News New regulations on minority shareholder protection in companies and economic associations

On 1^st of January 2021, new regulations go into effect to facilitate the assignment of a special examiner or a minority shareholders’ auditor to protect minority shareholders’ rights. Shareholders will also obtain a greater freedom to decide on the form of arbitration in buy-out disputes. New regulations also go into effect with regard to unrestricted and restricted share premium reserves, which may facilitate bonus issues.[1]

Special examiners and minority auditors without a general meeting

The Companies Act and the Economic Associations Act include regulations which aim to prevent the majority shareholders from abusing their power vis á vis the minority shareholders. In brief, these regulations give a minority of shareholders, who suspect abuse of power, the right to demand the appointment of a “special examiner”. A minority of shareholders can also demand that a “minority auditor” is appointed.

Current legislation requires that a general meeting is held before a special examiner can be appointed. In short, the requirement means that holders of not less than one tenth of the total number of shares in a company, or holders of not less than a third of the shares represented at the general meeting, must support the demand at the general meeting. Thereafter, a shareholder can apply to the Swedish Companies Registration Office to have a special examiner appointed. Corresponding regulations apply to economic associations and their members.

The requirement that a general meeting must be held before an appointment can be made may delay the appointment of a special examiner, especially if a majority opposes the appointment and votes to postpone the matter from the agenda of the general meeting.

With the proposed changes, a general meeting will no longer be required. An application for a special examiner can be submitted directly to the Swedish Companies Registration Office, provided that holders of at least one tenth of the total number of shares support the request. Corresponding rules will apply to economic associations and their members.

Just as today, the main rule will be that the reviewed company/association is liable for the special examiner’s compensation. However, the proposed new rules also state that the person/persons who made the application may be jointly liable for the compensation if the examination was “obviously unnecessary” and such person/persons realized or should have realized this. This rule will not apply to public companies (Sw. publika aktiebolag).

Another new aspect of the regulation is that the special examiner, in addition to the already existing rules on conflicts of interest, must be independent in relation to the company and the shareholders (or the association and its members). It remains to be seen how the Swedish Company Registration Office will implement this requirement.

In addition to the above, the new regulations clarify the rules on examinations of subsidiaries when a special examiner is appointed in the parent company. The regulations also clarify the time span that can be examined and that it is the company/association itself that is responsible for providing information to the examiner, rather than the board members or the CEO personally.

The new regulations include corresponding rules with regard to minority auditors. I.e., it will be possible to submit an application directly to the Swedish Company Registration Office without the requirement of a general meeting.

More flexibility concerning arbitrations in buy-out disputes

Pursuant to the Companies Act, a shareholder who owns more than nine tenths of the total number shares in a company has the right to acquire the remaining shares from the other shareholders. In turn, a shareholder whose shares can be bought pursuant to this rule, has a right to demand that the majority shareholder acquires the minority shares. These regulations are also subject to certain changes. Among other things, shareholders are given the right to decide the number of arbitrators in an arbitration in the event of a buy-out dispute. The shareholders will also be allowed to agree on how arbitrators are appointed.

New share issues – the premium can be split between the unrestricted and restricted share premium reserve

When forming a new company and when new shares are issued, current regulations imply that any portion of the payment for the new share, which exceeds the quota value of the share, shall be accounted for as the share premium reserve. Today, the share premium reserve is an unrestricted fund. The new proposed regulations will allow the founders/shareholders to choose how to split any premium between restricted equity and unrestricted equity. Consequently, two types of share premium reserves will be allowed – one unrestricted and one restricted. Funds in the restricted share premium reserve may be used for so-called bonus issues. The restricted share premium reserve may be reduced in the same way as the reserve fund.

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[1] Prop. 2019/20:194