Lending and taking security in Sweden: overview
A Q&A guide to lending and taking security in Sweden.
The Q&A gives a high level overview of the lending market, forms of security over assets, special purpose vehicles in secured lending, quasi-security and guarantees. It covers creation and registration requirements for security interests; problem assets over which security is difficult to grant; risk areas for lenders; structuring the priority of debt; debt trading and transfer mechanisms; agent and trust concepts; enforcement of security interests and borrower insolvency; cross-border issues on loans; taxes; and proposals for reform.
To compare answers across multiple jurisdictions, visit the Lending and taking security in country Q&A tool.
This Q&A is part of the global guide to finance. For a full list of jurisdictional Q&As visit www.practicallaw.com/finance-guide.
Overview of the lending market
The four main Swedish banks continue to be active, with a strong focus on the domestic market (Sweden and Scandinavia), with Handelsbanken being the exception with more than 800 retail branches in the world, focusing on Scandinavia, the UK and the Netherlands. Profits are impressive, reaching above the levels seen before the 2008 financial crisis across the local big four financial services groups:
Nordea (Return on Equity (ROE) – 12.3%).
SEB (ROE – 12.9%).
Handelsbanken (ROE – 13.1% (January-September 2015)).
Swedbank (ROE – 13.5%).
The Swedish banks also remain financially strong by international comparison, and they all passed the most recent 2014 stress tests carried out by the Swedish Financial Supervisory Authority (Finansinspektionen). A recent report was issued by the Swedish Financial Authority in relation to Sweden's stable financial system. The report declared that the resilience of the financial system in Sweden is satisfactory and the Swedish banks have relatively plentiful capital and stable earnings. However, housing prices, and concurrently household mortgage lending are at record levels and growing. This continues to be of great concern to economists and entails increased risks for economic stability going forward.
In a stable banking environment, it has been a negative interest rate, and the government proposal on mandatory amortisation on housing mortgages has attracted attention recently. The current repo rate (as decided by Sweden's central bank Riksbanken) is -0.35%.
As an alternative to bank lending, corporates continue to actively issue corporate bonds.
Forms of security over assets
Real estate is legally defined as land, a physical area created through property registration, handled by the Swedish Mapping, Cadastral and Land Registration Authority (lantmäteriet) (Land Registry). Registered real estate (fastighet) may encompass horizontal and vertical areas.
Real estate also comprises buildings and any other permanent fixtures and fittings on buildings, fixtures or movables, under the Swedish Land Code (1970:994) (jordabalken), may be excluded from the real estate if they are registered as movable property with the Land Registry. This occurs in particular in relation to industrial fittings, where assets or production facilities are owned by someone other than the real estate owner.
Common forms of security
Security over real estate is created by pledging a mortgage certificate, for a specific amount in relation to a particular plot or plots. It is only the registered owner (formally, the most recent applicant for registration of ownership) of real estate that is entitled to apply for a mortgage. The mortgage certificate is issued and registered by the Land Registry and is subject to a 2% stamp duty calculated on the face amount. Once issued, the mortgage certificate can be used as security by the current owner but also by any future purchaser of the relevant real estate, that is, the mortgage certificate is valid and may be used by any owner of the property for an unlimited number of times.
The priority between different mortgage certificates issued in relation to the same real estate is determined by the date of issuance of the individual mortgage certificate (see Question 24).
A mortgage certificate may be issued either in digital or physical form. Digital mortgages are registered in the Mortgage Certificates System (MCS), kept by the Land Registry. The majority of mortgages are in digital form. Most significant domestic lenders use the MCS for taking security over real estate. Under the MCS, a pledge (generally in the form of a pledge agreement) is issued by the pledgor and perfection is obtained when the lender has been registered as mortgagee. If the mortgage certificate is physical, the document must be handed over to the lender (or an appointed third party agent) in connection with the pledge.
Tangible movable property
Tangible movable property
Most property that is not classified as real estate is considered movable property (lös egendom). Tangible movable property (lösöre) includes machinery, trading stock (inventory), aircraft and ships, but excludes, for example, intellectual property rights, securities and money.
Common forms of security
Security over tangible movable property can be created either by a pledge or by a floating charge/business mortgage (företagshypotek).
Pledge. A pledge over tangible movable property is generally created by the execution of a pledge agreement. Perfection is achieved by physically surrendering the pledged property or, in relation to aircrafts and ships, through a registration of the pledge in the relevant register. If the property to be pledged is in the possession of a third party, the pledge may be perfected through notification to that third party. A second ranking pledge is perfected by notification to the first ranking lender and, as applicable, a third party in possession.
Floating charge. A floating charge is registered with the Swedish Companies Registration Office (Bolagsverket). As evidence of the charge, the authority issues a floating charge certificate. The certificate may be either physical or digital and the security right is created and perfected by either (as applicable):
The handing over of the physical certificate to the lender as security for a debt.
