CMS Expert Guide for taking security in Sweden

Yes, but such guarantee may be subject to certain limitations (see item 4 below).

Yes.

No. 

Yes, in general. However, in relation to a guarantee provided by a Swedish limited liability company, such guarantee may be subject to certain limitations (see item 4 below). 

Yes, in general. However, in relation to a guarantee provided by a Swedish limited liability company with respect to the obligations of a subsidiary that is not wholly owned, such guarantee may be subject to certain limitations (see item 4 below).

Yes, in general. However, in relation to a guarantee provided by a Swedish limited liability company, such guarantee may be subject to certain limitations (see item 4 below).

General loan prohibition

Swedish law contains a general prohibition against limited liability companies providing loans, security or guarantees to natural persons or legal entities who are shareholders, board members or managing directors (or their spouses and close relatives) of the company or another group entity, or to entities under the control of such persons.

Common exceptions to this general loan prohibition include:

• transactions where the debtor is part of the same group as the company providing the loan or security; this exception is most commonly relied upon and requires the parent entity to be a Swedish or foreign legal entity domiciled within the EEA
• situations where loans, security or guarantees (or combinations thereof) are granted exclusively for the recipient’s business purposes and on purely commercial terms.

Financial assistance

Under Swedish law, a limited liability company is prohibited from providing loans, security or guarantees for the purpose of the debtor or any natural or legal person connected to the debtor acquiring its shares or shares in its direct or indirect parent company in the same group. This prohibition applies only where the loan, security or guarantee is granted or resolved prior to, or in connection with, the acquisition. In practice, therefore, in transactions where the prohibition may be applicable, the target companies refrain from granting or committing to grant security and guarantees until a certain period after closing, and any such security or guarantees are usually subject to limitation language.

Value transfers

With respect to Swedish limited liability companies, the Swedish Companies Act (Aktiebolagslagen) includes regulations on value transfers. These regulations may prohibit limited liability companies from granting guarantees or security for the benefit of parties other than the company itself. A security or guarantee that reduces the company’s assets and is not of a purely commercial nature for the company may constitute a value transfer subject to the restrictions on dividends, and may as such be unlawful.

Thus, it must first be assessed whether the company’s assets are reduced as a consequence of the security. Factors to consider include, for example:

• the ability of the debtor to repay the debt (and therefore the ability to pay the subrogation right of the security provider if the security is enforced)
• whether the value of the shares in the company shall be taken into account, where these are owned by the debtor
• the consideration (if any) paid by the debtor to the company.

If the conclusion is that the security or guarantee reduces the company’s assets, it will still not constitute a value transfer if it is provided by the grantor for purely commercial reasons. Factors to consider include, for example:

• whether the security is made in the ordinary course of business
• the difference in market value between the security and the consideration (if any) provided by the debtor.

Legal doctrine and case law present a somewhat ambiguous picture as to which factor(s) should be decisive, and the above assessment should always be made on a case-by-case basis.

Even if a security or guarantee would be considered a value transfer based on the above assessments, the granting thereof may still be permitted if the company had freely distributable equity corresponding to the value of the security or guarantee when it was provided.

As these assessments can be complex, parties commonly agree in the finance documents that the validity of any upstream or cross-stream security or guarantee shall be limited to the extent necessary to comply with the mandatory provisions of the Swedish Companies Act regarding the distribution of assets (the so-called “limitation clause”).

Transfer pricing

Transfer pricing must be assessed on a case-by-case basis.

No, save for that translation into Swedish may be necessary in case the guarantee shall be presented in a court proceeding. Depending on the nature of the guarantee, the guarantee language should specify whether the guarantee shall be, for example, a guarantee as for its own debt (proprieborgen) or a subsidiary guarantee (enkel borgen).

Yes, security/guarantees may be provided in relation to future obligations (such as interest and damages) and future assets; however, security over future assets is perfected only once the relevant assets exist and subject to relevant perfection measures.

Yes, both security and guarantees generally require that there is a principal secured or guaranteed obligation (or a potential future secured or guaranteed obligation).

However, a guarantee is generally an accessory obligation (subject to the terms of any “on-demand” or independent guarantee, which is conceptually different), meaning its validity and subsistence generally depend on the validity and subsistence of the principal guaranteed obligation. By contrast, security does not necessarily operate in an accessory manner, which means its validity and subsistence may be assessed independently. For instance, unlike guarantees, which generally become time‑barred concurrently with the principal obligation, security may generally still be enforced even after the principal obligation has become time‑barred.

