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General structuring of financing

Choice of law

What territory’s law typically governs the transaction agreements? Will courts in your jurisdiction recognise a choice of foreign law or a judgment from a foreign jurisdiction?

In relation to transactions where most of the entities involved are Swedish, transaction agreements are typically governed by Swedish law. However, in larger transactions, where foreign lenders are involved or where it is otherwise deemed preferable by the parties, the credit agreement may be governed by foreign laws. Pursuant to Swedish law, the parties are generally free to choose the governing law of an agreement and Swedish courts generally also recognise foreign laws chosen by the parties in accordance with the Rome I Regulation ((EC) No. 593/2008) on the law applicable to contractual obligations.

Security agreements may be subject to different choice-of-law principles and rules, depending on the relevant security asset. For example, security agreements in respect of shares in Swedish companies are typically subject to Swedish law on the basis of the lex rei sitae principle. However, depending on the circumstances, it may be possible to create security over shares in a Swedish company under foreign laws (although this is unusual), provided that the security agreement is carefully drafted and that the Swedish law perfection requirements are complied with in order to create a valid and enforceable security interest.

The Swedish courts would recognise and enforce a judgment given in any jurisdiction which is a contracting party to the recast Brussels Regulation ((EU) No. 1215/2012) on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters and the 2007 Lugano Convention on the recognition of judgments in civil and commercial matters, subject to, and in accordance with, the provisions of the aforementioned (as in force and applied in Sweden). Judgments rendered in courts in other jurisdictions may not be recognised and enforceable in Sweden as a matter of right without a retrial on the merits.

Restrictions on cross-border acquisitions and lending

Does the legal and regulatory regime in your jurisdiction restrict acquisitions by foreign entities? Are there any restrictions on cross-border lending?

There are generally no restrictions regarding acquisitions of domestic companies by foreign entities, but there are some exceptions in relation to acquisitions of, inter alia, entities that are subject to financial markets supervision, stock exchanges, insurance companies and investment fund companies.

Acquisitions of Swedish entities regulated by the Swedish Financial Supervisory Authority (SFSA) usually require the approval of the purchaser through an ownership assessment application. Such entities include banks and other credit institutions, payment institutions, mortgage lenders, consumer lenders and insurance companies.

The legal regime in Sweden does not generally restrict cross-border lending to companies. Refer to question 6 for any regulatory restrictions.

Types of debt

What are the typical debt components of acquisition financing in your jurisdiction? Does acquisition financing typically include subordinated debt or just senior debt?

Acquisitions of Swedish companies are typically financed by a mix of equity or subordinated debt and senior debt. However, the equity to debt ratio varies depending on factors such as the size of the deal and the financial position of the purchaser. Vendor financing is quite common too. The senior part of the debt financing is usually provided by banks in the form of senior term and revolving loans and may be granted as a bilateral, a club deal or by a syndicate of lenders, depending on the size of the transaction. In larger deals, the financing could also consist of mezzanine and junior loans as well as high-yield bonds. Over the last few years, some small and mid-size transactions have also been financed through direct lending from parties other than banks.

Certain funds

Are there rules requiring certainty of financing for acquisitions of public companies? Have ‘certain funds’ provisions become market practice in other transactions where not required?

Pursuant to the Swedish rules regulating public takeovers (including the Stock Market (Takeover Bids) Act (SFS 2006:451) and the Takeover Rules, adopted by the Swedish exchanges (based on Directive 2004/25/EC on takeover bids)), a public offer must only be made if the bidder has made the necessary preparations to implement the offer, including that it can meet any cash consideration in full. If the bidder relies on any debt financing, the financing must in practice be agreed on a ‘certain funds’ basis and cannot include any conditions that are not effectively within the bidder’s control. Generally, at the time a bidder announces its binding offer regarding a target company or a target group, it will have secured financing through either credit-approved commitments and signed commitment letters or full finance documentation (depending on the size of the transaction, the relevant bidder and the governing law of the financing).

