For smaller transactions, the security granted would usually consist of mortgage security over the relevant property and a share pledge over the shares in the property owning company. In larger transactions, banks normally require security over all of the borrower's assets and thus, in addition, take pledges over inter alia:
Banks may also take a security assignment of rights under acquisition agreement(s) (if any).
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In order to create security on real property the pledgor creates a mortgage on the Land Registration Register (Fastighetsregistret). The mortgage represents a specified amount, of the real property, registered as available to be pledged as security. The document evidencing the mortgage is referred to as a mortgage certificate. The creation of security is perfected by the pledgor pledging and handing over the mortgage certificates to the pledgee as security for the relevant debt.
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As a general matter, neither the trust concept nor a split between legal ownership and beneficial ownership regarding real estate are recognised under Swedish law. However, the Land Code (Jordabalken) provides for the concept of a site-leasehold right, which is, in a way, akin to a split between legal and beneficial ownership. A site-leasehold right is a right of use for an indefinite period that can be terminated only by the owner of the relevant land. Termination may occur only at the end of certain time periods; the first a period of at least 60 years and the next of at least 40 years. In the commercial context, however, the time periods may be shorter, although still not less than 20 years. A site-leasehold right may be transferred under the provisions in the Land Code dealing with the transfer of real estate.
Property purported to be held on trust will form part of the trustee's assets and the beneficiaries under a trust will be treated as unsecured creditors with respect to their right to the purported trust property, unless they otherwise have a valid and perfected security interest over such property.
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As a general matter, debts secured by real estate assets are not traded between lenders. Most banks keep the loans they make on their own books. Larger deals are of course always susceptible to being syndicated.
The transfer of rights to and interests in secured debt is made by a contractual assignment of such rights and interests. The assignment is perfected through the giving of notice to the borrower and, as the case may be, to the relevant agent and/or security agent.
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No.
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Stamp duty in the amount of 2 percent will be levied on the issuing of most mortgages and 1 percent on floating charges.
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As a general rule, all transactions must entail commercial benefit for the company. In evaluating what constitutes commercial benefit, several factors are to be considered. Note however that this is primarily a matter of fact rather than a matter of law and it is the responsibility of the board of directors to ensure that commercial benefit accrues to the company.
Swedish legislation prohibits financial assistance in relation to an acquisition of shares in
The Swedish Companies Act (Aktiebolagslagen) also provides general upstream restrictions in that a Swedish limited liability company may not provide loans or security to or for the benefit of anyone owning shares in the company. However, this restriction does not apply where the debtor/beneficiary is a company in the same group of companies as the company lending funds or granting security. In contrast to what is stipulated in relation to financial assistance, 'group' in this context means a group of companies where the parent is a legal entity domiciled within the European Economic Area.
In addition, enforcement of upstream security in Sweden is always subject to certain restrictions aimed at protecting the restricted equity of the company. Depending on the conditions on which security is given, it may be considered to be a value transfer to the shareholders of the company. As such, it will only be enforceable if and to the extent that:
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No.
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Yes, by private agreement as to the priority of claims in bankruptcy. Priority is usually agreed by means of intercreditor agreements which are generally recognised and enforceable under Swedish law, although in some instances the priority of claims as between the parties to such an agreement may not be effective against an administrator-in-bankruptcy (konkursförvaltare). The parties in such cases would have to rely on provisions in the intercreditor agreement obliging the parties to the agreement to immediately transfer any sum received from a debtor to the person or entity entitled to it under the terms of that agreement (hence, in effect, assuming a credit risk in relation to the other parties).
It is also possible to change the respective priorities between mortgage certificates issued in relation to a property. This is achieved through an application by the owner of the property. Consent is required from those holders of mortgage certificates whose priority might be prejudiced.
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In terms of the contractual obligations as such, a clause providing for the applicability of foreign law will be recognized by the local courts (Sweden being bound by the Rome Convention). However, in relation to the property law aspects of a given transaction, established general principles of Swedish international private law provide that the law of the territory where an asset or the instrument representing the asset is located, as the case may be, is to apply irrespective of any agreement to the contrary (property law aspects here include the creation, maintenance and change in status of any security interest). It should be noted that these principles are not codified by statute and Swedish jurisprudence has not conclusively determined all of the features of these principles or formulated rules in respect of all asset classes. For real estate, though, the applicable law in this respect will always be the law of the country where the real estate is located (ie Swedish law).
To sum up then, the parties may agree on the applicable law to govern the contractual obligations as between them but the creation and perfection of the relevant security interest will always be determined under Swedish law.
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The Bankruptcy Act (Konkurslagen) provides that any security granted (or any other measure taken with a view to securing the rights of a creditor) during the period commencing three months (or two years in the case of transactions between affiliates) prior to the day on which the petition to declare the debtor bankrupt was received by the competent court, may be clawed back if:
Claw-back will not apply where the granting or perfection of the security is nevertheless deemed to have been made in the ordinary course of business.
Where a security requires registration (eg where a creditor must be registered as holder of a mortgage certificate), a delay in transfer will be deemed to have occurred if the application for registration has been made later than the first day that the register was open for registration falling two weeks or more after the day the debt arose.
