Creating collateral security packagesTypes of collateral
What types of collateral and security interests are available?
The basic forms of security under Swedish law are pledge, fixed charge and floating charge. Any asset of the project company can be used as collateral, whether it be real property, movable (personal) property such as vehicles, equipment, receivables or securities, or intellectual property in the form of patents or trademarks.
To create a pledge over personal property, it is generally necessary to separate the property from the pledgor by transferring possession to either the pledgee or to a third party. In practice, this means that lenders cannot obtain direct security in machinery, equipment and similar movable property of the project company, as such property could no longer be used by the company. It is, however, possible to obtain security in movable property indirectly by way of a floating charge. This is created by the project company by way of application to the Companies Registration Office. A charge will be registered in the company’s general business. It is not tied to any specific assets but varies from time to time with the fluctuations of the company’s business activities. In a situation of default, the charge will entitle the lender to payment out of the business assets up to a fixed amount, which is the registered amount of the charge.
A floating charge does not include the project company’s cash in the bank, certain securities or real estate. Because of these limitations, a common form of security in project financing is pledge of the shares in the project company. This will enable the lenders to take complete control over the company and all its assets in a default situation.Collateral perfecting
How is a security interest in each type of collateral perfected and how is its priority established? Are any fees, taxes or other charges payable to perfect a security interest and, if so, are there lawful techniques to minimise them? May a corporate entity, in the capacity of agent or trustee, hold collateral on behalf of the project lenders as the secured party? Is it necessary for the security agent and trustee to hold any licences to hold or enforce such security?
A pledge of movable property is generally perfected through agreement between pledgor and pledgee and transfer of possession of the pledged asset to either the pledgee or a third party. If the asset is already in the possession of a third party, such as shares deposited with a bank, the third party must be notified of the pledge. Although there are no formal requirements as to such a notice, in practice, the process involves a written notice signed by one or both parties to the pledge agreement and a written acknowledgement in return.
Security interests in real property, ships and aircraft, patents, trademarks and certain securities are subject to official registration, in the case of real property by way of a mortgage application to the Land Registry. Perfection of these securities generally requires that the company hands over a mortgage certificate to the lender, or in the case of an electronic certificate, that the lender is registered as holder of the certificate in the mortgage register. A charge over a patent or trademark is perfected by registration in the relevant register. Property in respect of which a security interest is subject to official registration need not be transferred to the creditor’s possession.
A floating charge must be registered with the Companies Registration Office. As with real property, perfection requires that a mortgage certificate is issued to the lender or electronically created in the mortgage register.
Priority is generally established by the party that is first in time to take possession or register a charge over a certain property. However, a floating charge does not include property that can be subject to a fixed charge by registration and, therefore, needs to be supplemented by fixed charges if the company has real estate, patents, trademarks or other assets subject to registration that the lenders wish to secure.
Charges are generally payable in respect of all securities that are subject to official registration. In the case of real estate, a stamp duty of2 per cent of the mortgage amount will be payable to the Land Registry. A floating charge costs 1 per cent of the mortgage amount. Except for the above, there are no taxes levied as a result of creating security interests. However, exercising rights under a pledge agreement may involve the transfer of underlying assets, which may in turn result in transfer tax such as stamp duty for purchase of real property.
It is possible for a corporate entity, in the capacity of an agent, to hold property on behalf of the project lenders. No licences are required for this as it will be exclusively regulated by agreement between the agent, the lenders and the project company. Such property will be excluded from the agent’s estate in the case of bankruptcy, provided it has been properly separated. A typical agent would be a reputable bank. The concept of trust is not recognised under Swedish law and the notion of parallel debt has not been established by Swedish courts.Assuring absence of liens
How can a creditor assure itself as to the absence of liens with priority to the creditor’s lien?
A creditor needs to order a search of several official registers to check charges over real estate, securities, patents, trademarks and other property subject to registration of a fixed charge. The existence of a floating charge must be checked with the Companies Registration Office. The relevant registers are accessible online and a search will typically be conducted by a law firm acting for the lenders.Enforcing collateral rights
Outside the context of a bankruptcy proceeding, what steps should a project lender take to enforce its rights as a secured party over the collateral?
