IFLR 1000
The Guide to the World's Leading Financial Law Firms

Early 2008 marked the beginning of the end of a stable, prosperous economic climate in Denmark. It started when Bank Trelleborg had no other option than to merge with Sydbank in January....

Early 2008 marked the beginning of the end of a stable, prosperous economic climate in Denmark. It started when Bank Trelleborg had no other option than to merge with Sydbank in January. But when Roskilde Bank went down in March, the Danes knew something was wrong. Very wrong.

When company after company imploded, with notorious examples such as real-estate developer CenterPlan and the bankruptcy of Sterling Airlines, the Danish government knew it was time to intervene.

On 10 October 2008 the Danish Parliament approved the Financial Stability Act. From 5 October 2008 to 30 September 2010, the government unconditionally guarantees all claims by unsubordinated and unsecured creditors against all Danish financial institutions participating in the guarantee scheme.

The object of the guarantee is to enable Danish banks to raise funding on the commercial market. The country's financial sector will have to pay up to DKr35 billion (€5 billion) as consideration for the guarantee – that was set up in close co-ordination with the Private Contingency Association (PCA), which includes all financial institutions participating in the guarantee scheme.

The new Act, meant to guarantee credit and safeguard the banks, seemed unavoidable for Denmark's troubled banking system according to partners. "Denmark [has] dozens of small local banks and they are all in trouble," says one senior partner. "All smaller and mid-size banks are about to drown. We believe that the crisis is hitting our banking system much harder than for example in Sweden or Norway."

The poor-performing real-estate market is also doubling the pain for Danish banks. "Many small firms bought land and properties with obscure loans; they will suffer immensely," says one senior banking lawyer. "Denmark has a unique banking system. We have like 110 small local banks, unlike the rest of Europe. If real estate disappears or is reduced, you can't fulfil your requirements. As a result banks are forced to close and disappear."

For Danish law firms, the financial crisis has meant a significant shift in the type of advice that clients are requiring. "M&A boutiques are affected heavily, capital markets sections are suffering," says another senior partner. "Since London came to a standstill there has been a shift from our core activities to restructuring, repossession, enforcement of loans. The nature of the work has changed dramatically."

With clients requiring more advice regarding distressed situations, Danish firms with particular debt restructuring skills might not see developments as such a big setback after all.

Only two years ago the sky seemed the limit. The market was booming and many firms were completely focused on lucrative M&A deals....

Only two years ago the sky seemed the limit. The market was booming and many firms were completely focused on lucrative M&A deals. Those days are over, for now.

Following Lehman Brothers' collapse, confidence plummeted and sent the market into a negative spiral. "In 2007 we felt the first signs of the credit crunch," says a leading M&A partner. "We had lots of M&A work until the first quarter of 2008, then we started to get affected. From the second quarter of 2008 the market completely dried up and Copenhagen came to a standstill."

Consequently, firms are shifting their focus to distressed M&A and company restructuring to keep the deal flow coming. Many M&A lawyers have become restructuring agents, handling distressed operations as companies and businesses are forced to slim down, sell their assets and lay off people. "We moved M&A people around internally to the R&I department," says one partner. "The nature of the work has changed. Industrial players are much more dominating the market now."

Although small to medium-sized M&A transactions remained relatively unaffected by global developments, the overall number as well as the size of Danish M&A transactions decreased significantly. With capital markets activity at practically zero and banks not confident enough to lend large amounts, it is very hard for many companies to get funds or to invest.

"The golden days are over," says one senior partner. "We move people around and just try to make the best of it."

Without any doubt, the most active practice area in Denmark at the moment is restructuring and insolvency. As a result of the Danish real-estate market collapse the previous year and the slowing of M&A and capital markets work, many corporate lawyers had to switch to insolvency instructions to keep their billable hours rolling in....

Without any doubt, the most active practice area in Denmark at the moment is restructuring and insolvency. As a result of the Danish real-estate market collapse the previous year and the slowing of M&A and capital markets work, many corporate lawyers had to switch to insolvency instructions to keep their billable hours rolling in.

Mass redundancies, mergers, reorganisations and bankruptcies are providing Denmark's legal market with a strong pipeline of work. "We are very busy at the moment," says a leading insolvency lawyer. "We do a lot of suspension of payments cases as well as Chapter 11 proceedings."