The level of activity of acquisitions and acquisition financing is rising in Sweden. A string of international purchasers have joined in, partly due to the depreciation of the Swedish krona against major currencies such as the USD and eUR, causing some Swedish acquisitions to appear more affordable, and partly due to the growth, stability and relative health of the Swedish economy and its companies.
Since assets are usually owned by Swedish limited liability companies, compliance with Swedish financial assistance rules will be necessary when structuring and securing a leveraged acquisition of a Swedish limited liability company. A few hurdles must be cleared beforehand when and if the assets of a target company are to be used to secure an acquisition loan.
Generally speaking, a Swedish limited liability target company is not permitted to give an advance to secure or provide a loan in order for the purchaser to finance the acquisition of shares in such a target company. If the recipient acts in bad faith this ban may make the security void and may also entail criminal sanctions.
Consequently, the assets of the target company will not be available as security for acquisition financing at the time of closing. The target may secure other debt, such as its own debt, which is being refinanced in connection with the acquisition. The target may only serve as security after the acquisition, provided that the bank has taken a real credit risk and a waiting period of at least 30 days has passed. The purchaser will therefore need to take these rules into account early on in discussions with financing banks when making a leveraged and secured Swedish acquisition.
Another set of rules to keep in mind are the rules on value transfers in the Swedish Companies Act. These rules render security or a guarantee provided by a Swedish limited liability company void or voidable, if it leads to a reduction of the capital of the company and is not of a pure commercial nature for the company. A breach of this provision may also entail personal liability for persons who negligently have taken part in such value transfers. Upstream and cross-stream guarantees and security in particular may therefore often only be provided with appropriate limitation language.
Finally, the Swedish Companies Act generally prohibits providing security or guarantees to related parties. If the recipient acts in bad faith, the prohibition may make the security void and may also entail criminal sanctions. Security may be provided within the same group of companies, which is an important exception to that prohibition. It should be noted, however, that the definition of a group under Swedish company law has its limits, not least where the parent company of two Swedish limited liability companies is a non-EEA company. Another important exception is therefore that security is exclusively aimed at a loan for the business of the pledgee and that the pledgor provides the security for commercial reasons.
The above rules were adopted many years ago so, needless to say, Swedish market participants have worked out ways to properly address the rules. Since the sanctions, should one be found to be in breach of the rules, are severe and the available security at least initially may be limited, it is always advisable to bring lawyers on board early on.