The concept of an indemnity (in parallel to the guarantee) is customarily used in Swedish law facility agreements; note that the limitations applicable to guarantees as specified in items 3.1-3.3 and 4 above may potentially also apply in relation to indemnities (for the avoidance of doubt, including the exemptions to the limitations specified therein).

Yes, there is no requirement to fix the guarantee/security period to a definite term.

Yes.

Yes, agent structures, while not specifically regulated by law, are commonly used and recognised in e.g. syndicated financing transactions.

A security agent is usually appointed to hold the security on behalf of the secured parties, and the governance of the security agent function is often in line with Loan Market Association (LMA)-style provisions.

The legal concept of trust, as it is recognised under e.g. English law, does not have an equivalent under Swedish law. The same applies to parallel debt structures.

Unless otherwise provided in the relevant finance documents, the security and guarantee would generally follow the principal obligations, and no consent from the debtor is required under Swedish law for a change of creditor.

However, to duly perfect the transfer of a loan in the form of a non-negotiable monetary claim (enkel fordran) vis-à-vis the debtor, the debtor must be notified of the transfer, and it may also be advisable to obtain security and guarantee confirmations.

Further, depending on the type of financing and security package, certain actions (e.g. transferring physical and/or electronic mortgage certificates to a new lender) may be necessary.

Lenders generally require for the pledgors/guarantors to execute customary security/guarantee confirmations in connection with amendments to secured obligations gaining effect. The necessity of such confirmations would however depend on the nature of the relevant amendments and whether the original security/guarantee documents were drafted to include such amended obligations. Security/guarantee confirmations are generally advisable where the principal obligation is extended (e.g. through the increase of the underlying principal debt), or in case the guarantee/security shall be extended to apply in relation to obligations of a new debtor.

There are no express restrictions with respect to guarantees and security over non-Swedish assets granted by Swedish entities, and it is common for Swedish entities to act as guarantors/security providers under foreign-law documents.

Further, while there are no express restrictions with respect to security over Swedish assets being subject to foreign law, such practice would be highly unusual and raise various concerns, not least in relation to enforcement procedures and the fact that certain Swedish laws, rules and principles would apply, such as the general duty of care applicable for pledgees and rules on enforcement. Hence, security over Swedish assets is, in almost all cases, governed by Swedish law. 

There are no Swedish restrictions with respect to such submission. However, since security documents relating to Swedish assets are generally subject to Swedish law, it is generally advisable to submit disputes relating to such security to Swedish courts or, although less common, arbitration institutes (which generally is reflected in the relevant security documents).

The enforceability in Sweden of a foreign judgement or arbitral award (which would mainly be of relevance in case of guarantees/security over non-Swedish assets granted by Swedish entities under foreign law) would depend on, inter alia, in what jurisdiction the ruling was made. For instance, English judgements may be enforceable in Sweden in accordance with the 2005 Hague Convention and/or the 2019 Hague Convention. Arbitral awards are enforceable in a greater number of jurisdictions due to the many contracting states to the 1958 New York Convention.

No, except for UN/EU sanctions and similar.

With respect to security, the hardening period of main relevance is a 3-month period before (in most cases) a bankruptcy application, or later (under certain conditions, 2 years in relation to security provided to affiliates of the security provider).

Additionally, a 5-year hardening period applies to “undue” transactions during insolvency or giving rise to insolvency, where the recipient of the security/guarantee knew, or should have known, of the security/guarantee provider’s insolvency and of the circumstances making the legal act undue; for transactions with affiliates of the security/guarantee provider, there is generally no time limit.

General

The description of the collateral must be sufficiently specific to identify the asset(s) subject to the security. Although Swedish law does not prescribe an exhaustive set of mandatory details for specific security interests, the descriptions below reflect what is generally required to ensure sufficient identification.

There is no restriction on including various types of security in one single security agreement. Agreements combining different assets must however include relevant perfection steps in relation to each specific asset in order to ensure a perfected security interest. Combined security agreements are rare in practice and would generally not be recommended.

The concept of floating charge security is recognised under Swedish law in the form of the business mortgage (företagshypotek). It confers a priority right upon attachment and in bankruptcy rather than a security in rem. Security over moveable assets, such as plant, machinery, equipment and inventory, can be taken in this form (noting however that such security does not include, inter alia,cash, shares or real property). 