While the ‘certain funds’ concept may vary in private deals, there is in practice not much difference between certainty of funds or the conditions precedent included in the financing documents in private and public acquisitions, although a bidder in a public acquisition would typically want to ensure a higher degree of having all conditions precedent within its control at the time of the bid (due to the takeover requirements mentioned above).

Restrictions on use of proceeds

Are there any restrictions on the borrower’s use of proceeds from loans or debt securities?

The credit agreement (or the terms and conditions in the case of debt securities) often includes a purpose clause specifying the purpose for each facility or tranche. Different facilities or tranches may, for example, be designated for payment of the purchase price and for refinancing of the existing debt. For example, if there are financial assistance issues in providing guarantees or security from target entities in respect of certain acquisition debt facilities or tranches (see questions 14 and 15), then such facilities or tranches may be excluded from the relevant guaranteed or secured obligations. Other than such contractual restrictions in the credit agreement or terms and conditions, restrictions that may become relevant in the context of an acquisition financing could be restrictions imposed by sanctions and anti-money laundering regulations.

If the facilities or tranches are not used for the purpose specified in the credit agreement or are in breach of sanctions or anti-money laundering regulations, this would normally constitute a breach of the credit agreement.

Licensing requirements for financing

What are the licensing requirements for financial institutions to provide financing to a company organised in your jurisdiction?

The issuing of credit to a company on a commercial basis does not necessarily trigger a licensing or authorisation requirement under Swedish law provided that the financial institution does not accept repayable funds from the Swedish public. Where the financial institution offers other services and products to Swedish clients, such as bank accounts it is recommend that lending services are operated under the de minimis exemption in order not to trigger any licensing requirements.

In light of the preparatory work of the Swedish Banking and Financing Business Act (BFBA), which states that ‘occasional business’ would not require authorisation in Sweden, the de minimis exemption has been developed. Pursuant to established practice, a foreign company does not need a licence to carry out ‘occasional’ regulated business transactions in Sweden. In other words, if an entity fulfils the requirements of the de minimis test with regard to its activities in Sweden, it will not trigger any licensing requirements under the Swedish financial services regime. The SFSA has not given any formal guidance on the application of the de minimis test as it is not an official test. Nevertheless, it is clear that the SFSA will assess each case on its merits and will consider a number of factors, including, for example, the type of counterparties (international or domestic, professional or retail), whether the business was unsolicited (in the sense that the initiative came from the Swedish counterparty) and the degree of physical presence in Sweden. The scope of the exemption does, however, remain inherently unclear, and the SFSA has not officially published any guidance. In view thereof, the exemption should be interpreted and used carefully. It should also be added that the threshold for triggering a licensing requirement would generally be higher where regulated activities are provided on a pure cross-border basis only (as opposed to combined with any physical presence in Sweden).

Where lending is combined with accepting repayable funds from the public and is carried out with some frequency, a financial institution needs a licence to carry out financing business under the BFBA either as a bank or a credit market company. A regulated credit institution domiciled in the European Economic Area (EEA) may carry out regulated financing business through a branch or on a cross-border basis without a Swedish licence pursuant to the passporting regime under the Capital Requirements Directive 2013/36/EU.

Withholding tax on debt repayments

Are principal or interest payments or other fees related to indebtedness subject to withholding tax? Is the borrower responsible for withholding tax? Must the borrower indemnify the lenders for such taxes?

Swedish withholding tax, or Swedish tax deduction, is generally not imposed on payments of any principal or any amount that is considered to be interest for Swedish tax purposes on payments between companies.

The credit agreement typically includes provisions stating that the borrower is responsible for any withholding tax and that it must indemnify the lender against such taxes.

Incidentally, it may be mentioned in this context that new and additional tax legislation entered into force on 1 January 2019, generally limiting tax deductions on net interest costs in the corporate sector to 30 per cent of taxable EBITDA.

Restrictions on interest

Are there usury laws or other rules limiting the amount of interest that can be charged?

