Junior ADVOC: Lex Leo – a special act in the Swedish Companies Act
According to earlier Swedish legislation the voting requirement necessary to resolve a directed issue of shares was a 2/3 majority. Due to previous abuse of directed issues the Lex Leo Act was adopted to protect the minority shareholders from abuse of directed placements to favour senior executives at the expense of the minority shareholders without their knowledge.
The Lex Leo legislation in Chapter 16 of the Swedish Companies Act (2005:551) is applicable when public companies and its subsidiaries decide to issue shares, warrants or convertible debts (“Instruments”) or the transfer of such Instruments issued withinthe same group. Such an issue must be resolved by the shareholder meeting if the proposal for such a resolution imply a directed issue to a certain group (described in the Lex Leo Act) of related parties.
Lex Leo also govern the situation when a company issues Instruments to another company within the group, with the purpose that the latter company shall transfer the issued instruments to persons within the related party’s category. Such transfer must be approved by the shareholders meeting in the company subscribing the Instruments.
For all shareholder’s resolutions under Lex Leo certain information must be presented in the notice and a certain majority rule of 9/10 majority applies, meaning that 90 % of the given votes and 90 % of the present shares must approve.
The Lex Leo legislation constitutes an important minority shareholder protection and must be applied under these circumstances, otherwise the resolution is void.
Written by Martin Orehag
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