Our point of view

Nordic Market Newsletter 5/2013

30 September 2013


Assignability of rights under a share purchase agreement

The Swedish Supreme Court granted leave to appeal in a case regarding the question of whether a successor can invoke an arbitration clause in a share purchase agreement when assignment of the agreement is subject to the written consent of the counter-party. It is at issue whether the relevant rights had been effectively transferred in the course of extensive changes in one of the parties’ corporate structure.

The case is of interest because it clarifies the effect of no-assignment clauses and the assignability of rights in connection with mergers. No-assignment clauses, under which rights can be assigned only with the other party’s consent, often do not explicitly prohibit succession of rights in voluntary procedures regulated under law. One example of such a procedure under the Swedish Companies Act is a “fusion”, which is a merger of two legal entities into one, whereby one of the merging entities ceases to exist whilst the other assumes all the liabilities and (where possible) all the assets (including rights). It is important to note that the creditors have only limited influence over this process, because liabilities survive in the remaining entity.

In January 1997, a share purchase agreement was entered into between a Danish company, Gamla Sophus Berendsen A/S (GSB) and Electrolux. In January 1998, GSB ceased to exist through so-called “spaltning”, a Danish demerger procedure, and Nya Sophus Berendsen (NSB) was established. In August 2005 another demerger was performed through which all shares in NSB were transferred to Danish Co 2005 ApS (Danish Co). In October 2005, the owner of Danish Co, decided to dissolve Danish Co through a so-called “betalningserklaering”, a simplified liquidation for smaller companies.

In July 2010, Berendsen Finance Limited, the former owner of the dissolved Danish Co, initiated arbitration procedures against Electrolux based on the arbitration clause and the warranties under the 1997 share purchase agreement, on the basis that the rights had passed by operation of Danish law (i) from GSB to NSB by demerger, (ii) from NSB to Danish Co by demerger and (iii) from Danish Co to Berendsen in the simplified liquidation. This, it was argued, had occurred notwithstanding that the 1997 agreement contained a clause requiring consent for the assignment by GSB of any rights.

The Swedish Court of Appeal (Svea hovrätt) found that the rights had not been transferred to the owner Berendsen Finance Limited when Danish Co was dissolved in October 2005. The majority of the court distinguished between succession by merger and succession by the simplified liquidation procedure (on the basis that the former gave less say to creditors). Whilst the no-assignment clause did not require consent for effective succession by the demerger (the majority said), it did not permit the same in the voluntary liquidation procedure. However, two of the judges dissented and held that the contractual provision required consent for succession through the Danish demergers as well. Berendsen, which therefore cannot initiate arbitration proceedings because and invoke warranties based on rights under the share purchase agreements, is appealing the finding to the Supreme Court – although this case relates to the effect of Danish legal provisions, it is likely to cast some clarity also on the effect of analogous Swedish legal procedures.
A further and possibly more controversial obiter statement of the Court of Appeal is that it is appropriate for a court to apply Anglo-American legal technical definitions as a basis for interpreting a Swedish contract that has been drafted following an Anglo-American template. We believe that this sets a difficult and controversial precedent, not least because there may well be different approaches taken in England and America (and other common law jurisdictions) respectively and it is seldom clear purely from the agreement itself which reference jurisdiction the parties may have intended (if it can even be inferred that they meant to apply the laws of any such foreign jurisdiction at all).

This case demonstrates the drawbacks of failing to consider the limitations that common boilerplate provisions, such as no-assignment clauses, can place upon future restructuring activity. Whilst legal merger regimes can be useful ways of combining operations, it is uncertain whether all rights will automatically be transferred and there is a risk that some might be “lost” in the process. The case also reveals the complexity of international restructuring activities and the importance of seamless cross-border legal advice.

Swedish Supreme Court case no T 4816-12 (Appeal against case T 9588-11).

Richard Åkerman, Partner and Patrik Erblad, Associate, Stockholm

Party’s signature not required for binding settlement agreement

On 2 July 2013 the Swedish Court of Appeal held that an offer of settlement can constitute and become a binding settlement agreement upon acceptance from the offeree, even if the offeree when accepting the offer drafts a written settlement agreement which the offeror does not sign.

