According to a 2002 study prepared for the European Commission (EC), in Denmark, 23 of the Principles for Effective Insolvency and Creditor Rights Systems developed by the World Bank have been fully adopted, 11 have been almost fully adopted, 5 have been partially adopted, and 2 have not been adopted. The EC report of 2002 notes that the current operative Danish insolvency legislation is the Bankruptcy Act of 1997 as amended in 1998, adding that in 2001 a Bankruptcy Board was created to investigate issues relating to insolvency and bankruptcy and to make recommendations for reforms. A 2006 PricewaterhouseCoopers (PWC) study found that the Danish insolvency system was mainly creditor-oriented. The PWC report noted that there were some draft reforms being developed that would address debt restructuring for small-claim insolvency proceedings.

General Overview

In 2002, a group of experts was requested by the European Commission to conduct a study on the legal and social consequences of business failure in the European Union and the USA and their effects on entrepreneurship. According to the final report of the expert group released in 2003, as of 2002, Denmark had fully adopted 23 of the Principles for Effective Insolvency and Creditor Rights Systems developed by the World Bank, almost fully adopted 11, partially adopted 5, and failed to adopt 2 of the principles. The supplementary country report for Denmark prepared in 2002 for the above-mentioned study states that the Danish bankruptcy legislation is founded on Danish Bankruptcy Act No. 298 of 1977, which replaced the Bankruptcy Act No 51 of 1872. Act No. 298 was later incorporated into Consolidated Act No. 488 of 1986. Further changes to the bankruptcy regime were made through Act No. 215 of 1991, followed by a move to address the "rationalization and modernization of bankruptcy proceedings" which aimed "to streamline bankruptcy and winding-up proceedings" (p. 1). These changes were implemented with the passage of Act No. 382 of 1996. The year 2001 saw the creation of a Bankruptcy Board that was tasked with developing recommendations for future amendments to the bankruptcy law and to advise the Ministry of Justice (MoJ) on potentials for reform. At the time of publication of the EC report in 2002, the most recent operative version of the Bankruptcy Act became Act No. 118 of 1997, as amended by Act 402 of 1998. The Act consists of five separate titles. Introductory provisions comprise the whole of Title I; Title II provides the majority of bankruptcy provisions included in the Act; Title III deals with compulsory composition; Title IV deals with debt rescheduling; and Title IV deals with the professional criteria that must be met for actors working within the insolvency hearing, as well as provisions governing court hearings on bankruptcy disputes.

By law, the heart of Denmark's insolvency regime - for both individuals and companies - is the winding-up procedure wherein debtor property is liquidated and proceeds are distributed among recognized creditors. Creditor ranking for this distribution is laid out in Sections 92 through 99 of the Bankruptcy Act. A suspension of payments to creditors may be sought by the debtor or imposed by the courts. The EC 2002 report notes that the suspension of payments system is asserted in order to permit an exploration of the potential for an all-around more favorable resolution than simple liquidation, but it "is not in itself a form of estate administration" (p. 2). Composition is a mechanism whereby liquidation of assets may be combined with a percentage reduction of total debtor debt, and while this may occur either voluntarily or compulsorily, the compulsory version is the preferred form. The debt rescheduling mechanism is used exclusively in personal bankruptcy, not in corporate insolvencies. A creditor faced with a solvent debtor who will not make payments has recourse to winding-up proceedings through the courts, but only if the creditor's claim fulfills certain criteria. In such cases, the definition of "insolvency" is satisfied by a condition of illiquidity. The winding-up order, if granted by the court, "creates a new legal person where the decision-maker is no longer the bankrupt or the board/management of the company being wound up but the estate management, which... is the trustee, who is accountable to the bankruptcy court" (p. 5). The bankruptcy courts "are found in the district courts and the Maritime and Commercial Court, which only deals with insolvent estates, etc.," (p. 6) as set forth in Section 9(e) of the Administration of Justice Act.

The 2002 EC report notes that "the Danish insolvency system is mainly creditor oriented" (p. 40), implying that the system is rarely invoked early enough to provide the possibility of a reconstruction option. Writing in 2006, the authors of a report for PricewaterhouseCoopers (PWC) add that "efforts to restructure an insolvent business are often hampered by Danish insolvency law, which does not prioritize new money brought in as part of a restructuring." The PWC report does acknowledge that when a debtor has few creditors who hold the bulk of his/her total debts, it is common to make out-of-court, informal arrangements for repayment. According to the PWC report, it was expected that the Ministry of Justice would be proposing new small-claims debt collection rules and other changes at some time in the near future.

According to the Denmark Country Profile published jointly by the International Bank for Reconstruction and Development and the World Bank (IBRD&WB) in 2008, , Denmark ranks as a "Selected Economy" with a global numerical rank of 7th for overall ease of closing a business. The IBRD&WB categorizes economies, in descending order, as "best practice," "selected," and "comparator" economies, As of the most recent "Doing Business" snapshot page of the IBRD&WB report, the process of closing a business takes 1.1 years, which compares favorably to the Organization for Economic Co-operation and Development (OECD) average of 1.7 years. It costs 4.0% of the estate value in Denmark, which is less than half the cost average achieved by the OECD as a whole, which totals 8.4%. The recovery rate, expressed in terms of cents on the dollar claimants recover from the insolvent firm, is 86.5. Once again, this compares quite favorably to the OECD average, which is 68.6 cents on the dollar.