Sweden: Lending & Secured Finance 2020

Overview

1.1 What are the main trends/significant developments in the lending markets in your jurisdiction?The debt capital markets in Sweden have been very strong during the last couple of years. The local banks remain strong and international banks and financial institutions are showing increasing interest in doing business in Sweden. Competition among lenders is fairly intense as many Swedish blue chip companies have limited need for debt funding due to strong balance sheets and plenty of liquidity. Another development that has increased the competition among debt providers is the development of a substantial and growing Swedish bond market where bonds are issued under local law documentation. Debt funds have also entered the market, primarily in the leveraged finance area.

Guarantees

2.1 Can a company guarantee borrowings of one or more other members of its corporate group (see below for questions relating to fraudulent transfer/financial assistance)?
The general rule under Swedish law is that a limited company (Sw. Aktiebolag) is free to guarantee the obligations of one or more other members of its corporate group, subject to certain restrictions described below under questions 2.2 and 4.1.

2.2 Are there enforceability or other concerns (such as director liability) if only a disproportionately small (or no) benefit to the guaranteeing/securing company can be shown?
A guarantee or security interest granted by a limited company may be invalid and unenforceable if the transaction reduces the company’s net worth and cannot be commercially justified (i.e. lacking sufficient corporate benefit).  Such a transaction is considered to be a value transfer under Swedish law.  A value transfer may only take place if the company’s restricted equity is fully covered after the transfer and the transfer can be justified in light of any additional funding requirements that might follow from the company’s nature of business as well as the company’s consolidation requirements, liquidity and financial position in general.  In some situations, all shareholders may need to approve the transaction.  The transaction will be considered to be an unlawful value transfer if these requirements are not fulfilled.  In the event of an unlawful value transfer, the recipient of such transfer must return what he or she has received if the company shows that the recipient knew or ought to have realised that the transaction constituted a value transfer from the company. If a deficiency arises when restitution is made as described above, then those involved in the decision to make the value transfer will be liable for such shortfall.  The same applies to those involved in implementing the value transfer.  A director can therefore be held responsible for any losses incurred by the company as a result of guarantees and security interests being issued or granted without sufficient benefit for the issuing company. 

Granting guarantees and security for wholly owned subsidiaries is typically considered to be commercially justified and therefore not subject to the value transfer restrictions referred to above.  However, upstream and cross-stream guarantees and security interests, as well as guarantees and security interests for subsidiaries which are not wholly owned, are sensitive and may not be considered to be commercially justified.  The value transfer restrictions may therefore be relevant in case of such guarantees and security interests.

2.3 Is lack of corporate power an issue?
Lack of corporate power is generally not an issue when Swedish companies enter into financing arrangements. 

2.4 Are any governmental or other consents or filings, or other formalities (such as shareholder approval), required?
No governmental or other consents or filings are required in order for a Swedish limited liability company to provide guarantees or grant security interests.  Shareholder approval is generally not formally required for granting guarantees and security interests, but may sometimes be advisable. 

2.5 Are net worth, solvency or similar limitations imposed on the amount of a guarantee?
As further described in question 2.2 above, the granting of guarantees and security interests may in certain situations be deemed to constitute value transfers and is as such only allowed if the company’s restricted equity is fully covered after the value transfer and the transfer can be justified in light of any additional funding requirements that might follow from the company’s nature of business as well as the company’s consolidation requirements, liquidity and financial position in general.

Guarantees and security interests granted by an insolvent Swedish company will be subject to clawback risk should the company enter into bankruptcy within certain hardening periods.  Any director of an insolvent company that gives preferential treatment to certain creditors of the insolvent company may be held criminally liable as well as liable to pay damages. 

2.6 Are there any exchange control or similar obstacles to enforcement of a guarantee?
Sweden has no exchange control provisions or similar obstacles restricting the enforcement of a guarantee issued by a Swedish limited company. 

Collateral Security

3.1 What types of collateral are available to secure lending obligations?
There are a number of different types of collateral and security interests that can be made available under Swedish law.  The most common security interest under Swedish law is the pledge.  Under Swedish law, as a general rule, any property or asset can be validly pledged. 

3.2 Is it possible to give asset security by means of a general security agreement or is an agreement required in relation to each type of asset? Briefly, what is the procedure?
Swedish law does not recognise the concept of a general security agreement covering all or almost all of the assets of a security provider.  Instead, the starting point is that separate security agreements must be entered into in respect of separate assets or separate classes of assets.

Notwithstanding the above, it is possible to grant security over different assets and different types of assets by way of one single security agreement.  However, this is often rather impractical, as different perfection and enforcement requirements often apply for different types of assets, which makes all-inclusive security agreements rather extensive and burdensome to draft and apply.

The most common way to take security over assets in general is by way of a floating charge, in accordance with the Floating Charges Act.  As described in question 3.9 below, floating charges may be subject to stamp duty.

3.3 Can collateral security be taken over real property (land), plant, machinery and equipment? Briefly, what is the procedure?
The primary means of taking security over real property (i.e. land and buildings and other fixtures thereon) is by way of real estate mortgages.  However, such real estate mortgages may, as described in question 3.9 below, be subject to stamp duty, so alternative security arrangements such as share pledges over ring-fenced property companies are also common.

Certain equipment and machinery which is more or less permanently incorporated into a real property can, subject to the prevailing circumstances, be either included in the real property (and thus covered by a real estate mortgage) or be considered as assets which are separated from the real property and therefore can be subject to other security arrangements besides a real estate mortgage.

