This country-specific Q&A provides an overview of Lending & Secured Finance laws and regulations applicable in Sweden.
Do foreign lenders require a licence/regulatory approval to lend into your jurisdiction or take the benefit of security over assets located in your jurisdiction?
Lending to Swedish borrowers (other than consumers) or taking the benefit of security over assets located in Sweden does not in itself require a license or regulatory approval for foreign lenders. A license may however be required if the foreign lender also conducts other types of financial activities (e.g. accepts deposits from the public). Also, if the foreign lender has a permanent establishment in Sweden, lending to Swedish borrowers (other than consumers) requires that the lender applies for registration with the Swedish Financial Supervisory Authority (Sw: Finansinspektionen) in accordance with the Swedish Currency Exchange and Certain Financial Activities Act (Sw: lag (1996:1006) om valutaväxling och annan finansiell
Are there any laws or regulations limiting the amount of interest that can be charged by lenders?
In relation to commercial loans, there are no restrictions on the amount of interest that can
be charged, save if the applicable rate amount to usury. If no default interest rate has been
agreed, default interest is payable at a statutory rate pursuant to the Swedish Act on Interest Rates (Sw: Räntelag (1975:635)).
In relation to consumers, the Swedish Act on Consumer Credits (Sw: Konsumentkreditlag
(2010:1846)) imposes restrictions on how high the applicable interest rate may be by stating
that neither the annual interest rate nor the default interest rate may exceed the official
reference rate (as set from time to time by the Central Bank of Sweden) plus 40 per cent.
Are there any laws or regulations relating to the disbursement of foreign currency loan proceeds into, or the repayment of principal, interest or fees in foreign currency from, your jurisdiction?
There are no restrictions applicable to the disbursement of foreign currency loan proceeds into, or the repayment of principal, interest or fees in foreign currency from, Sweden.
Can a company that is incorporated in your jurisdiction grant security over its future assets or for future obligations?
A company incorporated in Sweden can grant security over its future assets and for future obligations provided that relevant assets or obligations are (or will be) sufficiently identifiable. However, in the event of the company’s insolvency, security over future assets may be challenged in respect of assets over which the security was perfected during a three months hardening period preceding the commencement of the relevant insolvency proceedings.
For instance, security over receivables will not be perfected until the receivables arise. Consequently, a hardening period may apply for every new receivable, even if the debtor has previously been notified of the security, to the extent the new receivable secures previously incurred obligations.
Can a single security agreement be used to take security over all of a company’s assets or are separate agreements required in relation to each type of asset?
A single agreement may be used to take security over all of a company’s assets. Nevertheless, as certain provisions need to be adapted for the asset type (e.g. in relation perfection and enforcement), it is preferred in Sweden to use separate security agreements in relation to each type of asset.
Are there any notarisation or legalisation requirements in your jurisdiction? If so, what is the process for execution?
There are no notarisation or legalisation requirements in Sweden.
Are there any security registration requirements in your jurisdiction?
Security over trademarks and patents shall be registered with the Swedish Patent and Registration Office (Sw: Patent- och registreringsverket), and security over dematerialised financial instruments held on a securities account shall be registered with Euroclear Sweden AB.
Please also refer to question 4 and the registration procedures related to security over dematerialised corporate mortgage certificates and shares held on a securities account.
Can a company guarantee or secure the obligations of another group company; are there limitations in this regard?
Subject to the limitations described in our answers to questions 11 and 12 below, a Swedish company can guarantee or secure the obligations of another group company.
Can lenders in a syndicate appoint a trustee or agent to (i) hold security on the syndicate’s behalf, (ii) enforce the syndicate’s rights under the loan documentation and (iii) apply any enforcement proceeds to the claims of all lenders in the syndicate?
Even though Swedish law does not have its own trustee concept, it allows for lenders to appoint a trustee/agent to represent them in matters relating to the loan documentation, including to hold security on the syndicate’s behalf, enforce the syndicate’s rights under the loan documentation and apply any enforcement proceeds to the claims of all lenders in the syndicate. However, in order to enable the trustee/agent to represent the syndicate lenders in an enforcement scenario in Swedish courts, each syndicate lender will have to submit a written power of attorney in favour of the trustee/agent for legal proceedings. As the title trustee is no legal institute per se under Swedish law, the titles trustee/agent may be used interchangeably.
If your jurisdiction does not recognise the role of an agent or trustee, are there any other ways to achieve the same effect and avoid individual lenders having to enforce their security separately?
Please refer to question 13.
Does withholding tax arise on (i) payments of interest to domestic or foreign lenders, or (ii) the proceeds of enforcing security or claiming under a guarantee?
Swedish law does not levy withholding tax on interest payments to domestic or foreign lenders or the proceeds of enforcing security or claiming under a guarantee.
