Company Director Checklist Denmark Contact: Lise Lotte Hjerrild at LLH@horten.dk or Kia Pham at KPH@horten.dk
Item Section Check Before Appointment Understand Method of Appointment: By Whom and For How Long 1 Understand 2 Meet CEO and CFO 3 Company Directors and Employee Representatives 3 In-House or External Lawyer 3 Auditor 3 Review Documents Business Reports from the Danish Business Authority 4 Articles of Association 4 Rules of Procedures of the Board of Directors 4 Management Instructions 4 Organizational Chart 4 Last Three Years Minutes of General Meetings and Board Meetings 4 Material Company Policies 4 Last Three Years Annual Reports 4 Budgets 4 Announcements to the Stock Exchange and Press Releases 4 Company s Web Page 4 Press Coverage 4 Ongoing Duties Think About 5 To Whom Duties Are Owed 6 Duty of Skill 7 Duty of Care and Diligence 8 Delegation of Duties 9 2
Item Section Check Business Judgement Rule 10 Conflicts of Interest 11 Other Key Duties 12 Turning a Blind Eye 13 Disclosure Obligations as Director of a Listed Company 14 Compliance with Statutory Disclosure Obligations 15 Potential liabilities and the Systems Adopted by the Company to Minimise Breaches 16 Special Circumstances Company Insolvency 17 Special Responsibilities Associated with a Float 18 Special Responsibilities and Liabilities Associated with a Takeover 19 Special Responsibilities and Liabilities Associated with a Joint Venture 20 Self-Defence Corporate Governance Processes 21 Indemnities 22 Insurance 23 Resignation 24 Structuring of Assets to Minimise Losses 25 3
INTRODUCTION This Company Director Checklist has been designed as a practical guide to the main obligations and procedures of a listed company under the Danish Companies Act, the Securities Trading Act and the Listing Rules issued by Nasdaq OMX Copenhagen A/S. This checklist is tailored to a listed company. It is a general checklist that is not intended to replace professional advice. It will, however, highlight to a company director those situations where professional advice may be required. The checklist was updated as at 31 March 2014. Disclaimer: This checklist is general and should not be relied on for advice. Horten and the authors disclaim any liability in respect of anything done in reliance on this publication. This checklist was prepared with directors of a listed company in mind. Some obligations or statutory requirements may be less onerous in relation to privately held companies. However, specific legal advice and, where appropriate, accounting advice should be sought in all circumstances. 4
Before Appointment 1. Method of Appointment: By Whom and for How Long Action/Issue Comments/Notes Your appointment requires: (i) a resolution of the general meeting or the entity that holds a right of appointment according to the Articles of Association of the company; and (ii) your acceptance of the appointment. You can be appointed for a maximum period of 4 years. The appointment may be renewed or extended for another 4 years. The appointment may be revoked and you may resign at any time. According to the Danish Corporate Governance Code, the composition of the board of directors should be evaluated once a year. 2. Understand You should, among other things, understand: o Why you have been approached and what you are expected to contribute; o what risk comes with the position; o the company s liability insurance policy; o the business conducted by the company; o the company s ownership structure; o the company s financial position; o the legal framework to which you need to adhere; and o the remuneration package, if any. Before accepting an appointment, you should generally consider the following: o Can you devote the necessary time and resources? o Can you contribute to the company? o Do you have the competence and experience needed to meet the expectations for your contribution? o What are the duties of a company director? o Are adequate corporate governance procedures in place to ensure you can perform and are protected? The Danish Corporate Governance Code recommends that each director assess the expected time commitment as director to ensure that he or she does not take on more positions than he or she can satisfactorily manage. 5
3. Meet You should request: o a site, plant and company visit; and o a meeting with: other directors employee representatives management in-house and external lawyers the auditor Action/Issue Comments/Notes At these meetings you should obtain: o an introduction to the company s history, strategy and organisation; o a background/résumé on the other directors and the management; o The auditor s input regarding the business as a going concern, historical accounts, etc; o an industry briefing and a briefing on the position of the company, including: A Strengths-Weaknesses- Opportunities-Threats (SWOT) analysis of the company; information on key suppliers and customers; information on competitors; information on key products. And you should understand: o the rights and responsibilities of the board of directors, the management and management teams, respectively; o the status of relationships with unions and employee representatives; and o key legal issues, including past and current litigation. 6
