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Insolvency is defined in the Swedish Bankruptcy Act (1987:672) as being unable to pay one’s debts in a proper manner where such inability is not temporary. Persons who are insolvent can be declared bankrupt (i konkurs) irrespective of whether they are legal or natural persons.
Both companies and private individuals can enter into voluntary arrangements with creditors in order to reduce the debts. Such arrangements are not specifically regulated by law but are treated in the same way as other forms of agreement.
Companies can apply for reorganisation (rekonstruktion) under the Company Reorganisation Act (1996:764). The reorganisation procedure can only be used if the company is unable to pay its overdue debts or will be unable to do so in the near future. There must also be reasonable grounds to believe that the reorganisation can achieve its purpose. The debtor must either be the applicant or have agreed to the application for reorganisation (see question 8).
Both bankruptcy and reorganisation allow for an agreement to be reached with creditors under which only part of the debt is to be repaid. Such an agreement may be voluntary but can also be imposed by a court, in which case it is binding on all creditors (public composition).
Natural persons may apply for debt restructuring (skuldsanering) under the Debt Restructuring Act (2006:548). The conditions are that the person must be resident in Sweden, he must be so deeply in debt that he cannot be expected to be able to pay his debts in the foreseeable future and it must be appropriate to agree to the restructuring of the debt (see question 8).
A debtor (whether a natural person or a company) who is insolvent, i.e. the debtor is unable to pay his debts in a proper manner and this inability is not temporary, can be declared bankrupt.
The bankruptcy petition is lodged with the court where the debtor is resident, or in the case of a company where the debtor is established. The petition can be lodged by the debtor or by a creditor. The court rules on the bankruptcy and appoints an official receiver. The bankruptcy decision must be published in the Official Gazette (Post- och Inrikes Tidningar) and in one or more newspapers circulating in the region.
Bankruptcy is a judicial procedure. It is the court that decides that a bankruptcy procedure will be initiated or terminated. Certain decisions arising during the procedure must also be taken by the court.
The official receiver administers the estate in bankruptcy. He must take account of the creditors’ common rights and wind up the estate as quickly as possible. It is the receiver who takes charge of the debtor’s property, sells assets and shares out the balance among the creditors in the order of preference laid down by law.
The Supervisory Office (Tillsynsmyndigheten) (which is part of the Enforcement Authority (Kronofogdemyndigheten)) supervises the administration of the assets.
There is a statutory duty on the bankrupt (on the directors in the case of a company) to cooperate with the receiver, the courts and the Supervisory Office and provide them with information. The bankrupt is bound to swear under oath before the court that his statement of affairs is correct. After the bankruptcy decision has been issued and before the bankrupt has sworn the statement of affairs he may not leave the country without the permission of the court.
The common rights of creditors must be protected by the official receiver. On important matters the receiver may question creditors with a particular interest and the creditors may be summoned to appear in court under oath. The Bankruptcy Act (1987:672) lays down more detailed rules regarding the creditors’ rights in the procedure.
All the debtor's property is included in the estate in bankruptcy and must as far as possible be used to pay off the debts. However, a natural person who is declared bankrupt may keep certain personal belongings which under the seizure rules in the debt enforcement code may not be seized.
The bankrupt may not dispose of property which belongs to the estate. He cannot therefore enter into agreements or, for example, sell assets or pay debts which form part of the estate. Once the bankruptcy decision has been taken, property which belongs to the estate may not be seized unless an asset has been pledged in security for a specific claim.
These articles relate to the publication of decisions to open insolvency proceedings and the registration of the decision, in both cases in another Member State. When a decision has been taken to hold the main insolvency proceedings in another Member State and the debtor has a business establishment in Sweden the decision must be notified to the Swedish Companies Registration Office (Bolagsverket). There are also other cases in which such notification must occur. The Companies Registration Office will publish the decision in the Official Gazette.
The Companies Registration Office will also notify the public registers referred to in Article 22. In Sweden, the mandatory registration referred to in Article 22(2) is the responsibility of the official receiver or the reorganisation administrator as appropriate.
A person who has a claim against the debtor can set it off against a claim the debtor has against him provided that the claims are of the same type (e.g. that they are both pecuniary claims) and that the creditor’s claim predates the bankruptcy decision.
Creditors who have a security with a special preferential claim are entitled to receive payment from the assets before other creditors. This may be the case, for example, where a certain asset has been pledged in security.
Creditors who have a security with a general preferential claim are entitled to receive payment before other creditors with lesser preferential claims and creditors with no preferential claims at all. A floating charge would have a general preferential claim, for example. Claims which do not have preferential rights are all treated equally in the distribution of assets.
A floating charge is a security which has a general preferential claim. However, it is limited in such a way that the preferential claim applies only to 55% of the value of the assets which remain after creditors with better claims have been paid.