Typically, the procedure for the lender to follow in the case of default will be set out in the security documents. If nothing has been agreed on this matter, the secured party is entitled to sell the collateral after giving the pledgor at least 30 days’ notice (during which time the pledgor may settle the claim and avoid sale of the collateral). No court order or other official procedure is required for this. Unless otherwise agreed, the creditor must arrange a public auction to sell the collateral. Anyone is entitled to bid at such an auction, including the pledgor. The creditor is obliged to carry out the auction with due care and regard to the pledgor’s interests. The time and place must be suitable and the auction must be publicly notified in good time. Any surplus money from the sale must be paid to the pledgor. Any contract clause whereby the collateral is forfeited, regardless of surplus value, will be held invalid. A sale could be held in foreign currency but only if agreed by the parties beforehand.Enforcing collateral rights following bankruptcy
How does a bankruptcy proceeding in respect of the project company affect the ability of a project lender to enforce its rights as a secured party over the collateral? Are there any preference periods, clawback rights or other preferential creditors’ rights with respect to the collateral? What entities are excluded from bankruptcy proceedings and what legislation applies to them? What processes other than court proceedings are available to seize the assets of the project company in an enforcement?
All companies in Sweden, whether limited liability or partnerships, and regardless of business sector, are subject to the Bankruptcy Act (1987:672). Bankruptcy may be declared by a competent court upon application by a creditor or its own board of directors if the company is deemed by the court to be insolvent. However, a secured party with collateral has priority and is able to enforce his or her rights over that collateral notwithstanding the bankruptcy. There are no other creditors that will have preferential rights over such collateral. However, there are clawback provisions that can render certain collateral agreements void. One such provision in the Bankruptcy Act states that security given by the company within the past three months before bankruptcy, can be repossessed by the bankruptcy administrator if it was not required at the entering into the corresponding debt or other obligation, or if it was not given without delay after the creation of that obligation.
Apart from court proceedings, a creditor may be able to seize assets from the project company with the aid of the State Enforcement Agency. The agency will, through a summary proceeding, assist a creditor in enforcing any valid overdue claim provided it is not contested by the debtor (in which case it will be transferred to a general court). The agency has the powers to confiscate funds in a company’s bank accounts or to seize vehicles, machinery or other property and have them sold at public auction for settling debts.
Foreign exchange and withholding tax issuesRestrictions, controls, fees and taxes
What are the restrictions, controls, fees, taxes or other charges on foreign currency exchange?
Subject to any current political sanctions, Sweden does not impose controls or taxes on foreign currency exchange, but banks often charge certain fees in respect of currency exchanges. However, regulations regarding money laundering must be observed in currency exchange transactions such as in domestic financial transactions.Investment returns
What are the restrictions, controls, fees and taxes on remittances of investment returns (dividends and capital) or payments of principal, interest or premiums on loans or bonds to parties in other jurisdictions?
There are no controls on remittances or investment returns or loan payments, subject to any political sanctions, to parties in other jurisdictions. Banks charge for remittances of investment returns but these are not material.
Withholding taxes may apply on certain cross-border payments, including interest, though they may be reduced or eliminated under applicable double taxation treaties. There is currently no Swedish withholding tax on dividends.
Worldwide debt capitalisation rules may apply, limiting deductibility of interest and other financing expenses of Swedish companies in large groups by reference to the external financing expenses of the worldwide group as a whole.
Transfer pricing tax legislation could be applied to impose a tax charge or deny a relief if transactions between associated entities are not entered into on arm’s-length terms.Foreign earnings
Must project companies repatriate foreign earnings? If so, must they be converted to local currency and what further restrictions exist over their use?