4. Review You should review: o a business report from the Danish Business Authority; o the company s Articles of Association; o the procedural rules of the board of directors; o management instructions; o the organizational chart; o the last three years of minutes of general meetings, board meetings, etc; o material company policies; o the annual reports from the last three years; o budgets; o announcements to the stock exchange and press releases; o the company s web page; and o any press coverage. Action/Issue Comments/Notes These documents should give you an initial understanding of the structure and business of the company. Review of the minutes of board meetings and the budget is, in general, a good opportunity to gain insight into the company s business. On-Going Duties 5. Think About You should, in general, think about: o the value, source and quality of the information provided to you; o company information generated by a third party or externally; o your impression of the board of directors, the management, employee representatives, the auditor and lawyers, etc; o the possibility of a good continuous teamwork with the auditor, the You should, in particular, watch out for: o insufficient or misleading information; o inadequate procedures regarding internal controls, corporate conduct or compliance; o lack of independent directors and auditors; o that all company directors contribute; o that all company directors are 7
o Action/Issue Comments/Notes lawyers and the other company directors; and compliance with applicable law, corporate governance rules and recommendations. intermed and provided necessary information swiftly and sufficiently. You should, in particular, consider whether: o disclosure is made in a timely and sufficient manner; and o matters or concerns are dealt with in a timely and effective manner. 6. To Whom Duties Are Owed Your duty as director is to act in the company s interests. This means you are obliged to use your best efforts to promote the company s objectives and to ensure that the company complies with applicable law and disclosure obligations. 7. Duty of Skill You are expected to apply all your skills as a company director. Further, it is expected that you update your skills in order to perform your duties. The shareholders interests may affect the company's interests. Shareholders or creditors may have a claim against the board of directors if the board of directors violates its duties leading to a reduction in the value of the company. See Section 7 through Section 16 for further details on your duties as a company director. Danish law does not define the duty of skill. However, according to the Danish Corporate Governance Code, it is recommended that the board of directors of a listed company: o be composed to reflect the competence and experience required for managing a listed company; and o include members of different skills, education levels, genders, age, etc, and that such skills, etc, match the current needs of the listed company. In 2013, an act was adopted according to 8
Action/Issue Comments/Notes which the board of directors of: (i) listed companies; (ii) companies with investments, debt or other securities traded on a regulated market within the European Union / European Economic Area; and (iii) other major companies, are obliged to establish: (a) target figures for the inclusion of any underrepresented sex on the board of directors; and (b) a policy on how to increase the number of the underrepresented sex at all management levels. 8. Duty of Care and Diligence It is your duty to exercise your duties with the care of a diligent and conscientious director. You should consider whether, or ensure that: o A decision or transaction is in the company s interests; o a decision by board of directors is a result of thorough preparation and sufficient and valid information; and o the company complies with all applicable laws and regulations, the company s Articles of Association, and the Danish Corporate Governance Code. It is your responsibility to devise the company s overall strategy, including with respect to acquisitions or divestment of subsidiaries, business units or other significant assets. It is your responsibility to ensure that the company s activities are soundly organised and to oversee and control management s day-to-day operation of the company s business. You should therefore see to it that internal procedures and routines are in place to ensure that information about the company s affairs reaches the board of directors. You are, among other things, expected to: o request, review and pay continuous 9
Action/Issue Comments/Notes o o o o o attention to the information received; participate in board meetings; follow up on the information provided and request further reports or information as necessary; see to it that sufficient board meetings are held; see to it that fellow directors are alerted if important issues become known to you; and see to it that the decisions made by management are in compliance with the guidelines and policies as directed by the board. 9. Delegation of Duties The board of directors may delegate tasks to others such as a management committee, external advisers, others directors, employees or management, etc However, the board of directors remains potentially responsible and liable for any actions. The board of directors is obliged to instruct the management on how to ensure that day-today business complies with the board of directors strategic guidelines. The board of directors must carefully choose the delegees through independent assessment of the delegees qualifications, the information they have provided, and the decisions they have made. According to the Danish Corporate Governance Code, the board of directors should consider whether the company is exposed in a given instance, and whether permanent committees are justified. The board of directors may also set up ad hoc committees in connection with special tasks or significant issues that may be temporary in nature. These committees could ensure that adequate focus and priority is placed on 10