The case underlines the importance of clarity when negotiating agreements and is a reminder that an offer (which is capable of acceptance) becomes binding upon acceptance, unless it can be shown that the parties had intended otherwise, and that any agreement to settle a dispute should be subject to contract.

The case involved rights to inheritance of apartment owned by the respondent’s son. After negotiations, the respondent had offered the claimant SEK 185 000 on the condition that the claimant undertook not to sue the respondent’s son. Claimant acknowledged in a communication that she considered the parties to have entered into an agreement, and included a draft for a written settlement agreement. Respondent later declared that he was unwilling to pay the amount, and did not sign the draft.

At the time of the offer, respondent had not stipulated any condition to the effect that the agreement must be in writing. The fact that claimant had drafted a document alongside his acceptance was taken by the Court of Appeal to mean that claimant wanted to record the terms of their agreement which had already been reached.

The case serves as a reminder that, when negotiating the terms of any contract (not just settlement agreements), the parties should be clear as to whether an offer is intended to be capable of acceptance (without more) or whether it is only intended to be a starting point for negotiations will only become binding once recorded signed contractual documentation. In the former case, the offer should contain all of the terms on which a party is prepared to contract. In the latter case, it should be made clear that further matters must be agreed before a binding contract will be formed, which is commonly (although not conclusively) indicated by the wording “subject to contract”.

(Göta Court of Appeal ruling on 2 July 2013 in case no T 1600-12)

Richard Åkerman, Partner and Bruce McGinn, Senior Associate, Stockholm

National strategy to counteract money laundering

On August 30, the Swedish Financial Supervisory Authority along with 15 other public authorities and organisations has by order of the Swedish government published a report on the risks of money laundering. It found that money laundering is probably extensive in Sweden, and further investigation is merited to determine the real extent of it and the most common business sectors involved.

The report suggests that Swedish anti-money laundering systems can be improved e.g. by improving cooperation between big financial actors. It also suggests that the national anti-money laundering legislation should be overhauled.

The report is the first of two, the second expected during the summer of 2014, which will form the foundation for a national strategy to counteract money laundering.

Björn Kristiansson, Partner, Stockholm

NASDAQ OMX Stockholm fines Allenex AB

The Disciplinary Committee of NASDAQ OMX Stockholm ordered Allenex to pay a fine to the exchange for failing to inform the exchange before publishing information regarding a purchase order that was expected to have a significant impact on the price of the company’s share.

Björn Kristiansson, Partner, Stockholm

NASDAQ OMX Stockholm fines Oasmia Pharmaceutical AB

The Disciplinary Committee of NASDAQ OMX Stockholm ordered Oasmia Pharmaceutical AB to pay a fine to the exchange for disclosing information in ways which violated the exchange’s rulebook. The company’s managing director had disclosed price-sensitive information in an interview without also simultaneously publishing the information pursuant to the exchange’s rulebook’s stipulations. Further, Oasmia Pharmaceutical AB failed to inform the stock market about a cancelled partnership agreement in August 2011, which should have been disclosed immediately, and did not include information on the cancelled partnership in its annual report, as required as it could have resulted in a reimbursement liability for the company.

Björn Kristiansson, Partner, Stockholm

Environmental damages piercing the corporate veil

In Sweden, a parent company can generally only become liable for its subsidiaries’ debts or liabilities if the parent company has guaranteed these or if the correct steps have not been taken in insolvency situations (e.g. a capital shortfall where a subsidiary’s equity capital becomes less than half its registered share capital).

In a recent case, the court found further holes in the corporate veil in an environmental lawsuit when it concluded that a parent company was jointly and severally liable with its subsidiary for environmental damages. Strictly, the court did not pierce the corporate veil from a corporate perspective but rather took a broader perspective on the concept of an “operator”, as used in environmental legislation.

The subsidiary had not been not profitable for four years before it was shut-down, and the continuation of its operations during this period had been dependent on the parent company’s unconditional shareholder’s contributions. On this basis, the court concluded that the parent company held legal and de facto influence over the business and, thus, was to be considered jointly to be an operator alongside the subsidiary.

The decision implies an additional factor to consider in legal analysis prior to group financing activities, particularly as regards any subsidiary potentially facing environmental risks.

