Danish Owner's Charge in Cross-Border Lending

What foreign lenders need to know about Denmark's most versatile security instrument.

Foreign lenders taking security in Denmark may encounter the ejerpantebrev: a security deed in which a company declares a debt to itself and then sub-pledges that deed to a third-party creditor. The instrument is conventionally translated as "owner's mortgage", but the label is actually misleading. An ejerpantebrev is not limited to real estate. It can be registered over specific movables and chattels, over intellectual property, and, when structured as a floating charge (virksomhedspant), over an entire floating class of business assets including inventory, operating equipment and trade receivables. In this guide we will therefore refer to the ejerpantebrev as a "charge".

How the Sub-Pledge Works

Rather than granting a direct pledge to a bank lender, a Danish company issues a registered charge declaring a debt to itself (figure 1 below). The company is registered as both debtor and creditor. It then uses this charge as collateral by sub-pledging (underpant) it to a third-party creditor, such as a bank, to secure an underlying liability (figure 2 below). When the borrower repays the debt, the sub-pledge is released and the charge reverts to the company.

Registration is digital, allowing for swift execution. It follows the principle of "first in time, first in right". The sub-pledgee's enforcement rights mirror those of a direct chargee. In the case of real estate, enforcement is through the Danish bailiff's court (fogedretten) by way of forced sale. For movables and other pledged assets, the sub-pledgee may in certain circumstances enforce directly without recourse to the courts, depending on the terms of the security agreement. Where multiple senior lenders share the same security, enforcement and the distribution of proceeds will typically be governed by an intercreditor agreement.

Fixed Priority

Priority is established at the moment the charge is registered in the relevant public registry. This priority attaches to the registered charge itself, not to the underlying obligation. As long as the charge remains registered, its position in the creditors' queue is protected, regardless of any fluctuations or temporary repayments of the bank debt. The charge can remain in place even after the borrower repays the specific obligation it secured. In the event of the borrower's insolvency, the priority position is preserved: the sub-pledgee's claim ranks ahead of unsecured creditors in accordance with the registered priority, and the charge is not affected by the opening of bankruptcy proceedings.

Re-Usability and Registration Fee Efficiency

The principal commercial advantages of the ejerpantebrev are re-usability and lower registration costs. The initial registration of the charge triggers a variable registration fee that depends on the underlying asset class, currently 1.25% for real estate and 1.5% for movables and other assets, including floating charges. When the borrower repays the underlying obligation, the sub-pledge is released and the deed of charge (i.e. the registered ejerpantebrev) reverts to the company's control. The company can then sub-pledge the same deed of charge to a new creditor to secure a new facility (figure 3 below). Each such sub-pledge attracts only a minor fixed fee with no variable registration fee component. By recycling the existing instrument, the borrower avoids paying the variable registration fee a second time.

Owner's Charge Structure

Strategic Sizing

Because the variable registration fee is calculated on the nominal face value of the charge, the question of how to size the registered amount is a recurring point of negotiation between borrowers and lenders.

Borrowers will often seek to cap the registered amount below the total facility limit, on the basis that the pledgeable assets have a liquidation value below the aggregate debt. If the combined exposure is EUR 50 million but the assets have a realistic liquidation value of only EUR 20 million, the borrower's argument is that registering the full EUR 50 million produces a registration fee on EUR 30 million of value that can never be recovered. For a borrower that is cash-strapped, or in a growth phase where available capital is better deployed in the business than in transaction costs, the saving can be material.

Lenders should weigh this against the risk that a lower registered amount permanently caps their priority claim, including in scenarios where asset values recover or the security is enforced at a more favourable point in the cycle. A lender's instinct will be to register for the full facility amount, and in many cases that instinct is well-founded. Where several senior lenders share the same security, an intercreditor agreement will govern the waterfall distribution of enforcement proceeds, which may reduce the practical need for a fully sized registration but does not eliminate the priority question.

Conclusion

A locked priority position, registration-fee-efficient recycling, and strategic sizing make the ejerpantebrev a standard tool for secured lending in Denmark, whether the underlying assets are real estate, movables or an entire floating class of business assets.

The structure is particularly effective in two common scenarios. On a refinancing, the existing deed of charge can be re-used by granting a new sub-pledge to the incoming lender, avoiding the variable registration fee entirely. For revolving facilities, the structure offers a further advantage: priority attaches to the registered charge, not to the drawn balance, so it is maintained even when the facility is temporarily undrawn.

Although the ejerpantebrev is rare outside Denmark, Carsted Rosenberg has replicated the structure in other jurisdictions, including England and Wales, using an English law deed of charge with equivalent sub-pledge mechanics.

Further Information

For further information on Danish security for cross-border banking and finance transactions, please consult our guide on Danish banking and finance law for foreign lenders and our briefing and news section. For further guidance, please contact Michael Carsted Rosenberg or Dr. Andreas Tamasauskas at Carsted Rosenberg.

This briefing is intended to provide general information on banking and financial law in Denmark It is not intended to provide definitive legal or tax advice. No legal, tax or business decisions should be based solely on its content. The briefing does not necessarily deal with every important topic and is not designed to provide legal or other advice. It shall not be used as a substitute for legal advice and none may be inferred. It is only intended for general information on matters of interest. While we endeavour to represent the information as accurately and correctly as possible, we cannot accept any responsibility for any errors or omissions.