Three questions about financial aid vs. share dividends following the clarification from The Swedish Agency for Economic and Regional Growth

On 7 May 2020 Director-General, Gunilla Nordlöf, announced that the Agency will not give financial aid to companies who distribute large dividends. The Agency has previously explained that their interpretation of the law is that it is inappropriate for companies that receive financial aid to also distributed dividends. This has now been further clarified, and the Agency announced that they will reclaim aid from companies distributing dividends and that an in-depth analysis is to come.

Deloitte Legal answers three questions regarding the clarification from the Agency.*

What does the clarification mean?

The Agency has announced a clarification regarding financial transactions among companies applying for financial aid due to the financial hardship caused by the corona virus. The clarification implies that aid will not be paid to companies distributing dividends and that the Agency can come to reclaim financial aid from companies distributing dividends.

The announcement and clarification are preliminary results of the in-depth legal analysis regarding dividend distribution being carried out by the Agency. The preliminary result of the analysis allows the Agency to monitor whether dividends has been distributed and adjust the allowance accordingly. According to the analysis, dividend distribution is not compliant with the rules on short-time work allowances. This means that companies who have received financial aid cannot distribute dividends without risking that the Agency will reclaim the aid.

Who is covered by this?

All companies who receive short-time work allowance are covered by the announcement and should be aware that the allowance can be reclaimed e.g. due to dividend distribution. The Agency explain that a lot of small companies have applied for aid and allowances and that the Agency will specifically investigate the consequences of this. For more information about short-time work allowances, read our article here.

The Agency further explain that companies who have received financial aid should be aware that the allowance is preliminary and that, while applying for the short-time work allowance, the companies have confirmed that they are experiencing financial hardship due to the corona virus outbreak.
 

What will happen now?

To ensure legal compliance, the Agency will continue to carry out their legal analysis of dividend distributions. It is clear that the analysis will be in line with the interpretations made by the parliament finance committee (Swe. finansutskottet), meaning that it is inappropriate that companies distributing dividends while receiving financial aid.

The Agency will also look closer at the consequences of the announcement, with focus on the great amount of smaller companies who have applied for the aid.

Deloitte Legal will keep monitoring the announcements from the Agency and the parliament finance committee and continue to provide updated information. 

*The information should neither be regarded as advice nor exhaustive. For individual advice, please contact us via the contact information below.