Record number of foreclosures this fall - here's why you should care

Summer is coming to an end and for many companies, it's the start of the second half of the financial year.

August and September are not only an indication that we're moving into fall; it's also the peak season for forced dissolutions of Danish companies - and that's something you as a business owner should take an interest in.

Read this article to learn more about foreclosures in general, why fall brings many of them - and why you should be aware.

What is a forced dissolution?

The Danish Business Authority can ask the bankruptcy court to compulsorily dissolve a company if the company does not comply with applicable legislation within business operations. The bankruptcy court will then carry out the practical work in collaboration with a trustee.

A compulsory dissolution can happen in one of three ways: bankruptcy, liquidation or informal dissolution.

In some cases, an ongoing compulsory dissolution can be withdrawn. However, this rarely happens in practice.

Large number of forced dissolutions in the fall

4,173 Danish companies are currently undergoing compulsory dissolution (Source: CVR.dk). This is a relatively high number of forced dissolutions, but the reason is actually quite natural.

"The large number of compulsory dissolutions this fall is partly due to many companies not submitting their annual accounts on time, in the run-up to the summer holidays. If a company does not submit its financial statements on time, this will result in a fine to the company's management. If the accounts are still not submitted, the next step is for the company to be compulsorily dissolved," says Morten Holst Henriksen, who is a trained accountant and works with business development.

It's the many companies that haven't submitted their financial statements for the previous year (2023) that are now feeling the consequences - which is a compulsory dissolution. The compulsory dissolutions for the missing financial statements usually start from mid-August and well into September.

It is the Danish Business Authority that compulsorily dissolves the company, and thus they are in charge of the process.

The deadline for submitting the annual accounts is July 1 if the company's annual accounts run from January 1 to December 31.

Remember to be aware of your customers' CVR status

Most business owners are well aware of the need to regularly check up on their customers, but few do it - and it can be costly.

A significant increase in the number of forced dissolutions also means that you as a business owner should pay special attention to whether your customers' status on CVR.dk changes this fall.

"We often see that companies that are compulsorily dissolved by the Danish Business Authority due to failure to submit the annual report continue to operate as if nothing had happened. This means that their store is still open, they are still answering the phone and ordering new products from suppliers," says Morten Holst Henriksen.

This trend is particularly dangerous because if a supplier does business with a company in receivership, there is a high probability that the supplier will not get its money if, for example, credit is granted.

Of course, it's not just new purchases from customers that a supplier should be aware of, but also the customers they already have - and may have unpaid goods, credits and debts.

Monitor your customers

There are several ways to avoid bad payers - and one of them, of course, is to continuously monitor their financial situation and status.

Ongoing monitoring can be done by, among other things:

Stay informed about the company's management and owners
Being continuously informed about the company's public accounts
Continuously obtaining credit ratings

If a company chooses to continuously monitor its customers, it provides a number of opportunities, such as:

Continuously reduce credit sizes and credit duration
Continuously maintain a tight credit policy
Continuously minimize losses - for example by introducing cash payment

Get help monitoring your customers

Are you not regularly checking your customers' CVR status, annual reports and credit ratings? Then you're far from the only one.

At Collectia, we have developed an online platform to help you with this task - Qatchr.

Qatchr is an online credit scoring platform that can help you with everything from credit recommendations, credit ratings, and relevant information about your customers - both individuals and businesses.