The parties to a credit agreement are usually free to agree on the interest rates from a commercial point of view. The Swedish Contracts Act 1915 (as amended) includes mandatory provisions stating that any term of an agreement may be varied or set aside should it be deemed unacceptable in view of the parties’ underlying intentions, the circumstances at the time the agreement was entered into, subsequent conditions and other circumstances. The underlying concern is based on the need to protect one party if it is deemed to be in an inferior bargaining position in the contractual relationship. However, in a contractual relationship between two commercial entities, such entities are usually deemed equal in superiority. Hence, a lender making a loan available to a borrower in a competitive market should typically be free to agree on any interest rate with the borrower from a commercial point of view.

It should be noted that loans or credits made available to consumers are subject to a different legal regime.

Indemnities

What kind of indemnities would customarily be provided by the borrower to lenders in connection with a financing?

A borrower is usually required to indemnify lenders against certain costs, expenses, losses or liabilities incurred in connection with the finance documents. Such indemnities typically include, inter alia, costs, expenses, losses or liabilities incurred as result of a breach of the provisions of the finance documents, tax and stamp duties, losses arising from the obligors’ payment or other defaults, currency conversion costs, increased costs resulting from regulatory changes, costs and expenses arising from documenting and executing the transaction, amendments to the documentation and enforcement and preservation of the security.

Assigning debt interests among lenders

Can interests in debt be freely assigned among lenders?

In principle, yes. However, in a local, bilateral or club deal it is quite common that transfers or assignments of lenders’ rights and obligations are contractually restricted and require the borrower’s consent (not to be unreasonably withheld), unless the transfer or assignment is made to another existing lender, to an affiliate of a lender or in an event of default situation. In larger transactions, the provisions regarding transfers and assignments are often negotiated and may include ‘white lists’ or restrictions on transfers to ‘competitors’, distressed debt funds or lenders below a certain credit rating.

Requirements to act as agent or trustee

Do rules in your jurisdiction govern whether an entity can act as an administrative agent, trustee or collateral agent?

Swedish law does not recognise the concept of ‘trust’ and there are no specific rules in Sweden governing the role of a collateral agent. Instead, it is customary practice in the Swedish market that the finance parties to a credit agreement appoint a lead lender to act as agent or security agent to represent the finance parties and to hold security on behalf of the secured parties.

Debt buy-backs

May a borrower or financial sponsor conduct a debt buy-back?

While debt buy-back is generally possible, such rarely occurs in the Swedish market and debt purchase provisions are not standard in Swedish bilateral or club deals. In senior syndicated financings, provisions and restrictions regarding debt purchase and disenfranchisement of sponsor affiliates may be included, especially in private equity deals where foreign banks are involved, the credit agreement is governed by English law or the sponsor is used to English law terms and conditions.

Exit consents

Is it permissible in a buy-back to solicit a majority of lenders to agree to amend covenants in the outstanding debt agreements?

It is generally permissible in a buy-back to solicit a majority of lenders to agree to amend covenants in the debt agreement, unless otherwise agreed in the debt agreement.

Guarantees and collateral

Related company guarantees

Are there restrictions on the provision of related company guarantees? Are there any limitations on the ability of foreign-registered related companies to provide guarantees?

Subject to any capital maintenance rules or provisions on financial assistance (as further described in question 15), there are generally no Swedish law limitations on Swedish or foreign-registered related companies providing guarantees (secured or unsecured) for their affiliates’ obligations.

If a Swedish limited liability company guarantees the obligations of another party without deriving any corporate benefit as a result, the guarantee will only be valid up to the aggregate amount of the distributable reserves of the guarantor at the time the guarantee is granted. The existence of corporate benefit is a question of fact, and there are no established methods to determine whether it has been obtained by the relevant guarantor, so it needs to be carefully analysed on a case-by-case basis. However, a company providing a downstream guarantee in support of obligations incurred by its subsidiaries is generally believed to have received adequate corporate benefit, unless special circumstances are at hand.

Furthermore, a Swedish limited liability company is prohibited from providing financial assistance:

  • to facilitate the acquisition of its own shares or shares in any superior company (or in any subsidiaries of such superior company) that belongs to the same group of companies (defined as a group headed by a Swedish company); or
  • made for the purpose of being applied against the obligations of any direct or indirect shareholder of that Swedish company or any person which is under the control of such direct or indirect shareholder, unless such direct or indirect shareholder or other person is a member of the same group of companies as the Swedish company and the parent of such group is domiciled in the EEA.

