Hamilton Perspectives Nyhetsbrev

Proposed changes to Swedish company law affecting listed companies

A go­vern­men­tal in­quiry, pre­sen­ted in the re­port Ds 2018:15, has pro­po­sed va­ri­ous changes to Swedish com­pa­ny law. The changes are pri­ma­rily in­ten­ded to im­ple­ment directi­ve 2017/828/EU amen­ding Directive 2007/36/EC as re­gards the en­cou­ra­ge­ment of long-term sha­re­hol­der en­ga­ge­ment (the “Directive”) and in­clu­de main­ly the following:

  • Changes to the so-cal­led Lex Leo ru­les in Chapter 16 of the Swedish Companies Act
  • Limitation of sha­re­hol­ders’ right of ini­ti­a­ti­ve in pub­lic li­mi­ted li­a­bi­li­ty com­pa­ni­es
  • New ru­les for pub­licly lis­ted com­pa­ni­es re­gar­ding re­mu­ne­ra­tion to se­ni­or execu­ti­ves and ma­te­ri­al trans­ac­tions with re­la­ted par­ti­es

Changes to the Lex Leo ru­les in Chapter 16 of the Swedish Companies Act

The re­port pro­po­ses changes to the so-cal­led Lex Leo ru­les, which are ap­pli­cab­le to all pub­lic li­mi­ted li­a­bi­li­ty com­pa­ni­es and con­cern is­sues and trans­fers of fi­nan­ci­al in­stru­ments and cer­tain lo­ans to board mem­bers, employe­es and their re­la­ted per­sons. The Lex Leo ru­les ha­ve be­en cri­ti­ci­sed throug­hout the ye­ars, e.g. for cre­a­ting com­pe­ti­ti­ve di­sad­van­ta­ges for lis­ted in­vest­ment com­pa­ni­es com­pa­red to pri­va­te equi­ty spon­sors and for ma­king ma­na­ge­ment buy-outs mo­re com­pli­ca­ted.

Firstly, the re­port pro­po­ses that trans­fers of sha­res and ot­her fi­nan­ci­al in­stru­ments who­se va­lue is less than one per­cent of the group’s va­lue is to be ex­emp­ted from the Lex Leo ru­les. The group’s va­lue re­fers to mar­ket ca­pi­ta­li­sa­tion for lis­ted com­pa­ni­es. The board is requi­red to per­form an ob­jecti­ve va­lue as­sess­ment, but the­re is no requi­re­ment for an au­di­tor to re­vi­ew such as­sess­ment.

Secondly, the re­port pro­po­ses that the ma­jo­ri­ty ru­le re­gar­ding the Lex Leo ru­les should be re­du­ced from 9/10 to 2/3 of the vo­tes re­pre­sen­ted at the sha­re­hol­ders’ me­e­ting as well as 2/3 of the vo­tes cast. The pro­po­sal al­so co­vers trans­fers of fi­nan­ci­al in­stru­ments that ha­ve be­en is­su­ed to anot­her com­pa­ny wit­hin the sa­me group.

Limitation of sha­re­hol­ders’ right of ini­ti­a­ti­ve in pub­lic li­mi­ted li­a­bi­li­ty com­pa­ni­es

The sha­re­hol­ders’ right to in­clu­de mat­ters in the agen­da at sha­re­hol­ders’ me­e­tings is pro­po­sed to be li­mi­ted with re­gard to pub­lic li­mi­ted li­a­bi­li­ty com­pa­ni­es. For a pe­ti­tion to be ta­ken in­to con­si­de­ra­tion, it is requi­red that one or se­ve­ral sha­re­hol­ders’ who own at le­ast 1/10,000 of the to­tal num­ber of sha­res in the com­pa­ny or at le­ast 25 sha­re­hol­ders, jo­int­ly, ini­ti­a­te such pe­ti­tion. It can be no­ted that this pro­po­sed li­mi­ta­tion of the sha­re­hol­ders’ right to ini­ti­a­ti­ve do­es not af­fect the sha­re­hol­ders’ right to ask ques­tions du­ring the sha­re­hol­ders’ me­e­ting.

New ru­les for lis­ted com­pa­ni­es re­gar­ding re­mu­ne­ra­tion to se­ni­or execu­ti­ves and ma­te­ri­al trans­ac­tions with re­la­ted par­ti­es

A new de­fi­ni­tion of pub­licly lis­ted li­mi­ted li­a­bi­li­ty com­pa­ny is in­tro­du­ced to Swedish com­pa­ny law. The de­fi­ni­tion con­cerns li­mi­ted li­a­bi­li­ty com­pa­ni­es who­se sha­res are lis­ted on a re­gu­la­ted mar­ket or a cor­re­spon­ding mar­ket out­si­de the EEA. The pro­po­sed new ru­les re­gar­ding re­mu­ne­ra­tion to se­ni­or execu­ti­ves and ma­te­ri­al trans­ac­tions with re­la­ted par­ti­es will on­ly ap­p­ly to com­pa­ni­es co­ve­red by the de­fi­ni­tion.

