February 26, 2020

Company Law

Procedural Law

Supreme Court clarifies timing of liability for board members under the Swedish Companies Act

building

An action under the Swedish Companies Act (aktiebolagslagen) concerning personal liability of a board member for a company’s obligations must be brought within three years from when the obligation arose or within one year from the date when the obligation should have been fulfilled. A central issue is therefore determining when such an obligation is considered to have arisen. In a recently issued ruling, the Swedish Supreme Court (Högsta domstolen, HD) clarified that a settlement agreement concerning a rent claim does not constitute a new obligation. Accordingly, the landlord’s action against the board member was dismissed as it was filed too late.

Case background and lower court decisions

In its judgment, the Supreme Court stated that in relation to the rules on board member liability, a rent claim should generally be deemed to have arisen upon the conclusion of the lease agreement, since such claims stem from the risk assumed by the landlord at the time the agreement is entered into.

The Court further noted that a settlement agreement may, under certain conditions, give rise to a new obligation that replaces the original one, thus restarting the limitation period. The decisive factor is whether the settlement materially alters the original obligation. If the settlement merely confirms the pre-existing obligation or documents it through, for example, a judgment, it does not constitute a new obligation. If the risk under the original obligation has already materialized—such as through lease termination due to unpaid rent—even significant changes to payment terms typically have no impact on the timing of the obligation’s origin.

In the case at hand, the settlement agreement only specified how an existing debt would be paid and did not materially alter the original obligation. Therefore, no new obligation had arisen as a result of the settlement, and the claim was time-barred. The landlord’s case was therefore dismissed.

Comment:

This ruling means that landlords will generally be unable to invoke the personal liability rules against board members, as obligations arising from lease agreements are typically deemed to arise upon signing. A landlord who suspects that a tenant may suffer from financial difficulties should therefore secure alternative forms of protection—such as a personal guarantee. Other creditors engaged in long-term contractual relationships may also be affected by this precedent.

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