Types of shareholders' claims

Main claims

Identify the main claims shareholders in your jurisdiction may assert against corporations, officers and directors in connection with M&A transactions.

Pursuant to Chapter 29 Section 1 of the Swedish Companies Act a founder, a member of a board of directors or a managing director who, in the performance of their duties, intentionally or negligently causes damage to the company shall compensate such damage. The same applies where damage is caused to a shareholder or other person as a consequence of a violation of the Swedish Companies Act, the applicable annual reports legislation, or the articles of association. As laid down in case law, the assessment whether or not a negligent violation of those rules may lead to liability in damages against a shareholder or other must take into account what purpose the violated rule seeks to protect (cf NJA 2014 p 272).

 

Accordingly, the fiduciary duties are owed to the company and thus not to any individual shareholder. Shareholders may bring claims against founders, board members and the managing director if there has been a violation of the Swedish Companies Act, the annual accounts act or the articles of association. Also, a shareholder may bring a claim against a founder, board members and the managing director if the company has set up a prospectus in accordance with the Prospectus Regulation ((EU) 2017/1129), a document that is referred to in article 1.4 (g) or 1.5 in that regulation or a document under the Swedish Law of Trade With Financial Instruments. In such a situation, the shareholder must show that damage has occurred as a result of a violation of the said provisions.

 

Consequently, there are higher hurdles to overcome for a shareholder (compared to the company itself) in order to be successful with a claim against directors.

 

The main claims brought by shareholders against board members or the managing director are based on alleged violations of the Swedish Companies Act. In connection with M&A transactions, the most common legal basis for such claims is presumably alleged violations of the general provision in Chapter 8 section 41. This provision, states that the board of directors or any other representative of the company may not perform legal acts or any other measures which are likely to provide an undue advantage to a shareholder or another person to the disadvantage of the company or any other shareholder. Nor may a representative of the company comply with instructions from the general meeting or any other company organ where such instruction is void as being in violation of the Swedish Companies Act, the applicable annual reports legislation or the articles of association. Such alleged violations are common when a shareholder, for example, finds its shareholding diluted or that the shares of the company were allegedly divested at price below fair value.

 

Further, there are specific remedies available to individual shareholders. For example, shareholders representing at least 10 per cent of the shares in the company may bring a derivative claim against board members in their own name on behalf of the company. Claims on behalf of the company against the board members are often based on the general duties of the board members with respect to the administration of the company, the management of the company’s affairs and the overall duty of loyalty towards the company and to the company’s shareholders as a collective.

Requirements for successful claims

For each of the most common claims, what must shareholders in your jurisdiction show to bring a successful suit?

In general, the claimant must show that a damage has occurred, that the director caused the damage in the performance of their duties towards the company and that the director has been negligent. Furthermore, proximate cause must be established with respect to the negligence and the damage.

 

If the damage claim is brought by shareholders (as opposed to the company itself), it must also be shown that the director has breached the Swedish Companies Act, the articles of association or the applicable annual reports legislation. In alternative, if the company is publicly traded, the shareholder may under certain circumstances bring a claim if damage has occurred as a result of a violation of the Prospectus Regulation ((EU) 2017/1129), a document that is referred to in article 1.4 (g) or 1.5 in that regulation or a document under the Swedish Law of Trade With Financial Instruments. The assessment of liability for the board of directors towards the company is thus broader in its scope.

 

If the claim is based on the general provision in Chapter 8 section 41 Swedish Companies Act, the claiming shareholders bear the burden of proof for establishing that the board of directors or any other representative of the company has performed a legal act or any other measure that is likely to provide an undue advantage to a shareholder or another person to the disadvantage of the company or any other shareholder. Of course, the evidence is assessed on a case-by-case basis.

Publicly traded or privately held corporations

Do the types of claims that shareholders can bring differ depending on whether the corporations involved in the M&A transaction are publicly traded or privately held?

In principle, the types of claims do not vary depending on whether the corporations involved in the M&A transaction are publicly traded or privately held. However, there are statutory provisions that only apply to listed stock companies. For example, shareholders can only bring a claim based on a violation of the Prospectus Regulation ((EU) 2017/1129) if the company is publicly traded. It can be noted that according to the Swedish Act on Public Takeover Bids on the Stock Market the possibilities for the board of directors to undertake so-called defence strategies in the event of a hostile takeover are restricted. However, it is not clear whether violations of the Swedish Act on Public Takeover Bids on the Stock Market can be a basis for a claim under the Swedish Companies Act.

Form of transaction

Do the types of claims that shareholders can bring differ depending on the form of the transaction?

In general, the form of transaction does not affect the type of claim that can be brought based on the Swedish Companies Act. Share purchase claims are normally based on contract.

Negotiated or hostile transaction

Do the types of claims differ depending on whether the transaction involves a negotiated transaction versus a hostile or unsolicited offer?

No. The board of directors owes the same fiduciary duties to the company regardless whether the transaction involves a negotiated transaction or a hostile or unsolicited offer. It can be noted that according to the Swedish Act on Public Takeover Bids on the Stock Market the possibilities for the board of directors to undertake defence strategies in the event of a hostile takeover are restricted. However, it is not clear whether violations of the Swedish Act on Public Takeover Bids on the Stock Market can be a basis for a claim under the Swedish Companies Act.

Party suffering loss

Do the types of claims differ depending on whether the loss is suffered by the corporation or by the shareholder?

Yes. First, shareholders can only assert claims if they themselves have suffered a loss. If the corporation has suffered the loss, shareholders usually cannot assert any claims. In practice, however, it is common that shareholders pursue claims for damages on the basis that their shares have decreased in value as a result of the corporation suffering a loss.

 

Second, in general, only shareholders who have suffered a loss are considered to have standing. However, in certain circumstances shareholders may bring claims on behalf of the company. Third, it is somewhat unclear under Swedish law whether a shareholder can be successful with a claim based on the fact that he or she has suffered indirect damages, namely, where the shareholder has suffered damage due to the fact that the value of his or her shares has decreased. Fourth, if the damage claim is brought by shareholders (as opposed to the company itself), it must be shown that the director has breached the Swedish Companies Act, the annual accounts or the articles of association or, in alternative, the relevant provisions regarding prospectus in, inter alia, the Prospectus Regulation ((EU) 2017/1129). The assessment of liability for the board of directors towards the company is thus broader in its scope.

Law stated date

Correct on

Give the date on which the above information is accurate.

29 March 2021.