There is no requirement on Swedish companies to repatriate foreign earnings and no requirement to convert foreign earnings to domestic currency if they do repatriate foreign earnings. However, foreign earnings by a Swedish entity are, in principle, subject to Swedish tax because Swedish tax relies on the worldwide income principle. Due to the existence of double tax treaties with almost all countries in the world, the provisions of such double tax treaties must be observed.
May project companies establish and maintain foreign currency accounts in other jurisdictions and locally?
Subject to any political sanctions, Swedish companies may have accounts in any currency both at home and overseas.
Foreign investment issuesInvestment restrictions
What restrictions, fees and taxes exist on foreign investment in or ownership of a project and related companies? Do the restrictions also apply to foreign investors or creditors in the event of foreclosure on the project and related companies? Are there any bilateral investment treaties with key nation states or other international treaties that may afford relief from such restrictions? Would such activities require registration with any government authority?
Sweden does not have any restrictions, fees, taxes or other disadvantages for foreign investors regarding investment or ownership of a project and related companies.
Sweden is a party to several bilateral investment treaties. Sweden has also signed the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration, which aims to improve the transparency in investor-state dispute settlement. The bilateral investment treaties aim to give foreign investors the same treatment as national investors and other foreign investors. The treaties also make sure that foreign investors are treated equally and reasonably. Further, the treaties regulate how investors shall be compensated if expropriation occurs. Foreign investors are entitled to the same compensation as domestic investors are. Registration is generally not needed to benefit from the bilateral investment treaties.Insurance restrictions
What restrictions, fees and taxes exist on insurance policies over project assets provided or guaranteed by foreign insurance companies? May such policies be payable to foreign secured creditors?
No restrictions, fees or taxes exist on insurance policies over project assets provided or guaranteed by foreign insurance companies. The policies are payable to foreign secured creditors.Worker restrictions
What restrictions exist on bringing in foreign workers, technicians or executives to work on a project?
Citizens from outside the EU and EES need a residence permit and a work permit to work for longer than three months in Sweden. However, a work permit is not needed if the employee is a specialist in an international corporation who is assigned to work in Sweden for no more than 12 months. The company decides whether the employee is to be regarded as a specialist or not. The Swedish Migration Board will not investigate the issue. The specialists must be employees of the company to be classified as specialists by the Migration Board. They cannot be hired as consultants.
Applications for residence permits should be made online on the Swedish Migration Board’s website prior to the entry into Sweden. A permit will not be granted if the application is made when the applicant is already in Sweden. The decision to approve or deny the application is made by the Swedish Migration Board. The current processing time for a residence permit application is approximately four to eight months.Equipment restrictions
What restrictions exist on the importation of project equipment?
Generally, permission to import equipment to Sweden is not needed. However, a registration number is needed, which can be obtained on the Swedish Customs website (www.tullverket.se). Some restrictions apply on importing certain equipment to Sweden. The reasons for these restrictions are trade policies, environmental considerations, consideration for the health and safety of humans and protection against the spreading of animal and plant diseases. The restrictions apply on importing live animals and animal products, plants, food, weapons and ammunition, alcohol, chemical products, pharmaceuticals and drugs, trade with endangered animals and plants, and counterfeited products. Other governmental agencies and other agencies, apart from the Swedish Customs, that may need to be contacted prior to importation are the Swedish Tax Agency, the National Board of Trade, the Swedish Board of Agriculture and the Chamber of Commerce.Nationalisation laws
What laws exist regarding the nationalisation or expropriation of project companies and assets? Are any forms of investment specially protected (from nationalisation or expropriation)?
Private ownership is strongly protected by the Swedish Constitution. Nationalisation or expropriation is only allowed if necessary for satisfying essential public interests and provided the owner is fairly compensated. The Expropriation Act (1972:719) determines the relevant compensation when expropriation occurs. All types of investments are equally protected under these provisions.
Fiscal treatment of foreign investmentIncentives
What tax incentives or other incentives are provided preferentially to foreign investors or creditors? What taxes apply to foreign investments, loans, mortgages or other security documents, either for the purposes of effectiveness or registration?
