On 12 December 2013, the Swedish Government submitted a legislative proposal regarding changes to the Swedish Companies Act. The proposed new rules are expected to enter into force on 1 July 2014.
The proposal has been prepared with the primary purpose to simplify certain areas of Swedish company law and it addresses several previous proposals presented in the Swedish Government Official Report SOU 2009:34 and the Ministry Publications Series Ds 2012:37.
Of specific interest is a clarification on the permissibility of share issues directed to only some, but not all, of the shareholders of a company. While a possibility for such share issues has been part of the Companies Act since the 1970s, some degree of uncertainty regarding the boundaries of the rules has been ever-present. The uncertainty was, inter alia, based on a statement in the preparatory works of the Companies Act from 1973, where it was stated that satisfactory reasons for a directed share issue to certain shareholders are exceptionally uncommon.
In the current proposal, the Government states that the 1973 statement has been ‘passed by the times’ and that the present market situation demands a more flexible approach to directed share issues. In brief, the Government clarifies the current legal position by stating that a directed share issue which takes place without any underlying unfair purpose and with a subscription price that reflects the shares’ market value, will most likely be deemed to be in conformance with the Companies Act. The Government further notes that the specific boundaries for directed share issues will have to be set by the courts as they interpret the rules. Furthermore, the Government encourages the initiative by the Swedish Corporate Governance Board (Sw. Kollegiet för svensk bolagsstyrning) to establish recommendations for directed share issues in Swedish listed companies.
Set out below is a summary of other important parts of the proposal:
- Private limited companies (Sw. privata aktiebolag) will no longer be required to establish written rules of procedure (Sw. arbetsordning) for the Board of Directors or written instructions on the allocation of work between the Board and the managing director or other company organs. However, financial companies supervised or monitored by the Swedish Financial Supervisory Authority (Sw. Finansinspektionen) must continue to establish such documents. Furthermore, all limited companies must continue to establish written instruction regarding economic reporting to the Board.
- The residency requirement for founders and liquidators will be abolished. The Swedish Companies Registration Office (Sw. Bolagsverket) will continue to be able to grant exemptions from the residency requirement for e.g. members of the Board of Directors and the managing director if special reasons are at hand.
- The procedural requirements regarding reductions of the share capital without cancellation of shares will be adjusted to conform to the corresponding requirements applicable to reductions of the share capital with cancellation of shares. Thus, the Board of Directors can be authorized to decide on certain terms, e.g. the reduction amount and the amount to be paid per share.