Insights | March 17, 2020

COVID-19 legal considerations for Swedish listed companies – short guide

Our experts have compiled some legal guidelines and vital considerations for Swedish listed companies to consider regarding the COVID-19 outbreak.

General meetings

• Physical meetings are required but can be combined with participation by video-link
• Increased and encouraged use of proxies and pre-voting can be an option
• Other limiting measures are available and seen already in the market

General: All companies must convene general meetings within 6 months from the end of their financial year and approve their annual report. However, larger companies must consider implications of restrictions on number of people convening in one place.

Form of meeting: The Swedish Companies Act does not permit meetings fully held by video link (i.e. a strict online meeting). However, what is called a hybrid meeting is possible.

This means that a meeting is held with at least one shareholder present and that other shareholders participate through video-link from other locations. Special considerations must be made regarding how to identify shareholders (i.e. how to determine that the video link participant is actually the shareholder). Such option of holding a hybrid meeting should also be possible for a meeting that has already been convened, provided that the ability to participate physically at the original venue for shareholders is not limited and that the arrangements around the distance participation are adequate.

The company is for example able to set up separate facilities where shareholders can participate by video link to limit the number of persons present at one physical location.

In addition, it should also be noted that the Swedish Companies Act permits postal voting, meaning that shareholders can submit their votes to the meeting without participating, as well as collection of powers of attorney. Provided that such possibilities are provided for in the articles, companies can inform, encourage and facilitate such.

Thus, companies which already have published notices to their AGMs, without instructions on participation by postal voting or collection of powers of attorney cannot use such means at the AGMs. In addition, a board can always decide to cancel the published notice and issue a new with appropriate information, but must in such cases apply a new statutory notice period meaning that the AGMs in most cases will be delayed.

Other measures already seen in the market (i) encourage people only to attend if they have to, (ii) live broadcast from website (without voting), (iii) only permit shareholders to participate and limit presentations and discussions at the meeting. These measures can be announced through a press release ahead of the general meeting.

Special note on the restriction on convening 500 persons for public events in Sweden: There is no general exemption to limit or prohibit shareholders to participate at general meetings in circumstances like these. However, a general meeting (restricted to only shareholders) is likely not considered a public event. This means that general meetings can be held (and must be held according to the Companies Act) but companies are encouraged to try to minimize physical participants (in accordance with the above).

Communication and profit warnings (Insider considerations)

• Be ready to communicate immediately where past guidance and expectations change
• Waiting with press releases until the next day/over the weekend is not OK
• Updates on new financial targets guidance are expected
• COVID-19 in annual report or quarterly report recommended

General: The market abuse regulation and additional rules and regulations applicable to listed companies state that, as a main rule, all inside information shall be disclosed by public announcement (press release) immediately. This means that when the company becomes aware of non-public information that may have a price impact, the company shall be ready to disclose such information without any delay.

In these requirements, there is also an obligation for listed companies to ensure that they have routines and are prepared to handle communications with extremely short notice. Waiting with disclosures until the next day/over the weekend/until the market opens is normally a breach of the rules.

Delaying disclosure: In order to be permitted to delay disclosure, listed companies must consider three conditions (and all of them must be fulfilled): (i) immediate disclosure would harm the company’s legitimate interest, (ii) it is unlikely that a delayed disclosure would mislead the public and (iii) the company can ensure that the information remain confidential.

Companies must put special considerations into the second criteria, meaning that if the company has given indications, or the public may have an expectancy, disclosures entailing information in opposite direction are seldom permitted. For example, communicated financial targets that become impossible, improbable or expected not to be fulfilled (and no longer valid) should typically render a communication to the market immediately.

Do note that special exemptions and considerations may apply for financial institutions.

Profit warnings: Profit warnings are treated as any other inside information. This means that where there is an expectancy in the market, based on company guidance or not, as to financial performance of the company and the company becomes aware that such expectancy is no longer likely, the company must communicate this to the market (and delaying disclosure is in most cases not permitted).

Financial reports: The European Securities and Markets Authority has issued a statement where listed companies are encouraged to closely monitor the effects of COVID-19 as well as to maintain transparent and relevant market reporting in the potential effects.

In addition, specifically, companies are recommended to provide transparency on the actual and potential impacts of COVID-19, to the extent possible based on both a qualitative and quantitative assessment on their business activities, financial situation and economic performance in their 2019 year-end financial report if these have not yet been finalised or otherwise in their interim financial reporting disclosures (quarterly reports).

Trading: Companies should be extra careful and inform employees in relation to trading with inside information. Typically, employees will be close to where inside information originates and can be the first to realize effects of certain circumstances. To the extent such information is price sensitive and not publicly disclosed, trading in the share of the company is forbidden and may be a criminal offense. Companies may consider recommending a general trading ban for its employees considering rapidly developing information and situation.

Financial distress

• If financial situation becomes dire – monitor solidity and liquidity

General: Swedish limited liability companies (ABs) must at all times consider if they fulfill two tests:

• Solidity test (i): There must be enough equity (Sw. eget kapital) to cover at least 50% of the registered share capital (Sw. registrerat aktiekapital).
• Liquidity test (ii): Where a company cannot pay its debts as they fall due and such situation is not only temporary, the company is considered insolvent.

Typically, the company’s financing covenants will be breached before the above tests are triggered, but the board shall nevertheless be considerate of these regulations.

The solidity test: Where (i) occurs, the board of directors must immediately prepare a balance sheet for liquidation purposes (Sw. kontrollbalansräkning), where slightly more liberal valuation principles may be applied. The balance sheet must be submitted to the auditor for review. Thereafter, the board must convene a general meeting where the shareholders shall vote on whether to enter the company into liquidation or not.

Where the board fails to fulfill its obligations, personal liability for board members of the company’s debts may become applicable.

The liquidity test: When a company is found to be insolvent, the board shall (a) start to closely monitor the liquidity of the company and (b) not take any actions (typically payments) that can be considered discriminatory against creditors.

This can for example be paying debts before they fall due, paying with other means than cash, putting up (new) security for old debt or prioritizing certain creditors ahead of others. However, paying taxes should always be prioritized.