Insolvency 2024 Comparisons

The legal framework governing bankruptcy in Sweden is the Bankruptcy Act (1987:672). In-court company restructuring is regulated by the Company Restructuring Act (2022:964). There is no regulation of voluntary out-of-court restructuring. Voluntary and involuntary liquidation is regulated by the Companies Act (2005:551).

The Rights of Priority Act (1970:979) governs the ranking of secured and unsecured creditors.

Swedenhas a process for winding up (solvent) companies through (voluntary) liquidation.

A company may be put into involuntary liquidation following a decision by the Swedish Companies Registration Office (SCRO). This happens, for instance, if the company has failed to fulfil mandatory requirements (regarding composition of its board, for example) or has failed to file its annual report. A company may also be put into involuntary liquidation after a decision by the court in connection with a petition due to capital deficiency (see 7.3 Duties and Liability of Directors and Officers).

In-court company restructuring is a procedure whereby a company facing economic difficulties reconstructs its business under the guidance of an administrator in order to achieve long-term viability.

Bankruptcy is carried out to wind up an insolvent company. A bankruptcy estate, represented by a trustee, takes control and realises the assets of the company in order to pay its creditors. Bankruptcy may be a de facto way to restructure a business, by transferring it to another company.

Bankruptcy – Appointment of a Trustee

The bankruptcy applicant (debtor or a creditor) may put forward an individual to be appointed as trustee. The court also has a list of individuals frequently nominated. The trustee is appointed by the court after a hearing of the supervisory authority.

A trustee must possess the insight and experience necessary for the task, and must otherwise be suitable for the nomination. Where there is a conflict of interests regarding a specific appointee in relation to the debtor and/or creditors, that individual may not act as trustee.

The responsibility of a trustee is to protect the creditors’ collective rights and to act in their best interests. The trustee assumes control of the property in the bankruptcy estate and takes measures to facilitate a prompt and beneficial wind-up.

The trustee is the sole decision-maker, but has an obligation to consult with the supervisory authority and creditors. During a bankruptcy, the board of the bankrupt company has no authority to act.

Restructuring – Appointment of an Administrator

It is common for the company applying for restructuring to propose a specific person as administrator. The administrator is then appointed by the court.

An administrator must fulfil the same requirements as for a trustee in a bankruptcy, and must have the trust of the creditors. Consideration is given to experience of managing continuing business as a trustee in bankruptcies.

The administrator is obliged to investigate whether the business as conducted by the debtor will continue, and will assist the debtor in preparing a restructuring plan. The administrator is obliged to seek to ensure that the interests of creditors are not disregarded. During a restructuring, the board of the company undergoing restructuring is authorised to act on behalf of the company, but must, on certain matters, obtain the consent of the administrator (see 4.4 The Position of the Debtor in Restructuring, Rehabilitation and Reorganisation).

Upon request by a creditor, the court will appoint a creditors’ committee from among the creditors. The administrator will consult with the creditors’ committee on all significant issues.

Liquidation – Appointment of a Liquidator

In an involuntary liquidation, the SCRO usually appoints a liquidator from a list of experienced lawyers. In a voluntary liquidation resolved by the general meeting of the company, a liquidator is often proposed by the company and subsequently appointed by the SCRO.

A person who has been involved in the company’s management or who, through ownership, has exercised a controlling influence over the company, may be appointed as liquidator only where special cause exists.

A liquidator replaces the board of directors and the CEO, and is responsible for the wind-up of the company. The liquidator reports to the shareholders.

Priority to payment among various classes of secured and unsecured creditors is governed by the Rights of Priority Act. The priority for secured creditors is specific or general, although the latter is only applicable in bankruptcy.

Claims with a specific right of priority (relating, in general, to specific property), in principle, take precedence over claims with a general right of priority (which relates to all of the property in the debtor’s estate), although there are some exceptions regarding floating charges and levy on execution. Specific rights of priority have priority among themselves based on the consecutive order of the paragraphs of the Rights of Priority Act.

In bankruptcy, the trustee’s fees and expenses, as well as costs incurred by the bankruptcy estate, will, in principle, be paid before any dividend to the creditors in the bankruptcy, notwithstanding the Rights of Priority Act.

Specific Rights of Priority

Specific rights of priority may attach to, for example:

• maritime and aircraft liens;
• possessory liens;
• ship mortgages;
• floating charges;
• mortgages in real property; and
• levy on execution.

