A company mortgage involves a company offering its assets as collateral to secure a loan. If the company is unable to repay the loan as agreed, the company mortgage grants the lender rights to the company’s assets.
A company mortgage creates a security interest that grants the lender (creditor) a preferential claim on the business’s movable assets, provided those assets belong to the business. Despite the assets being pledged as collateral, the company can continue to use them in its operations. This arrangement allows the business to maintain its productive capabilities, thereby generating revenue to service the loan.
Special privilege
Company mortgages carry a special priority right, meaning that in the event of the company’s bankruptcy or foreclosure, the lender with the company mortgage is paid first. This priority supersedes other unsecured debts, making company mortgages a more secure form of collateral for lenders.
Property covered by the company mortgage
The specific assets covered by the mortgage are determined when the mortgage is enforced, such as during bankruptcy or foreclosure. Certain types of assets, including personal property, cash, bank deposits, securities intended for general circulation, and assets that can be mortgaged in other ways, are not covered by a company mortgage and therefore cannot be used as security. However, all other movable assets, such as physical goods, rights, claims, and goodwill, are included, provided they belong to the company and are part of the mortgaged business.
Creation of a valid company mortage
For a company mortgage to be valid, there must be an underlying debt that the company seeks to secure. The company must provide the creditor with a company mortgage certificate or register an electronic mortgage where the creditor is named as the mortgage holder. Additionally, the application for the company mortgage must be submitted to the Swedish Companies Registration Office. The application must be filed before 12:00 PM on the day the company wishes the mortgage to be registered. Once registered, the creditor gains in rem protection over the assets covered by the company mortgage.
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