Richard Åkerman, Partner and Patrik Erblad, Associate, Stockholm


Advance ruling on Private equity structures

On 7 July 2013, the Swedish Tax Agency’s board of advance rulings has considered a typical private equity structure and the tax treatment of so-called carried interest.

The ruling comes at a time when the Swedish Tax Agency has been actively questioning private equity structures and the taxation of the general partner and its owners, resulting in several multi-million-kronor tax claims (including interest and penalties). In summary, the Swedish Tax Agency is taking the position that carried interest should be taxed as salary (i.e. up to 57%) at the level of the owners of the general partner, while the private equity industry has viewed the gains (the carried interest) of a general partner as tax exempt under the participation exemption rules. This has resulted in considerable legal uncertainty.

A major (Swedish) private equity firm sought an advance ruling in respect of a structure involving a Swedish AB holding a 20% stake in a fund resident in the EEA where it, in excess of injected capital (in total 2%), had the right to receive a total of 20% of the gains in the fund (carried interest). An advance ruling on the structure would be binding for the Swedish Tax Agency, and holds a certain precedent value in relation to assessment of other similar structures, unless appealed to the Supreme Administrative Court. In such a case, it is – naturally – the decision by the Supreme Administrative Court that binds the Swedish Tax Agency and instead holds precedent value.

The board of advance rulings held that the carried interest is not a capital gain to which participation exemption would apply but in fact constitutes remuneration received for servicing the fund including the portfolio companies and should therefore be taxed at the level of the (Swedish) general partner at a flat rate of 22%. The ruling has been appealed to the Supreme Administrative Court by both the applicant and the Swedish Tax Agency. The ruling did not consider the question of tax treatment for any of owners of the general partner.

There are currently several cases pending in the lower courts regarding taxation of private equity general partners (and their owners) that may be affected by the outcome of the case at hand. However, since the advance ruling has been appealed we will need to await the final ruling from the Supreme Administrative Court before the position becomes more certain. Private equity structures vary enormously and the advance ruling (and the outcome of the appeal) may not be applicable to all, leaving considerable uncertainty in the market for some time to come. It is hoped that this uncertainty will not permanently undermine the viability of Swedish private equity, which has been one of the stronger European markets in the last few decades. However, there are still structures that may be used to achieve a commercially acceptable set-up without challenging the law as interpreted by the Swedish Tax Agency.

Carl-Magnus Uggla, Partner, Tax and Jan Jensen, Partner, Private Equity, Stockholm



Proposal on new legislation regarding Danish commercial foundations includes new restrictions and obligations on the management
The Danish Business Authority has presented a proposal for a new Act on Danish Commercial Foundations that, if passed, will have a number of consequences for Danish commercial foundations. The proposal is expected to be presented to the Danish Parliament in October 2013.

The proposal is of special relevance for the management of all existing and newly established Danish commercial foundations which will have to adhere to the new restrictions and obligations.

A Danish commercial foundation is a self-owned legal entity which is typically used to “protect” e.g. a family company from hostile takeover or from the management deciding to break it up. A number of major companies in Denmark are protected in this way. Commercial foundations also enjoy certain tax privileges.

The proposal includes a number of new restrictions and obligations on the management of commercial foundations, including the following:

  • ban against having a subsidiary of a foundation appoint board members of the foundation;
  • ban against appointing a manager of a subsidiary as chairman or vice chairman of the foundation;
  • an obligation for the board of directors of a foundation to adhere to recommendations on corporate governance (to be adopted for commercial foundations); and
  • an obligation for the board of directors of a foundation to adopt rules of procedure.

In addition to the above, the proposal also includes enhanced oversight provisions for the Danish Business Authority, including the enhanced ability to dismiss board members and an obligation to disclose all distributions made by the foundation.

At Hannes Snellman we have a broad experience with handling matters related to commercial foundations, including establishment and amendment of articles of association. If you are interested in learning more about the new proposal or commercial foundations in general please contact:

Amanda Tonsgaard, Partner in the Private M&A Department of the Copenhagen office of Hannes Snellman
Tobias Bonde Frost, Associate in the Private M&A Department of the Copenhagen office of Hannes Snellman


Prospectuses for corporate bonds may be approved within seven days

The Danish Financial Supervisory Authority (the “Danish FSA”) has published a memorandum describing a new procedure whereby the Danish FSA may approve prospectuses within only seven days provided that certain conditions are fulfilled.