It is market practice in Sweden to include limitation language in the relevant finance documents when upstream or cross-stream guarantees are provided in financing transactions, so that the guarantee will be limited to the extent required by the application of the Swedish law provisions referred to above.

There are generally no costs or taxes associated with the provision of guarantees.

Assistance by the target

Are there specific restrictions on the target’s provision of guarantees or collateral or financial assistance in an acquisition of its shares? What steps may be taken to permit such actions?

As mentioned in question 14, a Swedish limited liability company is prohibited from providing financial assistance to facilitate the acquisition of its own shares or shares in any superior company (or in any subsidiaries of such superior company) that belongs to the same group of companies (defined as a group headed by a Swedish company). The term ‘financial assistance’ is understood to cover any kind of financial assistance, including the provision of upstream loans to the bidder for the purpose of servicing the acquisition debt, providing guarantees or granting security for such debt, subordination of claims, providing indemnities or similar.

There are no whitewash procedures under Swedish law and the members of the target group cannot lawfully grant security or otherwise provide financial assistance to the lenders in connection with completion. However, it is customary in the Swedish market to agree that financial assistance can be granted by the members of the target group after a certain time has passed from completion of the acquisition. What constitutes a reasonable time is not clear, but the lender should have taken an actual credit risk on the purchaser.

Financial assistance provided in breach of this prohibition could be declared null and void and a violation of the relevant rules may also lead to criminal sanctions and result in personal liability for the directors of the target.

As mentioned in question 14, the financial assistance restrictions and corporate benefit limitations are usually addressed in the documentation by standard limitation language.

It should also be mentioned that minority interests will limit what a company and its subsidiaries can do. In a takeover process it is customary that the target and its subsidiaries do not provide guarantees or security for any debt incurred by the bidder (being the majority shareholder), until the bidder has become the owner of all the shares in the relevant target.

Types of security

What kinds of security are available? Are floating and fixed charges permitted? Can a blanket lien be granted on all assets of a company? What are the typical exceptions to an all-assets grant?

Sweden does not have a universal corporate security interest or a blanket lien covering all present and future assets. It is possible to grant business mortgages over a company’s business which cover property owned by the company, but certain assets are not included in such mortgages and additional separate security agreements may be required. The most common assets subject to separate security are shares, real property, bank accounts, trade or intra-group receivables, insurances, IP rights and rights under an acquisition agreement.

Lenders usually require a complete security package covering the material assets of the target group. As business mortgages and real estate mortgages may involve stamp duties, these are often subject to commercial discussions.

Requirements for perfecting a security interest

Are there specific bodies of law governing the perfection of certain types of collateral? What kinds of notification or other steps must be taken to perfect a security interest against collateral?

Each security interest must be perfected, by taking certain mandatory legal steps applicable to the relevant security, to become valid against creditors of the borrower and on the borrower’s insolvency. Certain security assets, such as shares and negotiable promissory notes, require delivery of the share certificates and notes to the lender or security agent, whereas security over intellectual property rights requires registration with the relevant authority.

Other types of security are, however, due to the salient Swedish perfection requirements, less practical to grant, perfect and deal with. The reason is that for the security to be validly created under Swedish law, the pledgor must be effectively deprived of its right to dispose of, or deal with, the assets being the subject of the security. For example, security over bank accounts or trade receivables is not very practical from a Swedish law perspective, because the pledgor will not be able to withdraw or in any other way dispose of the funds standing to the credit of a pledged bank account or receive any monies paid under the trade receivables. As a result, it is common that such security remains unperfected until the occurrence of a certain triggering event (often a default or an event of default), at which point the bank account is blocked and payment streams under trade receivables are directed to the lender or security agent. However, a delayed perfection causes a risk for the secured parties, as the security may be subject to hardening periods following the late perfection.

Future assets acquired by the borrower can usually be covered by the initial security agreement, provided that the security is sufficiently identified. The security interest over such future assets will not be perfected until the assets have been acquired and the perfection formalities have been complied with. A business mortgage will, however, automatically cover future assets (if of a type generally covered by a business mortgage).