If payments of interest to foreign lenders are generally subject to withholding tax, what is the standard rate and what is the minimum rate possible under double taxation treaties?
Please refer to question 15.
Are there any tax incentives available for foreign lenders lending into your jurisdiction?
There are no tax incentives available for foreign lenders lending into Sweden.
Is there a history in your jurisdiction of financing structures being challenged by tax authorities, and if so, can you give examples.
We are not aware of financing structures being challenged by tax authorities. However, limitations regarding the right to deduct interest expenses on debt owed to affiliated companies was introduced some years ago which has given rise to tax challenges by the tax authorities.
Do the courts in your jurisdiction generally give effect to the choice of other laws (in particular, English law) to govern the terms of any agreement entered into by a company incorporated in your jurisdiction?
Swedish courts do generally give effect to the choice of other laws to govern the terms of any agreement entered into by a Swedish company, unless the result of applying such laws would manifestly contravene fundamental principles of the legal system in Sweden (ordre public).
What (briefly) is the insolvency process in your jurisdiction?
Under Swedish law, a debtor company may be subject to one of two types of insolvency proceedings – (i) bankruptcy pursuant to the Swedish Bankruptcy Act (Sw. konkurslag (1987:672)) and (ii) reorganization pursuant to the Swedish Company Reorganization Act (Sw. lag (1996:764) om företagsrekonstruktion)).
Pursuant to the Swedish Bankruptcy Act, if a company is unable to rightfully pay its debts as they fall due and such inability is not merely temporary, it is deemed insolvent and can be declared bankrupt following a bankruptcy petition filed with the court by the debtor or by a creditor of the debtor.
When declared bankrupt, a receiver in bankruptcy (Sw: konkursförvaltare) is appointed by the court and will work in the interest of all creditors with the objective of realizing the debtor’s assets and distributing the proceeds among the creditors. The purpose of bankruptcy proceedings is to wind up the company in such a way that the company’s creditors receive as high a proportion of their claims as possible. The receiver in bankruptcy is required to safeguard the assets and can decide to continue the business or to close it down, depending on what is deemed preferable for all the creditors. In general, the receiver in bankruptcy is required to sell the assets of the debtor as soon as possible and to distribute the proceeds in accordance with statutory rules. In the interim, the receiver will take over the management and control of the company and the company’s directors and/or managing director will no longer be entitled to represent the company or dispose of the company’s assets. All creditors (unless they have a right to separate an asset from the bankruptcy estate) wishing to assert claims against the company that is declared bankrupt need to participate in the bankruptcy proceedings.
When distributing the proceeds, the receiver must follow the mandatory provisions of the Swedish Rights of Priority Act (Sw: Förmånsrättslag (1970:979)), which states the order in which creditors have a right to be paid. As a general principle, in bankruptcy proceedings competing claims have equal right to payment, in relation to the size of the amount claimed, from the debtor’s assets. However, preferential or secured creditors, where such preference follows by law, have the benefit of payment before other creditors. There are two types of preferential rights: specific and general preferential rights. Specific preferential rights are vested in certain specific property and give the creditor right to payment out of such property. General preferential rights cover all property belonging to the insolvent company’s estate in bankruptcy, which is not covered by specific preferential rights. Claims that do not carry any of the abovementioned preferential rights or exceed the value of the security provided for such claim (to the extent of such excess), are non-preferential and are of equal standing as against each other.
The Swedish Reorganization Act provides companies facing economic difficulty with an opportunity to resolve these without being declared bankrupt. A petition for company reorganization may be presented by the debtor or a creditor of the debtor. Corporate reorganization proceedings may as a main rule continue for an initial period of three months from commencement but may, under certain conditions, be extended for up to one year.
An administrator is appointed by the court and supervises the day to day activities and safeguards the interests of creditors. However, the debtor remains in full possession of the business except that, for important decisions such as paying a debt that has fallen due prior to the order of reorganization, granting security for a debt that arose prior to the order, undertaking new obligations or transferring, pledging or granting rights in respect of assets
of a substantial value for the business, the consent of the administrator is required. However, the absence of such consent does not affect the validity of the transaction.
Upon an order by the court under the Swedish Reorganization Act, the administrator must notify the creditors of the reorganization proceedings and will draw up a reorganization plan specifying the proposed action to be taken to resolve the debtor’s problems. A creditors’ meeting will be held at which the creditors will be given the opportunity to express their opinions as to whether the reorganization should continue. Upon the request of any of the creditors, the court shall appoint a creditors’ committee of at most three persons. The
administrator shall, if possible, consult with the creditors’ committee prior to taking any important decisions.