The registration of the creditor in the floating charge certificates registry.
The floating charge comprises the movable assets of the relevant business, but does not affect the borrower's ability to dispose of the assets and continue to run the business subject to the charge. However, money, securities and assets that are already subject to a registered security right are not included under the security right created by the floating charge.
The stamp duty for the issuance of a floating charge is 1% of the face value.
Shares in Swedish limited liability companies (aktiebolag) are by far the most common type of financial instruments used as security. However, it is also possible to pledge debt instruments such as:
Common forms of security
Security over shares is created by a pledge.
A pledge is generally created by the execution of a pledge agreement. The perfection requirement depends on whether the shares or financial instruments are dematerialised and registered with a securities depository (presently only Euroclear is authorised for this purpose in Sweden):
A pledge over shares that are dematerialised and registered with a securities depository is perfected by registration of the pledge in the account in which the shares are held.
A pledge over shares that are not attached to a book-entry system is perfected by physical transfer of the share certificates to the lender. If no certificates have been issued, a pledge may be perfected by notifying the company's board of directors of the pledge and noting the pledge in the company's share ledger. A notification to the company and an entry in the share ledger should be made. This also applies to certificated shares.
Claims and receivables
Claims and receivables
Trade receivables are commonly used for security purposes in factoring arrangements. In M&A transactions banks often also obtain security in the rights under the share purchase agreement.
Common forms of security
Security over monetary claims and receivables may be created by a pledge. Other rights under a contract can be transferred to a creditor by way of a security assignment (säkerhetsöverlåtelse).
Both a pledge and a security assignment are generally created by agreement. In both cases perfection is through notification of the relevant debtor (that is, a perfected security right may not remain silent).
Patents, as well as international and European applications (under certain circumstances), can be pledged. The same applies to trade marks and trade mark applications.
For other types of intellectual property, for example, designs, it is not established under Swedish law if they can be pledged and how perfection should be created.
Common forms of security
Security over patents or trade marks is created by a pledge.
The rules on pledging patents are found in the Swedish Patent Act (1967:837) (patentlagen). According to the Act, a pledge of a patent or of a patent application is based on a registration system. Perfection is created by a registration of the pledge agreement with the Swedish Patent and Registration Office.
Perfection of a pledge of a trade mark or of a trade mark application is also made through registration with the Swedish Patent and Registration Office.
The creation of security over a future asset requires certainty as to the pledged asset. To be able to pledge or transfer, for example a future claim, it is necessary that it is possible to determine what the borrower has to fulfil. Accordingly, although future claims may be pledged, it is important that the pledge is concrete enough so that the relevant claim may be identified. At the outset the pledged asset may still be general or vague, under the condition that it will become defined and ascertained.
Fungible assets may be pledged, however, the assets must be defined well enough to be identified. Perfection can be obtained by cutting off the borrower's ability to dispose of the asset and it is normally sufficient to pass to the creditor the keys to where the relevant assets are stored. Joint possession of the assets is accepted although it is required that the borrower cannot control the assets on their own.
Other assets that cannot be pledged include, for example, property that is not transferrable due to legal prohibitions, such as an earnings-related retirement pension, or because of restrictions in, (for example) an agreement or a will.
Release of security over assets
The details and conditions for the release of a pledge are generally agreed in the pledge agreement. Pledged assets that are in the possession of the lender, such as movables, share certificates, mortgage certificates and so on, are released when returned to the borrower and the borrower regains the right to dispose of the asset.
Special purpose vehicles (SPVs) in secured lending
Sale and leaseback
Sale and leaseback structures are used in connection with real estate financing. The real estate is sold to an investor and then leased back for a fixed term. The investor is registered as owner with the Land Registry so there is no risk of the transaction being recharacterised as a security interest. However, under the Swedish Land Code, the parties cannot validly agree on the seller having a redemption or repurchase right. A provision to this effect is not binding and, therefore, a sale and leaseback transaction must be carefully structured.
Sale and leaseback may also be used for chattels, for example, machines and vehicles. The assets are sold to an investor and leased back by the seller for a fixed term. Since Swedish law requires the assets to be physically transferred, an investor does not get protection against the seller's creditors if the assets remain in the seller's possession. In such a case, the investor must register its purchase in accordance with the Sale of Movables Act (1845:50) (lösöresköpslagen) to get protection.
Factoring is commonly used to obtain working capital. In a recourse structured factoring, invoices are pledged to the lender as collateral. To be perfected, the pledge must be notified to the invoiced debtors.
In a non-recourse factoring, the financial institution buys the company's trade receivables at a discount. The transfer of the receivables must be notified to the relevant debtors, who then make payment directly to the buyer of the receivables.