Yes, however the limitations applicable to guarantees as specified in items 3.1-3.3 and 4 above also apply in relation to the granting of security interests (for the avoidance of doubt, including the exemptions to the limitations specified therein).

No.

There are registration requirements in relation to e.g. security over Swedish intellectual property rights such as trademarks and patents, dematerialised financial instruments (e.g. public shares in registered form), security transfers of chattels (lösöreköpsregistrering) and mortgages in aircraft. The issuance of business mortgage certificates, real estate mortgage certificates and mortgages in ships requires registration. For the avoidance of doubt, the actual granting of security generally does not require any registration with authorities (i.e. in order for the security to be valid between the pledgee and the pledgor).

No renewals are required for registrations of any of the security types mentioned. However, a deregistration must be submitted to the relevant authority in order to remove the registration of pledge over Swedish intellectual property rights and dematerialised financial instruments (e.g. public shares in registered form).

Translation into the Swedish language may be needed if any security document is submitted to court as evidence, as the Swedish courts may, upon any issues of interpretation in respect of the security documents, interpret an English language document in a different way than was intended by the parties or the authors. 

Please refer to the perfection requirements below.

Yes, with respect to security interests for which registration is a requirement. Please also note that with respect to, inter alia, real property and business mortgage, the pledgee may request to be registered as holder of mortgage certificates/business mortgage certificates – but that such registration is not a requirement for perfection, rather mainly a way to publicly inform about who is holding the certificates and that these may be subject to security. 

Note that perfection of security will not in all cases prevent the underlying asset from being transferred/disposed of, but that the security interests will prevail despite such transfer/disposal – which in practice will prevent most transfers/disposals from taking place without a simultaneous release of security/discharge of debt.

The order of priority of creditors in bankruptcy is regulated by the Swedish Rights of Priority Act (förmånsrättslagen). In general, the order is as follows: 

1. bankruptcy claims with priority in specific property (e.g. pledges, business mortgage, statutory liens, right of retention)
2. bankruptcy claims with general priority (e.g. super priority, specific types of wage/pension claims and specific claims from auditors/bookkeepers)
3. bankruptcy claims without priority (pari passu) (unsecured creditors)
4. subrogated bankruptcy claims (due to contractual subordination clauses or statutory regulations). 

The priority order is listed by reference to relevant sections of the Swedish Rights of Priority Act, where claims have priority in the consecutive order of the sections and according to the enumeration adopted. 

Priority based on enforcement and other types of priority can in some very unusual situations have better priority than pledges, if enforcement or other relevant dispositions take place before the perfection of a pledge. In practice, other rights could also be said to have better “priority” than claims with priority based on pledge, e.g. set-off or specific rights to use real property registered before the registration of a relevant mortgage certificate etc.

The administrator (konkursförvaltare) must submit the distribution proposal to the court, which will examine and decide upon the proposal.

Establishment of security and level of security regulation is generally:

Swedish law-governed security documents and guarantees can be signed electronically. The market practice is to use advanced electronic signatures (in case of electronic signatures). 

No notarisation requirements exist in relation to guarantees/security. 

The fact that a security agreement/guarantee has been signed electronically does not itself impact on its perfection, performance or enforcement. However, there may be requirements for wet-ink signatures for documents to be delivered for the perfection of pledge (e.g. application for issuance of new mortgage, share certificates etc.), which in turn has an impact on perfection and enforcement of the security. 

Regarding immovable assets, only certain parties (mainly major Swedish banks, credit institutions, real estate companies, insurance companies and the Swedish Enforcement Agency) can access the mortgage deed register kept by the Swedish Land Survey over issued mortgages in real estate properties. Some information is publicly available and can be accessed by any person (e.g. the amount of the mortgage certificate, the mortgage certificate’s certification/file number and if the mortgage certificate is issued in electronic or written form) via a registrar.

Regarding movable assets:

• register of chattel sale is publicly available and accessible by any person via a registrar at the Enforcement Authority
• register of Swedish patents is publicly available and accessible by any person via a registrar and/or the Swedish Patent Database at the Swedish Intellectual Property Office
• register of Swedish trademarks is publicly available and accessible by any person via a registrar at the Swedish Intellectual Property Office
• some information from the register of business mortgage deeds is publicly available and accessible by any person via a registrar at the Swedish Companies Registration Office. 

