +45 4036 0536
e-mail: ja@mazanti.dk
This newsletter does not and cannot replace legal advice. Mazanti-Andersen Korsø Jensen assumes no responsibility for damage or losses which are directly or indirectly attributable to the use of this newsletter.