Hire purchases are common in Sweden and are regulated by the Swedish Act on Hire Purchase (1978:599). A hire purchase involves a sale of goods where the purchase price is paid in instalments and:
At least one instalment is due after the goods have been delivered to the buyer.
The seller retains the right to reclaim the goods if the buyer's obligations are not fulfilled.
If the buyer is a consumer, the Swedish Consumer Credit Act (2010:1846) is also applicable.
Retention of title
Retention of title is used when an asset is sold and the purchase price is payable later. To be valid it must:
Establish when the parties entered into the purchase agreement.
Be clear that it is a retention of title.
Contain a term that the buyer may not consume, resell or mix with or attach the object to other assets.
Guarantees are a common form of security in Sweden.
They can take the form of:
Secondary accessory surety (enkel borgen). For these, enforceability is subject to:
the validity of the underlying debt; and
that the original debtor is unable to fulfil its obligations.
Primary accessory surety (proprieborgen). For these, the guarantor is liable for the guaranteed obligation as if it was his own debt.
Demand guarantee. For these, their validity is independent of the validity of the underlying debt.
A guarantee is typically issued in written form, either as a unilateral declaration by the guarantor addressed to the beneficiary or in the form of an agreement between the two (or incorporated into a facility agreement).
Risk areas for lenders
According to the Swedish Companies Act (2005:551) (aktiebolagslagen) a company cannot provide loans or grant security to support the acquisition of its own shares or shares in a parent company. Such loans must be returned by the receiver and such security may be declared void (if the lender should have realised that the granting of security was violating the Companies Act). A violation may also cause criminal liability under chapter 30, section 1 of the Companies Act.
A company's actions must always be in the best interest of the company, within the objectives set out in its articles of association. The general assumption is that a company's objective is to generate profits, and any different purpose needs to be specified in the articles.
Corporate benefit must be considered in relation to intra-group lending and provision of upstream security. Distributions that do not have a corporate benefit may be construed as unlawful and trigger personal liability for the persons involved.
Loans to directors
A company cannot make or guarantee a loan to its managing director, or to one of its members of the board or to a shareholder (Companies Act). These rules also apply to certain related persons and affiliates. Such loans are void, meaning that they must be repaid. A violation may also cause criminal liability under chapter 30, section 1 of the Companies Act.
According to the Swedish Acts on Contracts (1915:218) (avtalslagen), usury is defined as taking advantage of someone's misfortune, lack of ability to judge or dependent position, for personal gains which are clearly disproportionate to the services rendered. Usurious loans could be declared void.
An entity or person causing contamination to land is also responsible for any resulting environmental damage. However, the environmental legislation also imposes a (secondary) liability, on the landowner.
Regarding lenders, the main rule is that they do not incur any environmental liability from offering financing. However, lenders may indirectly suffer economically through a reduced value of a contaminated real estate.
If a lender enforces a mortgage and assumes title to land, the lender becomes liable to the same extent as any other landowner.
Structuring the priority of debts
Contractual subordination of debt is possible and common. It may be achieved by:
A declaration by the party agreeing to subordinate its claims.
An inter-creditor agreement.
Structural subordination, for example, lending to the parent company of an operating entity, is also possible and common.
Inter-creditor arrangements are common. The terms of these agreements are often much influenced by English law precedents.
Debt trading and transfer mechanisms
A debt that is governed by Swedish law can be transferred to a new lender. Any security or guarantee, granted to secure a debt, can be transferred with the debt, unless provided otherwise in the security agreement. Security may need to be perfected again to remain in force (for example, secured assets may need to be delivered to a new lender).
Syndicate lenders usually appoint a security agent to hold and administer the security on their behalf. Incoming lenders are therefore not required to take any additional steps to obtain the benefit of the associated security.
Agent and trust concepts
Swedish law does not recognise the concept of holding security through a common law trust. However, non-accessory security can be held, administered and realised by a security agent or security trustee on behalf of the secured parties (including future syndicate members) under a Swedish law contractual security agent concept. The security agent is also able to enforce the security.
Enforcement of security interests and borrower insolvency
A claim in itself is not enough for a creditor to enforce a loan, guarantee or security. Generally, an enforcement order (exekutionstitel) is needed for the seizure of the borrower's assets. Enforcement orders can be obtained, for example, through public courts or arbitration. A simplified proceeding is available for undisputed claims (betalningsföreläggande), which is obtained directly through the bailiff's office.
When the creditor has obtained the enforcement order, the creditor can file for enforcement with the enforcement authority or bailiff's office, which then can seize the borrower's assets.
Methods of enforcement
Real estate mortgages and floating charges can only be enforced in accordance with the stipulations of the Swedish Act on Enforcement (1981:774) (Utsökningsbalken), that is, through an application to the local bailiff's office.