Renewing a security interest

Once a security interest is perfected, are there renewal procedures to keep the lien valid and recorded?

Generally, once the security interest is perfected no further procedures are necessary in order for the security to remain in force. There are certain exceptions to that rule such as amendments to the definition of ‘secured obligations’ or similar or an increase of the loan amount which could require a security confirmation to be entered into in order to ensure that the provided security remains in place and continues to secure the secured obligations, including any increases or amendments thereto. As mentioned above, further perfection steps may be required in relation to future assets becoming part of the security assets.

Stakeholder consent for guarantees

Are there ‘works council’ or other similar consents required to approve the provision of guarantees or security by a company?

No: ‘works council’ or similar consents are not required under Swedish law. A board resolution is typically sufficient.

Granting collateral through an agent

Can security be granted to an agent for the benefit of all lenders or must collateral be granted to lenders individually and then amendments executed upon any assignment?

Security under Swedish security documents is usually granted to the security agent acting on behalf of itself and the other secured parties. A change of lender will not affect the validity of the security held by the security agent on the assumption that the underlying claim remains the same, so no amendments of the security documents are usually required.

Creditor protection before collateral release

What protection is typically afforded to creditors before collateral can be released? Are there ways to structure around such protection?

There is no equivalent to the Trust Indenture Act under Swedish law. However, the lender is typically only obliged to release the security once the secured liabilities and obligations under the finance documents have been finally discharged in full.

The finance documents usually contain provisions regarding the requirements that must be fulfilled before security can be released. In addition, it is common that a release letter or release agreement is entered into by the parties prior to a release of the security in order to set forth the terms of the release and when the security agent is contractually obliged to release the security.

Fraudulent transfer

Describe the fraudulent transfer laws in your jurisdiction.

Swedish law stipulates that any transactions made with a fraudulent purpose or intention should be deemed null and void. If it is evidenced that an asset stripping took place as a result of a fraudulent transaction, liabilities may be imposed on the parties to the relevant transaction.

Debt commitment letters and acquisition agreements

Types of documentation

What documentation is typically used in your jurisdiction for acquisition financing? Are short-form or long-form debt commitment letters used and when is full documentation required?

A short-form term sheet containing the commercial terms is usually agreed between the lender and the borrower as a first step. In a private transaction, the credit agreement is then often entered into in connection with signing of the relevant acquisition agreement, with the security documents and other finance documents being signed on closing. The process may vary, however, depending on, inter alia, the commercial relationship between the parties.

As mentioned in question 4, in a public bid the bidder will typically have secured financing in connection with the announcement of the bid through either credit-approved commitments and signed commitment letters or full finance documentation (depending on the size of the transaction, the relevant bidder and the governing law of the financing).

The loan documentation in large-cap transactions is typically drafted in English and based on the Loan Market Association’s template, adjusted for Swedish market standards. For small and mid-cap transactions, the loan documents, which are typically on a bilateral (or club deal) basis, are often similar to the documents used for large-cap transactions, but shorter and less detailed. They may also be drafted on the basis of the lenders’ in-house templates and sometimes in Swedish, although English is the prevailing language for most financing transaction documents.

Level of commitment

What levels of commitment are given by parties in debt commitment letters and acquisition agreements in your jurisdiction? Fully underwritten, best efforts or other types of commitments?

This depends on the strength of the seller’s bargaining position, although a fully underwritten commitment letter is common, especially in competitive processes and controlled auctions. If the acquisition documents are not made subject to the financing being in place at closing, the purchaser will often require a fully underwritten commitment letter from the lender(s) in order to ensure that there are sufficient funds available.

Conditions precedent for funding

What are the typical conditions precedent to funding contained in the commitment letter in your jurisdiction?

Typical conditions precedent include constitutional documents, corporate authorisation documents, executed finance documents, know-your-customer documentation and legal opinions regarding capacity, validity and enforceability. The conditions precedent are usually included in the credit agreement and can be divided into separate parts for signing, delivery of utilisation request and drawdown. If the financing is provided on a certain funds basis, only conditions which are effectively within the bidder’s control can be included in the commitment letter.

