A Bankruptcy Trustee's Duties and Obligations

If a business goes bankrupt, the trustee is one of the most important — and often most misunderstood — people in the process, under Danish insolvency law. Many wrongly assume the trustee works for the debtor or the former management. In reality, the trustee's role is something else entirely, and understanding it can make a real difference to how you should act yourself, whether you're a former owner, a creditor, or a potential buyer.

Who is the trustee, and who appoints them?

The trustee is typically a lawyer specializing in insolvency law, appointed by the probate/insolvency court when a company enters bankruptcy proceedings. The trustee acts independently of both the debtor and the individual creditors — their job is to serve the bankruptcy estate's combined interests, which in practice means the creditors' shared interest in getting as much as possible out of the remaining value.

The trustee's main duties

• Secure the estate's assets: Immediately after appointment, the trustee must secure control over the business's assets, so they don't disappear, deteriorate, or get disposed of by the former management without the trustee's approval.
• Map assets and debt: The trustee prepares an overview of what the estate owns and owes — including by calling for creditors to register their claims.
• Represent the estate externally: The trustee acts on the estate's behalf toward authorities, partners and potential buyers — not on behalf of the former owner or management.
• Realize the assets for the best possible price: The trustee must work to achieve the highest possible proceeds from the estate's assets, for the benefit of creditors — whether through selling individual assets or selling the business as a combined, ongoing entity.
• Investigate the basis for continued operations or restructuring: The trustee assesses whether parts of the business are genuinely viable, and whether continued operations — potentially with a view to a combined sale — would give a better result for creditors than immediate closure.
• Investigate management's conduct: As part of their role, the trustee must also assess whether the former management's actions leading up to the bankruptcy were grossly irresponsible, and whether there are grounds to recommend director disqualification.
• Report to the court: The trustee must keep the probate/insolvency court and creditors regularly informed of the estate's status and progress.

Why is a combined sale of the business often in everyone's interest?

It's a common — and often correct — assumption that a trustee will be positively inclined toward selling the business, if it gets creditors more back. That's simply because maximizing proceeds to the estate is precisely the trustee's statutory duty. A business sold as a combined, ongoing entity — with customers, employees and established goodwill intact — typically yields higher total proceeds than a piecemeal sale of individual assets. If there's a realistic buyer for the business or parts of it, the trustee will therefore generally be interested in investigating that possibility thoroughly, rather than simply shutting down and selling off asset by asset.

What does this mean for you as a potential buyer?

If you're interested in taking over a bankrupt business — or parts of its assets, customers or agreements — the trustee is the right person to approach. The trustee both has an interest in, and a duty to, investigate realistic purchase offers, and a well-structured approach with a concrete plan for continued operations can, in many cases, lead to a faster and better outcome for everyone than if the estate is simply wound down piecemeal.

What does this mean for you as a former owner or manager?

Even though the trustee doesn't work for you, it's rarely an advantage to obstruct the process. Loyal cooperation — handing over accounting records and answering questions fully — counts positively, both in relation to any assessment of director disqualification, and if you want to help find the best outcome for the business's future, for example by bidding on the activity yourself.

What does this mean for creditors?

Creditors can register their claims in the estate and, in many cases, be heard during the process, including via any creditors' committee. An individual creditor doesn't have the right to instruct the trustee, though — it's the estate's combined interest, not any individual creditor's specific interest, that guides the trustee's decisions.

Frequently asked questions

Does the trustee work for me if I'm the former owner?

No. The trustee serves the bankruptcy estate's, and thereby the creditors', combined interest — not the former owner's or management's. That doesn't rule out cooperation being beneficial for both parties in practice.

Can I, as a buyer, negotiate directly with the trustee about taking over the business?

Yes, that's exactly the kind of approach the trustee both has an interest in and a duty to investigate, if it can produce a better result for the estate than the alternative.

Should I contact the trustee if I was previously the director of the bankrupt company?

You're generally obligated to cooperate and make yourself available with information if the trustee requests it. If you're unsure about the scope of your obligation, seek legal advice early in the process.

Considering bidding on the assets or activity of a bankrupt business — or are you yourself in the middle of a bankruptcy process? Book a no-obligation call, or read our walkthrough of director disqualification to understand the other side of the process.