Collateral can be taken over machinery in a variety of different ways depending on the type of machinery.  Machines that are movable goods can be pledged as collateral, but this requires that the movable goods are handed over to the pledgee or to a third party representing the pledgee.  If the security provider needs to continue to use the machinery, then a so-called chattel sale (Sw. lösöreköpsregistrering) can be made whereby a perfected security interest is created by way of a public announcement followed by a registration with the Swedish Enforcement Authority (Sw. Kronofogdemyndigheten).  An alternative way to take security over movable goods is instead to issue a floating charge as further described in question 3.2 above.

3.4 Can collateral security be taken over receivables?  Briefly, what is the procedure? Are debtors required to be notified of the security?
Security can be taken over receivables and such security is established through a notification of the debtor under the receivable which is subject to such security arrangement.  In order for the security interest to be perfected, all payments under the receivables must – as a general rule – be paid to the secured party or to a representative of the secured party.  This can sometimes be commercially sensitive as well as administratively onerous at least as regards account receivables.  It is therefore quite common with delayed perfection so that the notification of the debtor and the re-direction of payments are only made following a certain credit event relating to the security provider. 

It should be noted that relying on delayed perfection (in respect of receivables as well as any other security interests) stands the risk of clawback during certain hardening periods should the security provider file for bankruptcy shortly after the completion of delayed perfection.  An alternative way to take security over receivables is instead to issue a floating charge as further described in question 3.2 above.

3.5 Can collateral security be taken over cash deposited in bank accounts? Briefly, what is the procedure?
Security can be granted over cash deposited in bank accounts.  Such security is granted by way of the bank account being pledged to the secured party.  It should be noted that Swedish law contains very strict perfection requirements regarding bank account pledges.  In order for the pledge to be perfected and enforceable, the pledgor must be deprived of all disposal rights to the bank account.  Bank account pledges are therefore not suitable for bank accounts used in the day-to-day activities of the pledgor.

Due to the restrictions set out above, the standard approach in Sweden is to take security over deposit accounts rather than current accounts used for daily business.  To the extent that current accounts are pledged, it is common to use delayed perfection arrangements so that the pledgor is only deprived of its disposal rights over the pledged current account following certain credit events.  As mentioned above, these types of arrangements stand the risk of clawback during certain hardening periods in case the security provider subsequently enters into bankruptcy proceedings.  If the account bank is also the lender, then the right to set-off in insolvency may mitigate the clawback risk.

3.6 Can collateral security be taken over shares in companies incorporated in your jurisdiction? Are the shares in certificated form? Can such security validly be granted under a New York or English law-governed document? Briefly, what is the procedure?
Security over shares is one of the most common security interests in Sweden and is established through a pledge agreement.  The perfection requirements for a share pledge depend on whether the shares are represented by physical share certificates or the shares are dematerialised (i.e. in register form).  Physical share certificates must be handed over to the secured party or to a third party representing the secured party, whereas dematerialised shares are generally pledged via account entries with the Central Securities Depository as further set out in the Swedish Financial Instruments (Accounts) Act.  If the dematerialised shares are held on a custody account, security over the shares is perfected by notifying the custodian appointed in respect of the custody account.

A share pledge agreement in respect of shares in a Swedish limited company does not have to be governed by Swedish law and can, for example, be governed by English or New York law.  However, Swedish law would nevertheless as a general rule still apply in respect of perfection requirements.  Furthermore, Swedish law contains certain mandatory duty of care provisions that are aimed at protecting a pledgor, for example in connection with a security enforcement.  It is therefore advisable that the share pledge agreement is governed by Swedish law and this is also the prevailing market standard. 

3.7 Can security be taken over inventory? Briefly, what is the procedure?
As mentioned above under question 3.1, any property or asset can be validly pledged as long as it meets certain criteria.  However, in order for an inventory pledge to be perfected and enforceable, the pledgor cannot remain in the possession of the pledged inventory.  Inventory pledges are therefore very impractical.  A more common way to take security over a floating asset base such as inventory is instead to issue a floating charge as further described in question 3.2 above.

3.8 Can a company grant a security interest in order to secure its obligations (i) as a borrower under a credit facility, and (ii) as a guarantor of the obligations of other borrowers and/or guarantors of obligations under a credit facility (see below for questions relating to the giving of guarantees and financial assistance)?
Yes, please see above under questions 2.1 and 2.2 and below under Section 4 for further details.  The restrictions described above in respect of granting of guarantees also apply to the granting of security.

3.9 What are the notarisation, registration, stamp duty and other fees (whether related to property value or otherwise) in relation to security over different types of assets?
No notarisation or registration costs, stamp duties or other fees are payable in relation to the granting of security over receivables and shares.

An application for new real estate mortgages is subject to a stamp duty of two (2) per cent, payable on the face value of such new real estate mortgages.  Existing real estate mortgages can, however, be re-pledged an infinite number of times without incurring any additional stamp duty.

An application for new floating charges is subject to a stamp duty of one (1) per cent, payable on the face value of such new floating charges.  As with real estate mortgages, existing floating charges can also be re-pledged an infinite number of times without incurring any additional stamp duty.

Finally, it should be noted that minor application fees are payable when applying for new real estate mortgage or floating charges, as well as when applying for a chattel sale or security over certain intellectual property to be registered.  

3.10 Do the filing, notification or registration requirements in relation to security over different types of assets involve a significant amount of time or expense?
Most security interests can also be established more or less immediately and there are no significant costs for granting security other than the stamp duty referred to in question 3.9 above.  

3.11 Are any regulatory or similar consents required with respect to the creation of security?
There are no such consents required.

3.12 If the borrowings to be secured are under a revolving credit facility, are there any special priority or other concerns?
No, there are not.

3.13 Are there particular documentary or execution requirements (notarisation, execution under power of attorney, counterparts, deeds)?
There are no such requirements. 

Reproduced with permission from International Comparative Legal Guide to: Lending & Secured Finance 2020, Global Legal Group Ltd, London.

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