Flex provisions

Are flex provisions used in commitment letters in your jurisdiction? Which provisions are usually subject to such flex?

With the exception of market flex provisions in relation to pricing to ensure a successful syndication, flex provisions in commitment letters are rare in our experience, but they are possible and up to the parties to agree upon.

Securities demands

Are securities demands a key feature in acquisition financing in your jurisdiction? Give details of the notable features of securities demands in your jurisdiction.

Securities demands do not play a key role in acquisition financing in Sweden, but may exceptionally occur in larger international-style finance transactions where the intention is to have bonds as the long-term financing for the acquisition, which is rare.

Key terms for lenders

What are the key elements in the acquisition agreement that are relevant to the lenders in your jurisdiction? What liability protections are typically afforded to lenders in the acquisition agreement?

The key elements in acquisition agreements that are relevant to the lenders would typically be:

  • certain representations and warranties regarding the acquired shares, such as them being sold free and clear of any encumbrances;
  • the provisions regarding the purchase price and the refinancing of any existing debt;
  • the provisions governing the assignment and transfer of any rights under the acquisition agreement, in order to ensure that the purchaser or borrower may grant security to the lenders over such rights; and
  • the provisions regarding the right to make claims against the seller under the acquisition agreement.

In Sweden there are limited, if any, liability protections afforded to lenders in the acquisition agreement.

Public filing of commitment papers

Are commitment letters and acquisition agreements publicly filed in your jurisdiction? At what point in the process are the commitment papers made public?

No, the commitment letters and acquisition agreements are not publicly filed in Sweden and are therefore not made public.

Enforcement of claims and insolvency

Restrictions on lenders’ enforcement

What restrictions are there on the ability of lenders to enforce against collateral?

There are certain very old and impractical provisions under Swedish law which stipulate how the enforcement shall be carried out, but such provisions should be (and almost always are) declared non-applicable in Swedish law-governed security agreements. Instead, the parties often agree in the security documents how and when the lender may enforce the collateral (and whether grace periods before enforcement shall apply). A private sale can be agreed for most assets, but not, for example, in respect of real properties and assets covered by business mortgages.

The security documents may also include provisions governing how to evaluate the security assets in an enforcement situation. In accordance with the Swedish Contracts Act, a condition that a pledge or other security interest will be forfeited if the secured obligation is not duly performed is void. Hence, a lender cannot assume ownership over the security assets without justifying that the secured obligations are greater than the value of the security assets. Furthermore, it may be mentioned that the lender has a fiduciary duty towards the pledgor (ie, a duty to take reasonable care of the security assets in order to ensure that the value of the security assets and the interests of the pledgor subsist during the relevant security period).

Debtor-in-possession financing

Does your jurisdiction allow for debtor-in-possession (DIP) financing?

The concept of debtor-in-possession financing as such is not recognised in Sweden. However, in a company reconstruction, where the objective is to reorganise the company in order to continue its viable business operations and avoid bankruptcy, there are certain possibilities for the debtor to incur new debt where the creditor is given priority over certain existing debt, subject to the administrator’s consent.

Stays and adequate protection against creditors

During an insolvency proceeding is there a general stay enforceable against creditors? Is there a concept of adequate protection for existing lien holders who become subject to superior claims?

In general, the bankruptcy of a debtor vests the right of sale of assets in the insolvency administrator. However, a creditor having a valid and perfected security interest in chattels may itself sell the assets at a public auction, provided that four weeks have passed from the day of the oath administration meeting. The creditor must also give the administrator the opportunity to redeem the chattels to the bankruptcy estate before selling them. There are exceptions to this process in relation to certain chattels (eg, certain financial instruments) which can immediately be sold, or realised, by the creditor.

Following a decision regarding a company reconstruction, the debtor may not pay any existing debt without the administrator’s consent and the creditors may generally not demand a seizure or other enforcement measures at the enforcement authority. However, creditors with a valid and perfected security interest in respect of chattels (or a retention right) may still enforce their claims.