Contracts of employment do not automatically cease to apply if the employer is declared bankrupt, and the official receiver must decide whether to give notice of termination. An employee’s claim in respect of payment of salary or other remuneration enjoys general preferential status for a certain period of time. The basic rule is that claims lodged within three months before the court received the bankruptcy petition and within one month after the bankruptcy decision have preferential status. Claims in respect of salary or other remuneration which have preferential status are also covered up to a point by a ‘salary guarantee’, which means that if the bankrupt estate has insufficient assets to meet the claims the employee can obtain compensation from the State. The amount of the salary guarantee is limited; such guarantees can also be paid in the course of company reorganisation.
Once the bankruptcy decision has been taken the debtor can no longer dispose of assets which belong to the estate in bankruptcy. If the debtor nevertheless favours one creditor at the expense of others he can be penalised. There are also a number of possibilities for the official receiver to reverse a legal act carried out by the debtor before the bankruptcy decision if it was detrimental to the creditors.
If the debtor favours one creditor at the expense of others, the debtor’s legal act can be reversed where as a result of the act the debtor became insolvent and the favoured creditor was aware or should have been aware of the fact. For these provisions to apply, the transaction must have occurred within five years prior to the date on which the bankruptcy petition was lodged. However, if the payment was made to someone who was close to the debtor, such as a family member, the five-year limit does not apply.
In certain circumstances, payment of a debt can be recovered if it was made less than three months before the bankruptcy petition was lodged. This applies if the payment was made in an unusual way (i.e. not using money), if the payment was made before it was due, or if it involved such a large sum of money that the debtor’s financial situation was made considerably worse. However, it does not apply if the payment can be regarded as normal. This means that payments of debts as they fall due cannot normally be recovered.
The creditor who has lodged the bankruptcy petition will be summoned to a meeting for the administration of an oath before the court. Other creditors are summoned through the publication of the bankruptcy decision. The debtor is under an obligation to notify the official receiver, the court and the supervisory authority who the creditors are.
If it is judged that the assets are sufficient for payment to be made to creditors who do not have a preferential claim, a proof of debt procedure is implemented. The receiver applies for the procedure to be implemented and the court takes the decision. The court decides on the length of time the procedure will last, which must be between four and ten weeks. The decision to implement the proof of debt procedure must be published in the Official Gazette and in one or more newspapers circulating in the region. The creditors can then submit their claims to the court in writing.
Companies which appear to be viable in the long term but are in such serious financial difficulty that they are unable to pay their debts when they fall due may be reorganised. The application is made by the company itself or by a creditor. The court decides on reorganisation and appoints an administrator, whose task it is to examine whether the conditions exist to continue operating and whether a financial arrangement can be reached with the creditors.
Under the reorganisation procedure the debtor retains the right of disposition over his assets. However, he is not allowed to pay debts, take on new commitments or transfer ownership of assets of substantial importance without the administrator’s consent. No distribution to creditors may take place while the procedure is going on. Nor may the debtor be declared bankrupt unless there are particular grounds for believing that a creditor's rights are being seriously jeopardised. The reorganisation procedure lasts three months and may be extended by three months at a time. If composition proceedings are not successfully concluded, however, the reorganisation procedure may not last for more than one year.
If a financial arrangement cannot be reached with creditors on a voluntary basis the court can impose a public composition, which means that the debts are compulsorily reduced. Creditors who have preferential claims do not take part in the composition negotiations. A composition proposal which gives the creditors at least 50% of the amount of the claim will be considered to have been accepted if 60% of the creditors who can vote (who also represent at least 60% of the amount of the claim) accept the proposal. If the composition proposal is lower, it will be considered to be accepted if it is accepted by 75% of the voting creditors (who also represent at least 75% of the amount of the claim). Once the composition is approved it is binding on all creditors who were entitled to take part in the composition negotiations.
A natural person who is so deeply in debt that he or she will not be able to pay his or her debts in the foreseeable future can apply for debt restructuring. A further requirement is that it should be appropriate in the light of the debtor’s personal and financial circumstances to approve debt restructuring.
Debt restructuring means that all debts covered by the procedure are reduced or eliminated altogether. Applications for debt restructuring are lodged with the Enforcement Authority. All the creditors affected by a debt restructuring proposal must be given the opportunity to comment on the proposal. A debt restructuring decision will include the proportion of the debt the debtor must pay. It will also include a payment plan which normally runs for five years.
Under the payment plan the debtor whose debts have been restructured must live on the minimum subsistence amount. If the debtor has no income over and above the minimum subsistence amount he or she does not have to pay anything; this happens in approximately a third of cases.
The rules on winding up the bankrupt estate are set out in the Bankruptcy Act. Once the assets have been sold the balance must be distributed. If the assets at the time of the bankruptcy are insufficient to cover the costs of the bankruptcy proceedings, the court will terminate the proceeding. If there are assets left over, the proceeding is closed when the court rules on the distribution of assets to the creditors in accordance with the order of priority laid down by the Preferential Claims Act (1970:979).
If the debtor is a company or other legal person and the bankruptcy proceeding is concluded without a surplus, the legal person is dissolved at the end of the process. If there is a surplus, liquidation will occur with distribution to the creditors.Top
Last update: 06-06-2007