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Unanimous opinion in the Supreme Court in favour of bank during leading avoidance proceedings

Following a judgment delivered by the Danish Supreme Court on 14 December 2021, a bank was successful during legal proceedings about the avoidance of an overdraft facility reduction before the bank enforced a floating charge. Holst, Advokater represented the bank during the proceedings.

Holst, represented a bank during proceedings about the avoidance of a reduction made to an overdraft facility – first before the Western Division of the Danish High Court and subsequently before the Danish Supreme Court. The bank succeeded before both courts.

Legal action was brought against the bank by a bankruptcy estate after a bakery, which was declared bankrupt on 22 February 2016.

Before the bankruptcy, the overdraft facility of the bakery had been reduced by approx. DKK 430,000 during the period from 30 December 2015 until 27 January 2016 at which date the bank enforced the floating charge.

The parties agreed that the bank held a security by means of a non-voidable floating charge in the amount of DKK 1 million. Nevertheless, the bankruptcy estate was of the opinion that the reduction of the overdraft facility – through to the enforcement of the charge – should be avoided pursuant to Sections 67 and 74 of the Danish Bankruptcy Act, otherwise the bank would obtain double coverage. The bank-ruptcy estate was of the opinion that the value of the floating charge did not provide the bank with a fully satisfactory security.

The case gave rise to a number of questions, including:

  • Does a security that is yet to be enforced not constitute a security?
  • Will the bank receive double coverage if avoidance is not made for the period before enforcing the charge?
  • What is the value of the floating charge before enforcement?
  • Are cash and debit card payments into the overdraft facility comprised by the charge when the payments made come from the sale of pledged goods?

Associate partner Henrik Christian Strand and Assistant attorney Marie Bayer Thode from Holst, Advoka-ter first satisfied the Western Division of the High Court and subsequently the Supreme Court that the reduction of the overdraft facility was non-voidable.

The Supreme Court did not ascribe any importance to its decision that the bank had not yet enforced the floating charge during the period at issue. On the contrary, the Supreme Court expressed that the pay-ments made into the overdraft facility during the period at issue (approx. DKK 720,000) to a large extent constituted payments of claims comprised by the charge, or payments made in connection with selling goods and other assets, which had been comprised by the floating charge beforehand.

Since the estate in no other way had substantiated any enrichment on the part of the bank nor a loss to the estate, the bank won the case – both before the Western Division of the High Court and before the Supreme Court.

Practice areas applied