Forthcoming Amendments Concerning Swedish Business Mortgage
- Sweden
- 12/26/2007
- Roschier, Attorneys Ltd. - Sweden
An official report concerning amendments to the Swedish business mortgage regulation (SOU 2007:71) has recently been published in Sweden. The main purpose behind the initiative of the report is to strengthen the business mortgage (företagsinteckning) and the security interest it represents under Swedish law. The overall ambition is to make it easier for small and mid-sized companies to obtain bank financing and thereby to encourage investment.
A Swedish business mortgage creates a general right of priority (allmän förmånsrätt) for the mortgagee in the event of the mortgagor’s bankruptcy. A business mortgage is perfected through physical delivery of business mortgage certificates to the mortgagee. Each mortgage is limited to the face value of the mortgage certificate. In bankruptcy proceedings, after creditors with higher priority rights have been paid, 55 percent of the remaining assets are applied for the benefit of the business mortgage holders.
According to the proposal presented in the official report, the business mortgage will remain as a general priority right that will cover a certain percentage of the remaining available funds of the mortgagor’s assets. However, the percentage of the remaining funds that may be used for the benefit of business mortgage holders is proposed to be increased from 55 to 75 percent.
The proposal of an increased percentage will weaken the position of creditors with no right of priority. In order to mitigate the weakened position of such creditors, the official report proposes that government claims in relation to certain salary disbursements (utbetald lönegaranti), which today constitute special priority rights (särskild förmånsrätt), will be repealed.
It is uncertain whether the proposed amendments will make it generally easier for small and mid-sized companies to borrow funds. Taking security is only one of several means for a lending bank to reduce its credit risk. The company’s management, overall reputation in the market and previous relations with local banks may be equally important for the bank’s assessment. Further, issuance of new mortgage certificates is subject to a stamp duty of 1 percent of the mortgaged amount i.e. the face value of the mortgage certificate. In addition, because a business mortgage is proposed to remain as a general priority right, a business mortgage will still be subordinate to any claims secured by specific assets.
At the moment the proposal is subject to consideration by the Council on Legislation. A government bill is expected within a few months and the proposal will probably result in new legislation before the end of 2008.