Action/Issue Comments/Notes temporary issues, for example, corporate social responsibility, ethical or image-related issues, and large acquisitions or takeover bids. 10. Business Judgement Rule You are not liable for any business decision or omission causing losses to the company or the shareholders and creditors if the decision is based on (i) a commercial assessment, and (ii) adequate and sufficient information. The liability must be assessed for each member of the management on an individual basis. However, the responsibility of the entire board of directors participating in a joint decision or a majority decision where the minority cannot be identified will, in practice, be joint and several. Danish company directors are rarely found liable in their capacity as directors because the Danish courts allow wide discretion with respect to business decisions that have been made in the company s interests and are based on sound business practice. Furthermore, Danish courts have been reluctant to impose liability on company directors unless there is a breach of a clear and specific duty. Consequently, if company directors are held liable, in most cases it is due to gross negligence or wilful misconduct. 11. Conflicts of Interest You are not entitled to participate in a resolution that involves an agreement between you and the company, or that involves legal proceedings against you. Further, you are not entitled to participate in a resolution that involves an agreement between the company and a third party, or legal proceedings against a third party, if you have a material interest in such business and that material interest could conflict with the company s interests. If in doubt, you should seek external advice. In case of any conflict of interest, you are not allowed to issue a power of attorney to another company director. If asked by the other company directors, you may have to make a statement on the subject. Practically, however, you may not participate in the discussion or examination of the resolution. Some confidential information may be disclosed subject to approval by the board of directors. 11
Action/Issue Comments/Notes You are also not allowed to disclose the confidential information or the trade and business secrets of the company. 12. Other Key Duties In addition to the overall and strategic management of the company, and jointly with the other company directors, you are obliged to ensure: o proper organisation of the company s business; o that the bookkeeping and financial reporting procedures are satisfactory; o that adequate risk management and internal control procedures have been established; and o that the board of directors receives on-going information from management about the company s financial position, etc. You are required to exercise your duties in the company s interests and for a proper purpose. You may not improperly use your position or any information received as a result of your position to gain an advantage for yourself or someone else, or to cause detriment to the company. If you have intentionally or negligently caused damage to the company, you are personally liable in damages. Further, the board of directors is also obliged to: o issue orders of business; o hire management with the necessary qualifications to handle the day-to-day business. Directors also have a duty to prepare financial statements, file bankruptcy petitions, protect the company s assets, and prepare and implement shareholder resolutions. 12
13. Turning a Blind Eye Action/Issue Comments/Notes You may be held personally liable if the company violates the Danish Companies Act, Securities Trading Act or other applicable regulations, and you have actively contributed to or refrained from preventing the violation. Thus, it is not a requirement that you have actively participated in a violation or have participated in the decision resulting in a breach of law. You may be held liable if you become aware or ought to have become aware of the breach and refrain from remedying the situation. Sample areas of exposure include giving illegal financial assistance for acquisition of company shares or giving financial benefits to related parties. You may be held liable for the company s violations if you negligently turned a blind eye to o a decision that may result in a violation; o any suspicious circumstances about which you do not make the necessary inquiries to disprove or confirm your suspicion; or o the company s violations If you have acted with gross negligence or intentionally, you may be subjected to a fine in addition to civil liability. 14. Disclosure Obligations as Director of a Listed Company 15. Compliance with Statutory Disclosure Obligations You and your close relatives (spouse, partner, children and other close relatives) must inform the Danish Financial Supervisory Authority ( FSA ) about personal trade in the listed company s shares or other securities related to these shares. However, trade below a market value of EUR 5,000 in total within a calendar year is exempt and need not be reported. You must ensure that the company complies with statutory disclosure obligations. For example, a listed company must disclose: o the annual report, including balance sheet, profit and loss statement, and notes; These matters are complex and professional advice is recommended. A breach of the company s statutory disclosure obligations may result in the company directors being liable to pay fines and damages. For more information on your company s 13
