Self-Financing in a Danish Law Perspective Regarding Dividend and Mergers

Troels Hørdam Jørgensen & Amin Ibrahim Balout

Student thesis: Master thesis


As a growth and investment opportunity, company acquisitions have come to stay. In the first and second quarters of 2018, company acquisitions of 2.500 billion dollars were made globally, which is 65% more than for the same period in 2017. The total number of corporate transactions in Denmark is not known, but the Danish Venture Capital and Private Equity Association has registered the amount of company acquisitions made by private equity funds, which resulted in 56 in 2017. A particular widespread approach is leveraged buyouts, where the debt is pushed down into the target company after the acquisition, which is illegal self-financing, cf. section 206 (2) of the Danish Companies act. The thesis has attempted to investigate whether there is conformity in the Danish self-financing rules, where dividend distributions and mergers are compared in a self-financing context. The comparison is made based on the purpose of the self-financing ban, which is protection of the creditor in the target. It has been found that dividend distribution takes precedence over the self-financing ban, cf. Procuritas judgment U 2006.145H, whereas mergers are still found as being illegal in a self-financial context, cf. the administrative practice of the Danish Business Authorities. The thesis has thus found that the protection of the creditor is equivalent, if not better, by mergers than by dividend distribution, so there is no conformity in the area of self-financing. The economic analysis has shown that there are clear incentives for the buyer to push down the debt into the target company through a measurement and calculation of the capital structure and debt’s importance. Finally, in the integrated section, it has been found that the lender has clear incentives to place the issued loan in the target company rather than the holding company, as he in this way secures his claim the best.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
Publication date2019
Number of pages129