The corporate reorganization proceedings do not have the effect of terminating contracts with the debtor and, during the reorganization procedure, the debtor’s business activities continue as normal. However, the procedure includes a suspension of payments to creditors and the debtor cannot pay a debt that fell due prior to the order without the consent of the
administrator and such consent may only be granted should there be exceptional reasons for doing so and any petition for bankruptcy in respect of the debtor will be stayed. A moratorium also applies to execution in respect of a claim or enforcement of security during corporate reorganization proceedings unless the security assets are in the physical possession of the secured creditor or any agent acting on behalf of such creditor.
The debtor may apply to the court requesting public composition proceedings (Sw: offentligt ackord), which means that the amount of a creditor’s claim may be reduced. The proposal for a public composition must meet certain requirements such as that a sufficient proportion of the creditors which are allowed to vote, in respect of a sufficient proportion of the outstanding claims, vote in favor of such public composition. Creditors with set off rights and
secured creditors will not participate in the composition unless they wholly or partly waive their set off rights or priority rights. Should the security not cover a secured creditor’s full claim, the remaining claim will, however, be part of a composition.
What impact does the insolvency process have on the ability of a lender to enforce its rights as a secured party over the security?
In general, no independent enforcement is available for a secured party following the bankrupcty order. However, regarding a security provided by way of a pledge on movable assets (Sw. handpanträtt), enforcement through private enforcement procedures is permitted (i.e. the secured party may itself sell the pledged asset at a public auction, subject to such auction occurring no earlier than four weeks after the meeting for administration of oaths and the receiver in bankruptcy having been offered to purchase the relevant collateral). Security over financial instruments, currency, gold provided as security in favor of a central counterparty and certain monetary claims may further be immediately sold or enforced through private enforcement procedures by the secured party, provided it is carried out in a commercially reasonable way. As regards security over shares not admitted to trading in a subsidiary of the bankrupt debtor, the secured party must first offer such shares to the receiver in bankruptcy.
Please comment on transactions voidable upon insolvency.
In Swedish bankruptcy and, if certain conditions are met, company reorganization proceedings, transactions can (in certain circumstances and subject to different time limits) be recovered. The goods or monies shall then be redistributed to the bankruptcy estate or the company subject to company reorganization. Broadly, these transactions include, among others, where the debtor has conveyed property fraudulently or preferentially to one creditor to the detriment of one or more of its other creditors before the initiation of the relevant insolvency proceedings, created a new security interest, granted a guarantee or security that was either not stipulated at the time when the secured obligation arose or not perfected without delay after such time and the delay is not considered to be ordinary or paid a debt that is considerable compared to the value of the debtor’s assets or which is made by using
unusual means of payment.
In the majority of situations, a claim for recovery can be made concerning actions which were made during the three months preceding the commencement of the relevant insolvency proceedings, notably in relation to such granting of security where perfection is delayed. In certain situations longer time limits apply and in others there are no time limits. These include, among others, situations where the other party to an agreement or other arrangement is deemed to be a closely related party to the debtor, such as a subsidiary or parent company.
Is set off recognised on insolvency?
Assuming set-off would be permitted outside insolvency, a creditor may use a claim against a bankrupt debtor to set-off against a claim which the bankrupt debtor had against the creditor prior to the bankruptcy order (regardless of whether the creditor’s claim is due and payable or not). It should however be noted that there are certain restrictions limiting the right of setoff in certain situations where set-off opportunities have been created for improper purposes.
The right of set-off in the context of company reorganization is similar to that in bankruptcy. In general, a creditor may use a claim against the debtor, which arose prior to the company reorganisation proceedings were applied for, to set-off against a claim which the debtor then had against the creditor (regardless of whether the creditor’s claim is due and payable or not).
Can you comment generally on the success of foreign creditors in enforcing their security and successfully recovering their outstandings on insolvency?
Our experience is that there is no difference between Swedish and foreign creditors as it relates to the success in enforcing their security and successfully recovering their outstandings on insolvency. Swedish courts and enforcement authorities shall treat Swedish and foreign creditors in the same way.
Are there any impending reforms in your jurisdiction which will make lending into your jurisdiction easier or harder for foreign lenders?
We are not aware of any such reforms.
What proportion of the lending provided to companies consists of traditional bank debt versus alternative credit providers (including credit funds) and/or capital markets, and do you see any trends emerging in your jurisdiction?
The Swedish lending market has traditionally been dominated by domestic and Nordic banks. The lending market has however been diversified during recent years and borrowers can now obtain funding from mezzanine lenders, direct lending funds and other alternative debt providers, as well as increasingly through corporate bonds. The traditional banks still account for the vast majority of the lending provided to companies in Sweden, but the alternative sources of funding provide borrowers with more options than previously.