Clawbacks

In the course of an insolvency, describe preference periods or other reasons for which a court or other authority could claw back previous payments to lenders? What are the rules for such clawbacks and what period is covered?

Swedish insolvency laws include clawback rules stipulating that certain transactions, including payments of debt and granting of security, made by the insolvent company during a period preceding the declaration of bankruptcy, may be clawed back in the insolvency proceedings.

Security that has been granted for antecedent debt or where perfection of the security does not occur in a timely manner may be set aside if an application for the pledgor’s bankruptcy is filed within three months from the delivery of the security (or within two years if delivered to affiliates, unless proved that the debtor was not and did not become insolvent due to this action). The same applies to payments of debt being made within such time period and which have been made by other means than money, repaid prior to its due date or involving such amounts that have had a material adverse effect on the debtor’s financial position. The delivery of the security or payment of the debt will not be set aside if the transaction can nonetheless be considered ‘ordinary’. A transaction is not likely to be regarded as ordinary if the security or payment was triggered by the financial hardship or insolvency of the relevant debtor.

There is also a general catch-all provision in the Swedish Bankruptcy Act, which provides that a transaction by which a creditor has been favoured in preference to others in an unfair manner, or by which assets have been concealed from the creditors or the debtor’s debts are increased may be set aside if:

  • the debtor was insolvent or became insolvent by the transaction, solely or in combination with another factor; and
  • the relevant creditor knew or ought to have known of:
    • the insolvency; and
    • the circumstances making the transaction improper.

The hardening period in these circumstances is five years from the petition for the company’s bankruptcy (except in relation to affiliates, in which case there is no limitation in time).

Similar provisions are applicable in relation to company reconstructions that are combined with a public composition.

Ranking of creditors and voting on reorganisation

In an insolvency, are creditors ranked? What votes are required to approve a plan of reorganisation?

The preferential treatment of creditors’ rights is governed by the Rights Priority Act. There are three main groups of claims:

  • claims with special priority (eg, secured claims and claims secured by seizure);
  • claims with general priority (eg, employees’ claims for salary and certain costs incurred by the administrator in a company reconstruction); and
  • claims without priority.

If any assets remain after the claims with special priority have been satisfied, claims with general priority shall be satisfied out of the remaining assets. Within the group of claims without priority, all claims rank pari passu and will be satisfied proportionally, unless such claim has been contractually subordinated.

Company reconstruction may be an alternative to bankruptcy if the company has a possibility to survive in the long run. A company reconstruction can be combined with a public composition, which means that the creditors (or a sufficient portion of the creditors) agree to waive part of their claims. Different voting majorities apply depending on the proposed level of the debt reduction. The minimum debt coverage allowed is 25 per cent of the creditors’ claims.

Intercreditor agreements on liens

Will courts recognise contractual agreements between creditors providing for lien subordination or otherwise addressing lien priorities?

Swedish courts will generally give effect to contractual subordination arrangements if they do not override mandatory insolvency laws. Hence, the different types of lenders can agree priority between themselves, but an agreement with the borrower cannot create priority rights that are not recognised by law.

Discounted securities in insolvencies

How is the claim of an original issue discount (OID) or discount debt instrument treated in an insolvency proceeding in your jurisdiction?

There is no equivalent concept under Swedish law and Swedish insolvency law does not specifically deal with the treatment of claims arising from an OID or discount debt instruments, and such instruments will therefore be treated in accordance with the general provisions in an insolvency described in question 34. Subject to the structure of the transaction in each specific case, the claims under the debt instruments (if unsecured and on arm’s length terms) would typically be a claim with general priority.

Liability of secured creditors after enforcement

Discuss potential liabilities for a secured creditor that enforces against collateral.

A secured creditor has certain fiduciary duties towards the pledgor, including in an enforcement scenario (see question 30). Non-compliance with such duties may lead to liability. Furthermore, secured creditors could potentially incur liabilities, such as environmental liabilities, under Swedish law if, through enforcement of the security, they become the owners of the relevant security assets (or if they otherwise could be regarded as the actual operator of the business).