The re­port sti­pu­la­tes pub­licly lis­ted li­mi­ted li­a­bi­li­ty com­pa­ni­es to im­ple­ment gui­de­li­nes for re­mu­ne­ra­tion to se­ni­or execu­ti­ves which lar­gely cor­re­spond to the Swedish ru­les that are al­re­a­dy in for­ce (in­clu­ding the sa­me cir­c­le of pe­op­le). However, changes are pro­po­sed which en­tail that the Swedish Companies Act is pro­vi­ded with mo­re de­tai­led pro­vi­sions re­gar­ding the con­tent of the gui­de­li­nes. For in­stan­ce, the gui­de­li­nes must now in­clu­de (i) to what ex­tent the re­mu­ne­ra­tion con­tri­bu­tes to the com­pa­ny’s long-term in­te­rests, (ii) how con­di­tions for the com­pa­ny’s ot­her employe­es ha­ve be­en ta­ken in­to con­si­de­ra­tion, and (iii) how va­ri­ab­le re­mu­ne­ra­tion has be­en de­ter­mi­ned. The new pro­po­sed pro­vi­sions al­so in­clu­de cer­tain requi­re­ments for the de­ci­sion-ma­king pro­cess re­gar­ding the gui­de­li­nes. In the event that the an­nu­al ge­ne­ral me­e­ting would not ad­opt the new gui­de­li­nes pro­po­sed by the board, the most re­cent­ly ad­op­ted gui­de­li­nes will con­ti­nue to ap­p­ly. Also, the sco­pe for the board to de­vi­a­te from the gui­de­li­nes in spe­ci­al cir­cumstan­ces is cla­ri­fi­ed.

A new requi­re­ment re­gar­ding an an­nu­al de­tai­led re­port on paid com­pen­sa­tion to se­ni­or execu­ti­ves du­ring the ye­ar is al­so pro­po­sed. The re­mu­ne­ra­tion re­port shall be sub­mitted for ap­pro­val at the an­nu­al ge­ne­ral me­e­ting.

Furthermore, a new chap­ter – 8a – of the Swedish Companies Act is pro­po­sed. The chap­ter shall go­vern ma­te­ri­al trans­ac­tions between pub­licly lis­ted com­pa­ni­es, in­clu­ding whol­ly-ow­ned sub­si­di­a­ri­es, and their re­la­ted par­ti­es. The chap­ter su­per­se­des the Swedish Securities Council’s sta­te­ment AMN 2012:05 in terms of pub­licly lis­ted com­pa­ni­es but do­es not in­clu­de trans­ac­tions that fall un­der spe­ci­al re­gu­la­tion, e.g. is­sues of fi­nan­ci­al in­stru­ments (in­clu­ding the Lex Leo ru­les), board fe­es and re­mu­ne­ra­tion to se­ni­or execu­ti­ves.

A trans­ac­tion will be co­ve­red by the new ru­les in Chapter 8a if the trans­ac­tion va­lue ex­ceeds MSEK 1 and al­so amounts to at le­ast one per­cent of the com­pa­ny’s mar­ket ca­pi­ta­li­za­tion. All trans­ac­tions with the sa­me par­ty du­ring a twel­ve-month pe­ri­od are tre­a­ted as one trans­ac­tion. However, the­re is an ex­emp­tion for trans­ac­tions that are part of the com­pa­ny´s ongo­ing ope­ra­tions and which are con­duc­ted on mar­ket terms.

Material trans­ac­tions with re­la­ted par­ti­es shall be sub­mitted for ap­pro­val at the an­nu­al ge­ne­ral me­e­ting in the group pa­rent com­pa­ny. The board shall ma­ke a re­vi­ew of the ma­te­ri­al trans­ac­tions du­ring the ye­ar and sub­mit it for ap­pro­val at the an­nu­al ge­ne­ral me­e­ting. The re­vi­ew shall in­clu­de terms re­gar­ding the re­le­vant trans­ac­tion and shall be ma­de pub­lic at le­ast th­ree weeks be­fo­re the an­nu­al ge­ne­ral me­e­ting.

The pro­po­sed ru­les re­gar­ding re­mu­ne­ra­tion to se­ni­or execu­ti­ves and ma­te­ri­al trans­ac­tions with re­la­ted par­ti­es shall ac­cor­ding to the Directive be im­ple­men­ted by 10 June 2019.  The new ru­les ha­ve be­en re­fer­red to the Swedish Council on Legislation and a go­vern­ment bill is ex­pec­ted to be sub­mitted no la­ter than 31 March 2019.

The ti­me sche­du­le re­gar­ding the im­ple­men­ta­tion of the pro­po­sed changes to the Lex Leo ru­les and the li­mi­ta­tion of sha­re­hol­ders’ right of ini­ti­a­ti­ve is mo­re un­cer­tain. However, the Swedish go­vern­ment has sta­ted that the changes will be hand­led se­pa­ra­tely.