There are no tax incentives or other incentives for foreign investors. Foreign investors are treated as Swedish investors. Withholding taxes may apply on certain cross-border payments, including interest. There is currently no Swedish withholding tax on dividends. Any taxes that are also levied in the investor’s home country may be subject to double taxation treaties, which can be invoked to avoid double taxation.
Government authoritiesRelevant authorities
What are the relevant government agencies or departments with authority over projects in the typical project sectors? What is the nature and extent of their authority? What is the history of state ownership in these sectors?
Energy (including oil and gas), chemical refining and water treatment are regulated by the Swedish Energy Agency, the Swedish Environmental Protection Agency and the Ministry of the Environment and Energy, as well as Sweden’s five regional water authorities. They prepare regulations, handle applications for certain permits and supervise activities to ensure that rules and regulations are followed. The regional environmental courts have wide-ranging powers to approve or deny applications for projects with environmental impact (which include, in practice, all typical project sector activities, such as wind power plants, oil refineries, mines and hydropower plants). The regional state authorities, the County Administrative Boards, play a central part in handling and supervising permit applications.
The energy sector was deregulated and opened up to competition in 1996. This meant that production and trade in electricity was demonopolised while the ownership of physical networks has remained regulated.
Within telecommunications, the former government agency named Televerket was the sole owner until 1993. After the breakthrough of mobile telephones, Televerket was privatised and the whole sector was deregulated and opened up to competition.
Regarding transport, public ownership remains in respect of the railway network and the Stockholm underground system. However, certain parts of these sectors have been privatised, such as railway maintenance.
Regulation of natural resourcesTitles
Who has title to natural resources? What rights may private parties acquire to these resources and what obligations does the holder have? May foreign parties acquire such rights?
Apart from the state, municipalities, public and private companies, as well as private citizens, may all hold title to land and natural resources in Sweden.
Sweden has no oil or natural gas production but is by far the biggest producer of iron ore in the EU and also among the leading producers of copper, zinc, lead, gold and silver. All minerals that are covered by the Minerals Act (1991:45) are listed in the Act and what is not listed belongs to the landowner. Minerals of interest for mining are among the ones listed. The reason for this policy is that landowners in general are considered not to have the capacity needed for exploiting mineral resources on their land. The same rules apply to all types of landowners, whether it is the state, private entities or individuals. To commence mining activities, an exploitation concession must be acquired. Both exploration and exploitation permits are granted under the Minerals Act (1991:45) to qualified applicants irrespective of who owns the land to be explored or exploited. As a cardinal rule, concessions are valid for 25 years, but can be extended. There are no restrictions on foreign nationals obtaining exploration permits and exploitation concessions.
In the water sector, the Swedish Environmental Code (1998:808) and the Act on Specific Provisions regarding Water Operations (1998:812) are important statutes. The right to water is founded upon the title to land, which includes adjacent water up to certain distances. Rights of usage can be freely bought and sold but the party wishing to use such rights for a project, such as a hydropower plant, must apply for an environmental permit. Similar rules apply to forests and other assets connected to land.
Claims to natural resources may from time to time be challenged by representatives of the indigenous Sami people in the far north of Sweden. Any contentious issues can normally be settled through negotiations.Royalties and taxes
What royalties and taxes are payable on the extraction of natural resources, and are they revenue- or profit-based?
Private parties conducting mining activities are required to pay an annual fee of 0.2 per cent of the average value of the minerals mined. The revenue is split between the landowners and the state, with landowners receiving 0.15 per cent and the state 0.05 per cent.
Normal corporate income tax, currently set at 21.4 per cent, applies to mining companies but there are no additional taxes for mining in particular. For an exploration permit, certain fees have to be paid to the Mining Inspectorate by the applicant. An application fee of 500 kronor shall be paid to the Mining Inspector when handing in the application for every new area consisting of 2,000 hectares. If permission is granted, another 20 kronor for each hectare has to be paid for the first three-year period of the permit. If an extension of the exploration permit is permitted, an additional fee of 21 kronor per hectare per year is required. Further extension of the permit is possible, but will result in even higher annual fees. All fees are required to be paid in advance for each period of time.
