The purpose of the paper is to illustrate alternative preference share models, notably structures frequently used in private equity and venture capital, and analyze key corporate and financing law issues. The paper describes preference share models ranging from traditional dividend focused structures and defensive “subordinated debt” type structures to more aggressive structures protecting investors while also providing for an upside in case of success. It is explained what purposes the different models can serve. The paper further compares the models with certain pertinent issues in the Danish Companies Act. The majority requirements for issuing preference shares are discussed, and the author on this point challenges predominant views, which – according to the author – are based on an exceedingly rigid and undesirable application of the principle of equal treatment of shareholders. The paper finally goes through the requirements for redeeming preference shares.
The paper examines the treatment under the Danish Companies’ Act of a cancellation of treasury shares repurchased by the company for free reserves. The Act, unlike the Second Company Law Directive and its successor directive, does not distinguish between capital reductions directed against external shareholders and cancellation of treasury shares. As a consequence, administrative practice treats a cancellation of treasury shares as a capital decrease with payout to shareholders. The funds have, however, already left the company and the transactions are therefore different. Indeed, a cancellation of treasury shares presents less of a threat to creditors, and the creditor protective measures required pursuant to the Danish Companies’ Act also in these cases thus seem excessive. It is recommended that the model devised by the Second Company Law Directive is implemented in Danish law as it is more business friendly and provides adequate protection of creditors. Meanwhile, administrative practice should be changed to refer to a different legal basis in order to reflect the financial reality.