16. Potential Liabilities and the Systems Adopted by the Company to Minimise Breaches Action/Issue Comments/Notes o interim statements; o any information generally regarding the company and its shares that may have a material impact on the price of the shares. You should understand your potential liability in other areas, for example, regarding: o Tax o Bookkeeping o Financial Accounts o Competition Law disclosure obligations, you should seek specific legal advice. Tax The board of directors and the management of the company may be held personally liable in the form of a fine, damages and/or imprisonment, for tax offences committed by the company. Defences include that you: o were not knowingly involved in, nor a party to, your company s act or omission: o acted reasonably in not knowing about the offence; o tried to remedy the breach as soon you became aware of it. Bookkeeping The company s bookkeeping procedures must comply with the Danish Bookkeeping Act. Depending on the circumstances, a breach may result in a fine and/or imprisonment. Defences include that you: o were in a position where you had no way of knowing that the bookkeeping procedures did not comply with the Bookkeeping Act; o did not have a chance to establish satisfactory bookkeeping 14
Action/Issue Comments/Notes procedures; o tried to revise the procedures as soon as you become aware that the procedures did not comply with the Bookkeeping Act. Financial statements A breach of the Danish Financial Statements Act may result in a fine or imprisonment. The board of directors and management have the responsibility to: (i) prepare an annual report in accordance with applicable law; (ii) ensure that the annual report is audited, reviewed, and approved, and then submitted to the Danish Business Authority by the statutory deadline, which is four months after the end of the financial year. Defences include that you were not in a position to influence the conduct of the company in relation to the drafting of the financial statements and that you tried to avoid the breach. Further, you may have your objection recorded in the financial statements. Competition law The company, as well as the board of directors or management, may be subject to a fine if the company: o abuses its dominant position in the market; o enters into agreements that distort competition; 15
Special Circumstances 17. Company Insolvency Action/Issue Comments/Notes You may be held personally liable in the event of the company s insolvency, defined as the state when a company is not able to pay its debts as they fall due. You may be held personally liable if the insolvency is due to o fails to notify the competition authorities of a merger or completes a merger which has been denied by the competition authorities; o fails to comply with orders issued by the competition authorities; o fails to comply with orders, commitments or conditions issued by the competition authorities; o fails to deliver material required by the competition authorities; o provides false or misleading information to the competition authorities. In these circumstances, defences may include that you were not in a position to influence the conduct of the company in relation to the contravention and have, to the extent possible, tried to avoid the breach, for example, by introducing and adhering to various compliance instructions. In case a fine is imposed on you, you may minimise your liability or the amount of the fine by cooperating with the authorities (this is known as the leniency programme ). If you have reasonable grounds to suspect the company may be insolvent, you should immediately inform the rest of the company directors and the market, and seek financial and legal advice. 16
Action/Issue Comments/Notes your negligent acts or omissions. For example, if you: o did not ensure that, as required by law, a general meeting was held within six months of the company's equity falling to less than half the registered capital; o continued operations after the time of hopelessness (in Danish "håbløshedstidspunktet"); o have incurred additional debt when there are reasons to suspect that the company is or may become insolvent; o have knowledge of insolvency, having done nothing to obtain such knowledge; and o could have prevented the insolvency but did not. Defences to liability include: o you had reasonable grounds to expect and did expect that the company was solvent and would remain solvent; o you had reasonable grounds to believe and did believe a competent and reliable person using proper financial systems was continuously monitoring the company's financial position; o you took all reasonable steps to prevent the company from incurring debts while it was in danger of insolvency. 18. Special Responsibilities Associated with a Float In general, an issuer or a person requesting admission of securities to trading on a regulated market has to prepare a prospectus that must be approved by the Danish FSA and be made available to the public. The prospectus must be compliant with the Danish rules governing prospectuses based on the European Commission prospectus regulation and directive. The prospectus must include the information deemed necessary for investors and their investment counsellors to form a well-founded estimate of the issuer s assets and liabilities, as well as its financial position, To minimise liability, a company which is about to be listed usually engages professional advisers such as banks, accountants and lawyers. You do not need to be involved in the details of prospectus drafting but you should, at a minimum: o use critical sense (i) when appointing professional advisers, and (ii) with respect to information incorporated into the prospectus; o read a draft of the prospectus early enough to ensure that your 17
