"Regulatory package" introduces new rules on retention of corporate documents
The new “regulatory package” aimed at strengthening company and accounting regulation amends i.a. the Danish Companies Act, the Danish Financial Statements Act, the Danish Act on Approved Auditors and Audit Firms, and the Danish Consolidated Act on Certain Commercial Undertakings. The package enters into force on 1 January 2021. The requirement for a five-year retention period for “corporate documents” will affect all companies. Learn more about the duty of retention, the consequences of breaching the duty, and the other new rules introduced by the package.
Retention of corporate documents
The company’s executive board must ensure that corporate documents prepared in financial years starting 1 January 2021 or later are kept for a least five years from the end of the financial year in which they were prepared.
"Corporate documents" include all documents or appendices which must be prepared by the company under the Companies Act or rules issued under the Act, including its memorandum of association, articles of association, register of shareholders, minutes of general meetings, minutes of board meetings, and rules of procedure for the board of directors. The duty of retention also applies to any document serving as proof of payment of the share capital or proof of ownership and to appendices to corporate decisions such as interim balance sheets, statement by valuation experts, claims filed in connection with a capital reduction, and merger and demerger plans. Corporate documents which are prepared on a voluntary basis, but included as appendices to corporate decisions must also be retained. However, “corporate documents” do not include other types of documents or appendices that have been presented and decided upon at a meeting of the executive board or the board of directors or at a general meeting.
Corporate documents must be retained in a manner so that they can readily be made available to the Danish authorities. If the documents are not kept electronically, they must be kept in a paper version in Denmark. Corporate documents may be kept electronically using a server or a cloud solution regardless of the physical geographical location of the server/cloud solution, as long as the Danish authorities can always get online access to them for purposes of supervision. There is no requirement for retention of physical originals.
Sanctions for breach of the duty of retention
Failure to comply with the minimum retention period for corporate documents is punishable by a fine and, ultimately, compulsory dissolution of the company, also in case of insufficient retention.
The fine may be imposed both on the company and on the responsible officers if they have acted with intent or gross negligence and thus contributed to a non-negligible breach. Compulsory dissolution will be relevant only if the company has fundamentally breached its duty of retention. If it is possible to remedy the irregularity, the company will be allowed a certain time to do so before the dissolution process starts.
Other elements in the package
The regulatory package has as its overall objective to tighten the regulation of companies and to provide the Danish Business Authority with more supervisory powers.
The package introduces i.a. a number of new company and accounting rules, including the following:
- The Business Authority will be able to withdraw annual reports already published if they contain serious errors or defects.
- Small and medium-sized companies that do not disclose net revenue figures in the annual report must report these figures to the Business Authority when submitting the annual report. Net revenue will not be disclosed to the public and will be exempt from the public access rules, but may be disclosed to other public authorities.
- The Business Authority may have information or reports from the company verified by an independent third party (such as an auditor or lawyer), e.g. to ascertain that the company’s capital base exists.
- The Business Authority may demand compulsory dissolution of companies that fail to remedy any illegal practice or fail to make any disclosure as requested.
- A new company law provision will be introduced, requiring persons who are registered as members of management to actually perform their statutory duties.
- The Business Authority may refuse to register a person or to deregister a person already registered if in doubt as to whether the person effectively performs management functions. The rules are to prevent the use of so-called "front men".
- The Business Authority may request any information necessary to determine if the registered members perform effective management functions.
- The Business Authority may demand that registered persons verify their identity and, if applicable, appear physically.
- The Business Authority will be authorised to inspect a company’s registered address physically to ensure that the company can actually be reached at the address.
- Proof of payment will now be required in connection with the registration of cash capital increases similar to the proof required when setting up a company.