A security holder and/or lender (as applicable) can apply for registration of security over real estate, business mortgage, aircraft, ships and chattel sale (lösöreköpsregistrering).  

Regarding security over Swedish intellectual property rights (e.g. patent and trademarks), a pledgor or the security holder and/or lender (as applicable) are authorised to apply for registration of security. 

Low costs, and quick answers can usually be obtained on the same day (or directly if e-service is available online with a designated authority).

Registration of security over new real estate mortgage certificates, business mortgage certificates, mortgage certificates in ships and aircraft is subject to stamp duties and minor application fees. Applicable stamp duties are 1 per cent (business mortgage certificates), 2 per cent (real estate mortgage certificates) and 1 per cent (aircraft mortgage certificates) of the face value (which is a fixed amount) of the relevant certificate.

Application fees are e.g. also payable in connection with the registration of security transfers of chattels (lösöreköpsregistrering), up to EUR 90 per matter. Registration fees for security over Swedish intellectual property rights (e.g. trademarks and patents) are up to EUR 50 for patents and EUR 180 for trademarks.

With respect to the time to issue or register: 

• new real estate mortgage certificates – medium, normally within 1 week 
• business mortgage certificates – quick, normally within 3 business days 
• mortgage certificates in ships and aircraft – quick, normally within 2 business days
• application of security transfers of chattels (lösöreköpsregistrering) – medium, normally within 2 weeks
• security over Swedish intellectual property rights (e.g. trademarks and patents) – quick, normally within 2 business days. 

With respect to the time to amend or remove an encumbrance:

• existing real estate mortgages – medium, normally within 2 weeks (see item 21 above regarding registration requirements); low costs
• existing business mortgages – quick, normally within 2 business days (see item 21 above regarding registration requirements); low costs
• existing mortgages in ships – quick, normally within 2 business days (see item 21 above regarding registration requirements); low costs 
• existing mortgages in aircraft – quick, normally within 2 business days (see item 21 above regarding registration requirements); medium costs.

Security over dematerialised shares is perfected by registration with Euroclear Sweden or, if applicable, by notification to the nominee. Security over dematerialised shares is registered quickly, normally within 1 business day. The cost cannot be stated generally, since the issuer usually pays fees to Euroclear and the account operator, and further fees attributed to the pledge is assessed on a case-by-case basis.

N/A.

N/A. 

Yes. Note that security interests can only be enforced for due but unpaid monetary claims (i.e. following payment default or acceleration).

Normally yes, but it depends on the terms of the principal obligation agreement (and subject to item (a) above). Market practice would be to include Events of Default in line with the LMA catalogue.

Normally yes, but it depends on the terms of the finance documents (and subject to item (a) above). 

Yes, generally, provided that the security interest has been duly perfected, but exceptions apply, e.g. for certain types of security interests and during company reconstruction.

As per above, the principal obligation agreement generally includes a catalogue of Events of Default in line with LMA standards.

Unless otherwise stated in the principal obligation agreement, no specific cure period applies. However, the general duty of care for pledgees would typically require that the pledgor/debtor is notified prior to initiating enforcement actions and is given a reasonable time period to discharge the debt (subject to exceptions and based on the specific circumstances of the case).

It depends on the type of asset and the stipulations in the relevant contracts. For example, shares and contractual rights may be enforced by private sale or public auction. However, an enforcement order (obtained through e.g. a court decision) is required in relation to security interests in e.g. real estate mortgages. Security documents generally provide that the pledgee may enforce the security using any options available to it by law. While generally not expressly mentioned, the pledgee will, in its enforcement actions, be obligated to honour the principles of duty of care.

Note that a general prohibition regarding forfeiture of security (förfallopant) applies.

It is market practice to include direct enforcement (i.e. with no need for court decision) in relation to certain types of security interests (see item 30 above). 

Collateral value determination is usually, for certain types of security, included in the facility/security agreement, and may be by independent valuation (depending on the underlying asset).

This may be restricted due to the general prohibition on forfeiture. Pursuant to the principles of duty of care, the pledgee shall (as a main rule subject to exceptions) in its enforcement actions strive to sell the security assets at the highest available value, and any monies received in excess of the secured liabilities shall be transferred to the pledgor/debtor. Hence, the mere taking over of title may be in breach of both the restriction on forfeiture and the duty of care.

However, there is no restriction with respect to the pledgee acquiring the security assets provided that such acquisition may not harm the pledgor/debtor compared to any other available enforcement options.

