On 31 January 2023, legislative amendments are proposed to enter in to force in Sweden (prop. 2021/2022:286) which include changes to, inter alia, Swedish company law regarding the cross-border mobility of limited liability companies. Through the proposed amendments, cross-border demergers and cross-border conversions are introduced and the rules for cross-border mergers are changed. The legislative amendments incorporate directive (EU) 2019/2121 of 27 November 2019 amending Directive (EU) 2017/1132, with the purpose of facilitating the restructuring across national borders within the European Economic Area (the "EEA").
Cross-border mergers: Chapter 23 of the Swedish Companies Act
As of today, it is already possible for Swedish limited liability companies to participate in a merger with a corresponding legal entity in another member state within the EEA. The most material changes proposed for cross-border mergers are listed below.
- New requirements for the content of the board of directors' report and the auditor's statement regarding cross-border mergers. The board of directors' report shall contain, inter alia, a description of the consequences for the shareholders, the share-exchange ratio and, if a cash payment is offered, the amount of it, as well as the calculation method for the share-exchange ratio and remuneration. Furthermore, it shall be stated how shareholders who wish to exercise their right to redemption (see further below regarding newly introduced redemption rights in connection with cross-border mergers) should proceed, the size of the redemption amount and the method of its calculation. The consequences of the cross-border merger regarding employment relationships and material changes in terms and conditions for employment shall also be described. The auditor's statement shall include an opinion on the share-exchange ratio, the equalization consideration, and the redemption amount and whether these are appropriate. In the auditor's statement, the auditor shall also indicate the methods used in the calculation and assess whether these are appropriate. If particular difficulties have arisen during the valuation, this shall be stated.
- A shareholder who has voted against a cross-border merger shall have the right to have its shares redeemed by the company. The redemption amount shall be stated in the merger plan. Shareholders who are not satisfied with the redemption amount set forth in the merger plan may file a lawsuit against the company and seek additional compensation in court.
- A shareholder who has not requested redemption of its shares and who is not satisfied with the share-exchange ratio specified in the merger plan may bring an action for entitlement to additional compensation.
- Government control is extended with the aim to avoid the procedure being used for criminal or improper purposes or to violate workers' rights. The Swedish Companies Registration Office is proposed to have a central role in this supervisory and will reject applications in certain enumerated cases.
- The Swedish Companies Registration Office (Sw. Bolagsverket) is proposed to be able to hire experts in the assessment of whether a cross-border merger should be allowed to be carried out or not. The cost of the expert shall be borne by the company applying for the merger.
No transitional rules have been proposed. Companies that have an ongoing cross-border merger should therefore complete the merger before the new rules enter into force and companies exploring the possibility of a cross-border merger should adapt the merger to the new regulatory framework.
Cross-border demergers: Chapter 24 of the Swedish Companies Act
A demerger means that a limited liability company is divided into two or more limited liability companies. The Swedish Companies Act already regulates domestic demergers, but now provisions are also being introduced for cross-border demergers. For both domestic and cross-border demergers, there will be three forms of demergers: (i) full demergers (Sw. fissioner), (ii) partial demergers corresponding to spin-offs and thus the transferring company is not dissolved and the consideration is paid to the shareholders of the transferring company, and (iii) a completely new form of demergers called separation corresponding to spin-offs but where the consideration is paid to the transferring company itself and not to the shareholders.
In the case of a cross-border demerger, all or part of the company's assets and liabilities will pass to one or more equivalent legal entities domiciled in the EEA. The procedure is broadly similar to that of cross-border mergers. However, there are some differences, including a description of the distribution of assets and liabilities between the participating companies as well as information on how assets and liabilities not expressly allocated in the draft terms of demerger are to be treated.
Cross-border conversions: Chapter 24 a of the Swedish Companies Act
A cross-border conversion is a completely new procedure in Swedish law, under which a company of a certain nationality is transformed into a company of another nationality within the EEA. The new rules on cross-border conversions cover both private and public limited liability companies. However, the possibility of carrying out cross-border conversions does not exist for companies with special dividend restrictions.
At the time of conversion, no new company is formed in the member sate of destination, nor is there any question of dissolution of the company being redomiciled. Instead, the redomiciled company lives on as the same company but in another state in the EEA. The new rules are not proposed to require that the company's main offices or operations be transferred to the member state of destination, only the registered office of the company must be moved. Once a cross-border conversion has been completed, the company will be subject to the laws of the member state of destination. Thus, even before implementation, it should be clarified what changes are required for the company to be able to comply with the legislation, for example, the articles of association may need to be updated.
The new rules on cross-border conversions broadly correspond to the rules in the case of cross-border mergers and demergers, such as requirements for a conversion plan, a decision by the general meeting, the summons of the company's creditors and permission to execute the plan. Even in the case of a cross-border conversion, shareholders who voted against the conversion will be able to have their shares redeemed and bring an action in court for additional compensation.