When applying for an exploitation concession, a fee of 80,000 kronor must be paid for each area the application concerns. There is also a fee for the designation of land proceedings.Export restrictions
What restrictions, fees or taxes exist on the export of natural resources?
In principle, there are no restrictions, fees or taxes existing on the export of natural resources.
Legal issues of general applicationGovernment permission
What government approvals are required for typical project finance transactions? What fees and other charges apply?
No government approvals are required for project finance transactions per se under Swedish law. The implementation of a project may, however, require different types of approval. For example, a building construction project will generally require a building permit and an electric transmission project will require a network concession. Typically, projects will also be required to obtain environmental approvals. Foreign investors seeking permission will be treated as domestic parties.Registration of financing
Must any of the financing or project documents be registered or filed with any government authority or otherwise comply with legal formalities to be valid or enforceable?
In Sweden, there are no documentation formalities per se within project finance. However, any transfer of real estate must be in writing. The transfer must be registered at the Swedish Mapping, Cadastral and Land Registration Authority and a transfer levy will apply. Other types of agreements relating to land may also require registration. The incorporation of a SPV may also require registration with the Swedish Companies Registration Office.Arbitration awards
How are international arbitration contractual provisions and awards recognised by local courts? Is the jurisdiction a member of the ICSID Convention or other prominent dispute resolution conventions? Are any types of disputes not arbitrable? Are any types of disputes subject to automatic domestic arbitration?
An arbitration agreement or clause is governed by the law chosen by the parties, but in the absence of such choice it is governed by the law of the country where the arbitration proceedings have taken place or are to take place pursuant to the agreement. Even if the agreement is valid according to the applicable law, it will not preclude Swedish judicial proceedings unless the dispute is of a kind that can be subjected to arbitration even according to Swedish law. Any type of dispute that the parties may settle by agreement can be arbitrated according to the Swedish Arbitration Act (1999:116). Matters of public interest and subject to public laws (eg, administrative decisions and permits) cannot be arbitrated. Arbitration can be initiated in Sweden only if it follows from the arbitration agreement, the defendant has consented to it or the defendant could be sued in a Swedish court (provided that the arbitration agreement does not stipulate that the proceedings shall take place abroad). All arbitration proceedings taking place in Sweden are subject to the rules of Swedish law as far as procedure is concerned, but many of these Swedish procedural rules are not mandatory and can be contracted out by the parties, even by means of a reference to foreign law. Sweden has ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and is also a member of the ICSID Convention.Law governing agreements
Which jurisdiction’s law typically governs project agreements? Which jurisdiction’s law typically governs financing agreements? Which matters are governed by domestic law?
Generally, Swedish law will govern the project agreements as well as the financing agreements. However, the parties may freely agree to choose any other law that shall apply to an agreement provided that they do not intend to circumvent public order and that their agreement is not in conflict with mandatory law. Swedish law will mandatorily govern property, tax, customs, labour and environmental aspects. If the lender, or a syndicate of lenders, is a foreign entity, it is not unusual for the parties to choose that English law shall apply to the financing agreements.Submission to foreign jurisdiction
Is a submission to a foreign jurisdiction and a waiver of immunity effective and enforceable?
Submission to a foreign jurisdiction is permissible in respect of the purely commercial terms of the project, such as the contract between the project company and its lenders. However, all matters of a public law nature, such as incorporation of companies or handling of permits, will be subject to Swedish rules and authorities. Because of the connection to public law aspects (bankruptcy, priority) all matters of securing collateral in Sweden must also be handled according to Swedish law, regardless of the law of the project contract.
Environmental, health and safety lawsApplicable regulations
What laws or regulations apply to typical project sectors? What regulatory bodies administer those laws?
The most important natural resource industry in Sweden is mining, and the principal law regulating the mining industry is the Minerals Act (1991:45), which governs the procedure for acquiring exploration permits and exploitation commissions on land, irrespective of who owns the land to be explored or exploited.