Pledgees do at times use appropriation (parkering) of shares in order to temporarily take over the title before selling to third parties. Swedish law does not include specific rules on appropriation and this method should be assessed on a case-by-case basis and applied with caution.

Yes, see item 30 above. 

N/A.

N/A.

Powers of attorney are often included in security documents, but may not necessarily be enforceable under Swedish law. 

Bank account security

Bank account security involving Swedish account banks are sometimes left unperfected, as perfection requires limiting the pledgor’s access to such accounts. The conflict of lenders requesting full security and borrowers wanting to avoid restrictions on using cash flow often causes discussions in relation to finance documents (not least with respect to foreign lenders). Further, having the account bank accepting requested notice provisions may sometimes pose challenges (e.g. with respect to the bank waiving its right to set-off towards monies standing to the credit of the pledged account). 

Real estate security

Security over real estate mortgages is generally administered in a digital archive, to which few foreign creditors have access. Perfection may require for digital mortgages to be converted to written form, or that a custodian active in the Swedish market is appointed for holding Swedish security.

Insurance security

The Swedish Act on Insurance Contracts (försäkringsavtalslagen) provides, with respect to real estate insurances, a base protection for pledgees which among certain Swedish lenders is sufficient and excludes the need for an insurance pledge. In cases where an insurance pledge is requested, the LMA Facility Agreement typically includes a quite short section concerning insurance terms, which is sometimes questioned by lenders accustomed to the UK version of the LMA Real Estate Finance Facility Agreement. Insurance experts are sometimes advised to assess and analyse the differences in insurance protection between UK and Sweden.

Financial assistance – merger structures

Further, due to Swedish rules on financial assistance, real estate acquisition financing structures often include downstream loans to acquired entities (secured by ancillary security in assets held by the acquired entity). Such downstream loans are pledged to the lenders, which then will have secured debt in an amount not less than the senior debt. To streamline the financing structure and have the acquired entity’s assets secure the senior debt directly, facility agreements include merger provisions pursuant to which the acquired entity shall merge with its shareholder. For the purposes of the above, lenders generally require that the debtors under downstream loans have existing refinancing debt equal to or exceeding the proceeds of the loan granted by external creditors. For entities where the refinancing debt is insufficient, the value of the property security may potentially be less than the secured obligations.

Our experience is that enforcement in practice is fairly easy and balanced. In terms of timing, the process may be quick to average depending on the specific asset and applied process of enforcement. In case a dispute arises concerning the enforcement, procedures in the district court may be quite time-consuming.

Swedish law does to a limited extent include mandatory regulations or formal requirements/procedures (e.g. involving courts or other authorities) with respect to enforcement measures; but there is, for example, no modern law on enforcement of movable assets. This could be preferable for pledgees as many enforcement sales can be made quickly; on the other hand, it can also cause uncertainty in how a specific enforcement process should be handled (e.g. statutory law does not include rules on appropriation of shares). Pledgees must however honour a general duty of care in relation to the holding and enforcement of security, meaning that the pledgee shall to a reasonable extent adhere to the interests of the pledgor. Due to the duty of care, enforcement actions by the pledgee must be assessed on a case-by-case basis to ensure that the interests of the pledgor are not neglected (not least with respect to the sale price of enforced assets).

A change in legislation is being prepared, affecting the taking of security of tenant ownership rights (bostadsrätt). The change is proposed to come into force during 2026, and the effect is that the security would be perfected through registration rather than notification to the co-operative housing association.

Otherwise, no major changes in the general regulations/rules governing the principles for providing guarantees/taking security are currently upcoming. However, any such potential change (in general or in detail) should obviously be assessed on a case-by-case basis depending on the relevant type of security/guarantee.

Additionally, the Foreign Direct Investment Screening Act (2023:560) (Lagen om granskning av utländska direktinvesteringar (2023:560)) (“FDI”) entered into force on 1 December 2023. It has been introduced in order to prevent certain strategic acquisitions of companies whose operations, information or technology are important for Sweden’s security or for public order or public safety in Sweden. In our view, the market generally agrees that the FDI is far-reaching and that a large number of transactions will fall under its scope (– the legislation is aimed at foreign investors but does also include transactions between Swedish parties and even certain intra-group transactions). The FDI could have an impact on security enforcement over shares/participations depending on the underlying assets and the parties involved.