For other security interests enforcement is normally established in the security agreement, stipulating either a public or private sale of the security asset. If the security agreement is silent on enforcement, the lender must apply the general stipulations of Chapter 10, section 2 of the Swedish Commercial Code (Handelsbalken) regarding enforcement. These rules are outdated and may on their own jeopardise an efficient enforcement.
Rescue, reorganisation and insolvency
Rescue procedures outside of insolvency proceedings are available through the Corporate Reorganisation Act (1996:764) (Lag om företagsrekonstruktion). The procedures are decided by the local court. The rules aim to facilitate restructuring of fundamentally sound businesses and avoid unnecessary insolvency proceedings.
An application to the court to start the proceedings can be filed by either the debtor or one of the creditors. The start of the proceedings gives the borrower protection from enforcement and insolvency. However, creditors have rights to be heard and to participate to a certain extent in the proceedings.
When an insolvency procedure is initiated, all of the debtor's assets are included in the insolvency estate (konkursboet), preventing the creditors from enforcing loans, guarantees or security. However, a lender's right to enforce a valid and perfected pledge in a specific asset of a borrower will remain.
Payments made less than three months before the application for bankruptcy may be declared void if made in any of the following ways:
With unusual means.
Before their due date.
Involving an amount that considerably impairs the financial position of the borrower (unless considered to be in the ordinary course of business, under the circumstances).
Security which was provided less than three months before the application for bankruptcy, may be reclaimed if:
It was not originally foreseen as security for a debt.
Not provided without delay.
The security under the circumstances could not be viewed as ordinary.
In the case of the borrower's insolvency, creditors have the following priority, (after the costs for the proceedings have been covered):
Claims of secured lenders have specific priority in relation to the proceeds from liquidation of the relevant security assets.
Claims of employees have a general priority (subordinate to the specific priority created by a security interest).
Trade creditors and other unsecured creditors.
Subordinated creditors (who have expressly agreed to have their claims subordinated to other debts).
Where more than one creditor holds the same security interest over the same asset, the order of priority depends on the type of security created:
Mortgages and floating charges. The order of priority is determined by chronology. Older mortgages or charges have priority over newer ones (the date of issuance of the mortgage or floating charge is relevant and not the date of the debt which it provides security for).
Pledges. The order of priority is determined by the date of the notice of the pledge.
If the same security interest has been granted in favour of more than one creditor, the order of priority is likely to be determined by the priority provisions of the finance documents such as in an inter-creditor agreement.
If a security is not perfected, a security interest is not created and the lender is treated as an unsecured creditor in the borrower's insolvency.
Cross-border issues on loans
Taxes and fees on loans, guarantees and security interests
The issuance of real estate mortgages is subject to a stamp duty of 2%, calculated on the face amount of the mortgage. The issuance of a floating charge is subject to a stamp duty of 1%, calculated on the face amount. In relation to enforcement, only nominal amounts apply. The stamp duty is a one-off cost. Once issued, a real estate mortgage or a floating charge can be used as security for an unlimited number of times.
Only nominal amounts apply.
Only nominal amounts apply.
A fundamental principle of Swedish civil law is that movables need to be physically transferred to a buyer/pledgee in order to create a valid in rem transfer or security right (see Question 11, Sale and leaseback). In March 2015, a governmental report (Sw SOU 2015:8 Lösöreköp och registerpant) was issued proposing to change the principle and to create:
Buyer protection already when entering into the purchase agreement.
Pledgee protection through registration of the pledge.
The report is subject to further governmental and expert inquiry and, subsequently, parliament vote before resulting in any amendments to applicable law. Any changes are proposed to enter into force on 1 January 2018.
Description. On the government's website, there is a selection of Swedish Statutes (SFS) in translation. As a rule, the translations are not official translations.
Description. The official website of the Swedish Parliament. Some documents may be translated into English but should only be used as guidance.
Swedish public legal information portal
Description. Lagrummet.se is a portal for Swedish public administration legal information. It contains legal information from the government, parliament, the higher courts and government agencies. The National Courts Administration (Domstolsverket) is responsible for the publication of lagrummet.se. Each agency is responsible for the content of legal information they provide, and how it is published on the internet.
Tord Svensson, Partner
Professional qualifications. Attorney, Sweden, 2003
Areas of practice. Banking; finance; general corporate law; real estate and M&A.
Languages. Swedish, English, German
Professional associations/memberships. Award: stated in the Legal 500 EMEA Guide 2015 for the Banking and Finance sector to provide "knowledgeable, timely advice".
Caroline Wikström, Senior Associate
Professional qualifications. Attorney, Sweden, 2009
Areas of practice. Banking; finance; M&A and general corporate law.
Languages. Swedish, English