Action/Issue Comments/Notes results, future prospects, and any guarantor, and of the rights attaching to the securities offered to the public or admitted to trading. The Danish FSA shall make decisions regarding the approval of the prospectus. You may be held liable if damage is inflicted on a third party because the prospectus omitted relevant information. comments may be taken into account; o read the final prospectus before approving it; and o ensure that verification is performed and that the banks, accountants and lawyers all sign off on the prospectus in a record addressed to you. The rules are complex and professional advice is recommended. 19. Special Responsibilities and Liabilities Associated with a Takeover As a director of a target company you are obliged to: o prepare a statement that contains the board of directors opinion on the bid, including whether the bid can be recommended and the reasons, including the consequences of the takeover for the company and its employees; o disclose the statement before the end of the first half of the bid period; o notify the employees through their representatives about the offer and the board of directors statement at the same time as publication of the statement; o put the statement on a website immediately after publication; and o send a copy of the statement to all registered shareholders on the Provisions regarding the takeover of a listed company appear in Notice No. 221 of 10 March, 2010. The rules are complex and professional advice is recommended, whether you represent the target or the bidder. 18
Action/Issue Comments/Notes bidder s behalf. 20. Special Responsibilities and Liabilities Associated with a Joint Venture As director of a bidder company you must: o consider whether the company has enough funds to complete the takeover; o ensure that the offer complies with the legal requirements; and o consider what information needs to be disclosed. Even though you are a director in a joint venture company, your duties remain the same. It is your obligation to act in the company s interests (see Section 6). You should: o review the joint venture agreement in order to identify any potential conflicts; o be aware that you are not supposed to represent a faction of the shareholders; o always consider whether a decision or action is in the company s interests; and o take the same precautions as a director of a listed company. Self-Defence 21. Corporate Governance Processes Corporate governance procedures may reduce the risk of liability. At a minimum, you should take the following into account: o interaction between the shareholders and the board of directors; o the board of directors duties and liabilities; o the structure and composition of the You should familiarise yourself with the corporate governance recommendations at www.corporategovernance.dk and seek qualified legal advice on the use of the recommendations and on reporting. 19
o o o Action/Issue Comments/Notes board of directors; remuneration; risk management and internal controls; and processes for financial reporting 22. Indemnities You should ensure that: o you are insured (see Section 23); o any discharge resolutions are given through a qualified general meeting; o the general meeting adopts discharge resolutions based on sufficient information and data; o if need be, you will be granted access to the company records after your resignation; o you continuously can provide the necessary information and data relating to any board resolution; and o your objections to any resolution are recorded. 23. Insurance Insurance may protect you from, or minimise, personal liability. The company may pay the allowances. Therefore, you need to ensure that adequate and necessary insurance has been purchased. The shareholders may, at a general meeting, discharge the liability of the board of directors. Such discharge is usually based on the annual report they have adopted at the annual general meeting. However, such a discharge resolution does not preclude an action for damages if accurate and complete information was not given to the shareholders at the annual general meeting. Most insurance policies are on a claims made basis, which means that you will obtain coverage if the policy is in force when the claim giving rise to the liability is actually made, as opposed to when the act giving rise to the liability occurred. Consequently, it is important to ensure that the insurance remains in place after you have resigned or the company changes insurance companies. Insurance may not cover you, however, if 20
Action/Issue Comments/Notes your conduct involves a wilful breach of duty. 24. Resignation You are entitled to resign at any time without prior approval. The resignation is effective once your letter of resignation is submitted. You should submit your letter of resignation to the board of directors if you wish to resign. If you were not appointed by the shareholders, you should also submit your letter of resignation to the appointing entity. 25. Structuring Assets to Minimise Losses It is possible to minimise your personal assets and let your spouse, for example, be the owner of assets. However, such structure may, depending on the circumstances, be declared void. Once you have resigned, you should see to it that you are deregistered as a director with the Danish Business Authority. It is the board of directors obligation to complete the deregistration. These decisions are complex and professional advice is recommended. 21