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Swedish law imposes environmental (clean-up) liability in accordance with the 'polluter pays' principle. In addition, vicarious liability may attach to anyone who acquires a contaminated property. Such a person will be responsible for remediation measures in the event that the polluter is unable to perform or pay for remediation (if, at the time of the acquisition, the acquirer knew or ought to have had knowledge about any instances of pollution). There are some differences in the extent of what might be required depending on whether the damage caused is classified as pollution damage or serious environmental damage.
In circumstances where a lender acquires a real estate asset as a result of enforcing its rights under a mortgage or otherwise, it may incur environmental liability in its capacity as owner of a polluted property.
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A preliminary requirement for enforcing any type of security under Swedish law in a default situation is that some claim for money has to fall due in order for the lender to be able take the relevant measures. So for example, a breach of a loan to value covenants is not sufficient in and of itself to merit enforcement (irrespective of any agreement to the contrary). Unless there is a payment default, acceleration of all or part of the loan will be required.
Prior to insolvency, the enforcement of mortgage security will always involve formal court proceedings rather than the lender simply asserting its contractual rights. A court decision should in most cases not be problematic but there may be some level of delay involved. More specifically, enforcement necessitates obtaining a writ of execution and requesting a sale of the relevant properties at a public auction. This procedure usually takes several months and may, depending on the circumstances, take substantially longer. In this connection lenders have no formal right to set a minimum price for the properties.
In bankruptcy, the administrator will sell the property/ies in such a manner and at such a price as he or she determines is in the best interest of all creditors. The administrator will consult with and obtain consent from those mortgagees that are likely to receive any proceeds from a sale. If there are several such mortgagees and they cannot agree on a proposed sale, the administrator will usually consider selling the property/ies at a public auction (where no consent is necessary).
In terms of amounts, Swedish law provides that a lender is entitled to obtain payment from the realization of mortgage security up to the amount of the face value of the mortgage certificate(s) representing the security (provided that the proceeds are sufficient to cover mortgages with the priority over the mortgage certificate held by the lender). If this is insufficient because the lender's claim exceeds the face value of the certificate(s) in question, the Swedish Land Code (Jordabalken) provides that the creditor may obtain a supplementary payment of an amount equal to fifteen per cent of the amount of the face value of the mortgage certificate(s), plus interest on that amount from the day on which the property unit was attached or a bankruptcy petition was filed. If the mortgage fetches a higher value than the facility, the creditor must pay the difference back to the debtor. This applies at all times and is not subject to any modifications.
The obstacles and procedures associated with enforcing mortgage security have led to a situation where lenders almost always choose to enforce security taken over the shares of the (SPV) property owning company. Enforcement of a share pledge is one exception to the rule that you must deal with an administrator or a court in an enforcement situation. Provided that the relevant agreement follows market practice, the lender will in such cases be entitled to sell the shares on such terms and in such manner as it sees fit. The lender will be nevertheless be under a statutory duty of care in relation to the custody of and enforcement of the pledged shares and it is not possible to contractually disclaim this duty entirely (in cases of wilful misconduct or gross negligence the lender will always be liable for breaches of this duty of care). In practice, the duty of care entails an obligation to notify the pledgor of any sale of the shares and to account for the proceeds of the sale.
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There are no such formal non-insolvency proceedings which may affect the rights of a secured lender.
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As is the case in most jurisdictions, security which has been granted during an applicable hardening period may be clawed back into the bankrupt estate in certain circumstances. Security will not otherwise become void as a result of bankruptcy. Under the Bankruptcy Act (Konkurslagen), though, a bankrupt debtor may propose a composition to its creditors. If the proposal is accepted by a certain percentage of the creditors, the claims of those creditors may not be fully compensated. A lender which benefits from security with preferential rights in bankruptcy such as a mortgage will only be bound by the composition to the extent that the realisation proceeds in respect of the relevant security do not cover its claim(s). It is also possible to implement a composition with the creditors under the Company Reorganization Act (Lag om företagsrekonstruktion).
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Swedish law provides for a statutory order of priority of claims. In the event of bankruptcy each claim which is secured by a mortgage or other fixed security, will, to the extent they are sufficient, be satisfied by payment out of the proceeds from the sale of the assets subject to the mortgage or other security. Where there are proceeds remaining after the secured claims have been satisfied, the balance will be distributed to the unsecured and unsubordinated creditors in accordance with the Swedish rules of priority.
The Swedish rules dealing with priority in bankruptcy (preferential rights) are set out in the Rights of Priority Act (Förmånsrättslagen). A preferential right may be specific or general. Specific rights relate to a specific asset or assets while general priority relates to all of the assets of the bankrupt estate. Claims with specific priority are met from the realization of the relevant asset(s) prior to any claims with general priority being satisfied. Claims without any right of priority are met only if all claims with specific and general priority have been satisfied.
Mortgage security created over a property provides the holder of a mortgage certificate with a specific preferential right. Where there are several holders of mortgage security, they will receive proceeds in accordance with the ranking as between the mortgage certificates (determined in relation by the point in time they were issued).
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Is secured debt traded between lenders? If so, how is a transfer of the debt to another lender effected?
As a general matter, debts secured by real estate assets are not traded between lenders. Most banks keep the loans they make on their own books. Larger deals are of course always susceptible to being syndicated.
The transfer of rights to and interests in secured debt is made by a contractual assignment of such rights and interests. The assignment is perfected through the giving of notice to the borrower and, as the case may be, to the relevant agent and/or security agent.
Last modified 13 Mar 2025