The short time frame for prospectus approvals for corporate bonds will be essential for issuers in rapidly changing market conditions.

The new approval procedure will follow a so-called “4-2-1-method” entailing that the Danish FSA will review and provide comments on the first draft prospectus within four days; the second draft will be reviewed within two days; and the third and final draft of the prospectus will be reviewed and approved within one day.

However, issuers of corporate bonds can only expect the Danish FSA to act within this time frame if the prospectus meets the following conditions:

  1. the securities issued are considered to be corporate bonds;
  2. the prospectus follows the structure of the EU Regulation no. 809/2004 for prospectuses or the issuer encloses to the prospectus comprehensive cross references to this Regulation;
  3. the prospectus is considered a final draft when it is submitted to the Danish FSA (i.e. the only outstanding information is the date, interest rate and the size of the issue); and
  4. prior to submission of the prospectus, the Danish FSA receives a timetable for the bond issuance.

The Danish FSA has expressed willingness to engage in a dialogue with issuers to discuss the possibilities of an efficient procedure also for share issuances prospectuses.

At Hannes Snellman we have vast experience with the issuance of corporate bonds and the legal requirements related thereto. If you are interested in learning more about the new practice or corporate bonds in general please contact:

Mikkel Fritsch, Partner in the Banking and Finance Department of the Copenhagen office of Hannes Snellman
Tanja Lind Melskens, Associate in the Banking and Finance Department of the Copenhagen office of Hannes Snellman


Danish exit tax breaches the freedom of establishment

On 18 July 2013, the Court of the European Union (ECJ) found the Danish rules on exit taxation of assets leaving the Danish tax jurisdiction to be in violation of the freedom of establishment, as the Danish rules prescribe immediate recovery of tax on unrealized gains.

On the basis of this decision, affected taxpayers should consider filing claims for any interest loss incurred as a consequence of not having an option to defer taxation when Danish exit taxation was imposed on them.

Practical implications

It is yet to be seen how the Danish government will react to the judgment. We expect that Denmark will revise legislation on the exit taxation of companies. The obvious step will be to introduce an option to defer tax payments, as has already been done for individuals leaving the Danish tax jurisdiction. The ECJ decision does not require deferral of exit taxation to the very point in time when assets are realized, but the question remains how Denmark will ensure that a deferred tax payment is not postponed indefinitely rendering Danish exit taxation illusory.

In the present case, the European Commission specifically targeted Danish exit taxation of assets being transferred, while a similar provision in the Danish Corporate Income Tax Act, imposing exit taxation on companies transferring their effective seat of management to another member state, was ignored. According to this provision, assets that are no longer within the Danish tax jurisdiction because a company moved its effective seat of management are treated as sold at market value for Danish tax purposes and taxed immediately. Although this provision was not addressed in the present case, it likely violates EU law in the same way as the addressed provision, as confirmed by a recent ECJ decision regarding Spanish exit taxation (see earlier coverage in the Nordic Market Newsletter 3/2013). Amendments to this provision are therefore to be expected as well.

At Hannes Snellman we are experts on the increasing influence of EU tax law on national taxation. If you are interested in further information please contact:

Nikolaj Bjørnholm, partner in the Tax Department of the Copenhagen office of Hannes Snellman
Anders Bang, Associate in the Tax Department of the Copenhagen office of Hannes Snellman


Changes to the Norwegian Companies Act

Various changes to the Norwegian Companies Act were enacted on 1 July 2013, applying both to private and public limited companies. The purpose of the changes is to simplify the incorporation process, add more flexibility regarding the capital structure and adapt the rules to better suit smaller companies with few shareholders. As the changes concern distribution of dividends, management of Norwegian subsidiaries (including parent companies) should take care to ensure that dividends are compliant with Norwegian corporate law.

For further information on these developments, please contact Anett Kristin Lilliehöök, Senior Associate, Stockholm.