Company Provides Security to Support Borrowings Incurred to Finance or Refinance Acquisition
In the wake of recent financial market developments, Swedish limited liability companies are increasingly seeking ways to provide security to support borrowings incurred to finance or refinance the direct or indirect acquisition of shares in their own company, a parent company in the same group, or a sister subsidiary.
Restrictions on Financial Assistance
The Swedish Companies Act sets out strict restrictions on financial assistance, prohibiting companies from providing security for loans to borrowers for the purpose of funding an acquisition of shares in the company or its parent company. This prohibition is considered a criminal act and can result in severe penalties if breached.
However, there are some exceptions and opportunities to grant financial assistance after the completion of an acquisition. Additionally, exemptions can be granted by authorities for otherwise unlawful financial assistance. Each situation needs to be carefully analyzed to determine the applicable laws and regulations.
Syndicated Lending and Agency
Lenders may appoint a facility agent or security agent to represent them in matters related to finance documents and collateral security. These agents are permitted to:
- Enforce rights under the finance documents
- Enforce collateral security
- Apply proceeds from enforcement to satisfy claims of all lenders
In cases where foreign law trusts are involved, it is advisable to also appoint an agent to act as a trustee.
Loan Transfer
A transfer of a loan is perfected by notification of the debtor. No taxes apply to foreign lenders provided they do not have a permanent establishment in Sweden with which the income from the loan is effectively connected.
Judicial Enforcement
Swedish courts recognize and enforce contracts governed by foreign law, except where provisions are contrary to ordre public. A Swedish court may enforce foreign law contracts if it has jurisdiction.
Foreign judgments may be recognized and enforced in Sweden without re-examination of the merits of the case, provided they meet certain conditions, such as:
- Being final and conclusive
- Based on a valid jurisdiction clause
- Rendered under due process
- With no further appeal available
- Recognition would not contravene fundamental principles of Swedish law