New rules on severance pay to members of the management of AIFMs
Published 8 March 2023
On 8 February 2023, the Danish Government presented a proposal for amendments in the Danish financial regulation, including the Danish Alternative Investment Fund Managers Act.
The proposal lays down more detailed rules for severance pay and the payment of salary during the notice period. The main purpose is to prevent or reduce the payment of “golden handshakes” to managers in cases where the manager is liable for the distress of a financial undertaking, or where the manager has participated in the management of a financial undertaking which is involved in financial crime.
Of relevance to alternative investment fund managers (“AIFM”), the amendments in the Danish AIFM Act includes:
- a disclosure requirement for particularly large severance schemes, i.e. more than the total of two years’ salary including pension;
- a requirement that remuneration during an agreed period of notice to a member of the management of an AIFM, which is not matched by a normal work commitment, shall be paid monthly over the period of notice as opposed to be capitalized and paid out at the time of resignation;
- a requirement that the severance pay of a member of the management board of an AIFM i) shall reflect the performance of the position and shall not reward misconduct or non-performance, (ii) shall be paid in monthly instalments equal to the amount of the recipient’s average monthly salary, including pension, during the last financial year and (iii) shall be paid out after a potential remuneration during the notice period has been paid in full;
- an obligation for the board of directors to suspend the payment of severance pay if it considers that the manager has engaged in conduct during his employment, which may be regarded as constituting serious mismanagement, and to withhold payment of severance pay if the AIFM is charged with criminal offences attributable to the manager, or if the AIFM becomes aware that the manager is charged with criminal offences committed in the course of his employment by the AIFM;
- an obligation for the board of directors to demand repayment of any severance pay paid out in whole or in part before the board of directors became aware of the conduct or circumstances mentioned above.
The above rules may not be derogated from by agreement and non-compliance with the disclosure requirement is punishable by fine.
The proposal includes similar rules for banks, mortgage-credit institutions, investment management companies and insurances companies as well as rules contributing to increase the criminal and tort liability of the management of such financial undertakings in cases of gross mismanagement and negligent behavior. In addition, the proposal contains amendments to the rules on fit & proper assessment of members of the management and key employees of such financial undertakings to ensure the right balance between the requirements for the management and the need to ensure that the recruitment base is not unduly restricted.
Next step: If enacted, the proposal is expected to enter into force on 1 July 2024. However, special transitional rules will apply to severance pay schemes.
The proposal is available (in Danish) here.
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