The Environmental Code (1998:808) is relevant for all typical project sectors. The Environmental Code (1998:808) is applicable in matters concerning the granting of a concession, which means that an environmental impact assessment must be appended to an application for a concession. In the case of mining, a permit for exploitation must always be granted under both the Minerals Act and the Environmental Code (1998:808). A permit under the Environmental Code (1998:808) will also be required for all kinds of power generation and transmission, oil refineries, ports and similar infrastructure projects.
The Planning and Building Act (2010:900) contains provisions that regulate building and construction.
In general, the local County Administrative Board, which is a regional state authority, takes part in the environmental evaluation of applications for permits under the Environmental Code (1998:808), but the decision is made by the regional Land and Environmental Court. The Swedish government makes decisions in matters of particular public interest, such as airport capacity. The local municipality is responsible for permissions in accordance with the Planning and Building Act. Supervision of compliance with the environmental conditions is usually carried out by the County Administrative Board and by the municipality’s Environment and Health Board.
Health and safety in the workplace is regulated by the Work Environment Act (1977:1160) and is monitored by the state Work Environment Authority, which has extensive powers to inspect and shut down any workplace that is not complying with relevant rules.
Project companiesPrincipal business structures
What are the principal business structures of project companies? What are the principal sources of financing available to project companies?
Project companies (SPVs) are commonly incorporated as limited liability companies by shares. Unlike many continental EU member states, Swedish law does not recognise any other form of company with limited personal liability. In this regard, Sweden has instead adopted the English system with two categories of companies limited by shares; public and private limited liability companies. Both are covered by the Swedish Companies Act. Usually, the SPV will be a private limited liability company, but if it issues bonds it must be a public limited liability company. As in many other jurisdictions the normal set-up is that the SPV then will enter into back-to-back subcontracts in relation to the project works, etc.
There are many sources of financing available for project companies and projects are often financed through various sources. The most common are bilateral or syndicated bank loans, equity and leasing. Bond finance has been seen in some sectors as well.
Public-private partnership legislationApplicable legislation
Has PPP-enabling legislation been enacted and, if so, at what level of government and is the legislation industry-specific?
There is no general PPP legislation in Sweden. Legislation relevant for PPPs mainly relates to public and utilities procurement rules. Sweden has implemented the European Directives Nos. 2004/17/EC and 2004/18/EC into two similar, but not identical acts: the Public Procurement Act (2016:1145) and the Utilities Procurement Act. These rules may come into play depending on the financial parameters and the structure of the project.
PPP - limitationsLegal limitations
What, if any, are the practical and legal limitations on PPP transactions?
Legal limitations on PPP transactions may, in particular, occur in relation to the public procurement legislation. In fact, most foreign nationals will find that the Swedish Public Procurement Act (2016:1145) and the Utilities Procurement Act are less flexible than the corresponding EU Directives. The procurement rules, therefore, should be given special attention in PPP projects. Another legal limitation that may be considered is the prohibition to favour an individual interest, which can be found in the EU State Aid rules, and also in the Swedish Municipalities Act (1991:900). In addition, the Swedish Competition Act imposes certain rules that are unique to Sweden and that prohibits authorities and municipalities, and companies under their control, from using certain business methods. For example, it has been imposed on Swedish energy utility companies must not provide broadband services, but only raw network capacity (dark fibre).
PPP - transactionsSignificant transactions
What have been the most significant PPP transactions completed to date in your jurisdiction?
Political hesitation, but also uncertainty regarding the correct application of public procurement rules, has resulted in very few genuine PPP projects in Sweden so far. The two notable projects are the New Karolinska University Hospital and the Arlandabanan high-speed airport connection railway.
UPDATE & TRENDSRecent developments
In addition to the above, are there any emerging trends or ‘hot topics’ in project finance in your jurisdiction?Key developments of the past year30 In addition to the above, are there any emerging trends or ‘hot topics’ in project finance in your jurisdiction?
No trends or current topics at present.