General Rights of Priority

The following are examples of claims that have a general right of priority:

• creditors’ costs for the bankruptcy application;
• administrator’s fee and costs in restructuring;
• claims regarding new financing included in a restructuring plan;
• claims based on agreements entered into with the consent of an administrator in a restructuring;
• claims based on auditing and bookkeeping services provided six months prior to the bankruptcy;
• claims regarding salary and pension, etc, during certain periods; and
• claims for contributions to pension schemes.

Unsecured Claims

Claims without priority (unsecured creditors) are treated as one group, and have equal rights.

Subordinate Claims

Fines, conditional fines and claims based on forfeiture or other special legal effect of a crime are subordinate to all other claims.

See 2.1 Types of Creditors.

Tax claims, as well as the rent arising from a lease agreement entered into before the bankruptcy, constitute unsecured claims.

The Land Code (1970:994) provides that if, following a bankruptcy order, a landlord requires the bankruptcy estate (of the tenant) to place the premises at the landlord’s disposal and the bankruptcy estate does not do so within one month, the bankruptcy estate will be liable for the rent from the bankruptcy date until such time as the premises is placed at the landlord’s disposal.

Creditors usually request security in the following cases:

• real estate mortgages;
• shares;
• receivables;
• bank accounts;
• intellectual property;
• insurance proceeds;
• other contractual rights;
• other valuable movable property; and
• floating charges.

In general, enforcement outside an insolvency procedure may take place in the manner set out in the security agreement, provided that the enforcing party does not foreclose the security by simply taking over ownership without accounting for its value. In the absence of an agreement on enforcement, the provisions of the Swedish Commercial Code (1736:1232) apply.

Payment Order and Seizure of Property

A creditor with an undisputed claim that has fallen due may apply to the Swedish Enforcement Authority (SEA) for a payment order (utslag i mål om betalningsföreläggande) to have the claim determined. The procedure at the SEA is a summary procedure that usually only takes a couple of weeks. The creditor may apply for enforcement of the payment order, after which the SEA may seize and sell property belonging to the debtor in order to satisfy the debt.

Pre-judgement Attachments

Provisional attachment is available awaiting a final judgment under the following conditions:

• the applicant shows probable cause for the claim;
• it can be suspected that the opposing party will dispose of property and evade payment of the claim; and
• the applicant provides security for potential damage.

Right to Withhold Performance (Stoppningsrätt)

If a contracting party is having financial difficulties and there are compelling reasons for presuming that they will not fulfil their obligations (anticipated breach of contract), the other party has the right to suspend completion or withhold performance. The party withholding performance will immediately notify the other party. Performance will continue if the defaulting party provides acceptable security for its performance or advance payment.

Possessory Lien (Retentionsrätt)

A creditor has a right to keep the debtor’s goods as security for the creditor’s claim under certain conditions – eg, that it does not conflict with general interests. In general, however, the creditor does not have the right to sell the goods in question. Retention of the goods must also be proportionate to the debtor’s breach of contract.

Retention of Title (Återtagandeförbehåll, Äganderättsförbehåll)

A seller may, by contractual provision, secure the right to retain the legal ownership and separate goods delivered to a buyer until full payment or other conditions are met. This type of provision is designed to protect the seller’s interests if the buyer defaults on payment or becomes insolvent. In order for a retention of title clause to be valid and enforceable (ie, to provide the seller with a right to separate the goods), certain conditions must be fulfilled. For example, the goods must be identifiable and separable from the buyer’s other goods, and that the buyer cannot to sell or otherwise dispose of the goods until payment has been made.

Set-off Right

A creditor has the right to set off a claim against the debtor against a counterclaim from the debtor under certain conditions, as follows:

• both parties must have claims against each other;
• the claims must be due and payable;
• the claims must be of the same kind (monetary claims or fungible goods);
• the claims must be clear and determinable (not subject to dispute); and
• there must be no legal or contractual prohibition against a set-off.

Voluntary Arrangements

Sweden does not have a legal framework for voluntary out-of-court restructurings. All such arrangements must, in principle, be based on voluntary agreements.

The general preference among market participants when it comes to large-scale, cross-border restructurings is for an out-of-court procedure. Informal arrangements tend to preserve the value of a company for its stakeholders compared to in-court restructuring, and even more so compared to a bankruptcy. The indirect “threat” of a formal procedure, involving several different proceedings and a plethora of jurisdictions, is often the reason the parties opt for a voluntary solution.

There are no requirements for informal restructuring or negotiations before formal restructuring or bankruptcy proceedings are initiated.

Cram-down Mechanism

In an in-court restructuring arrangement, it is common for credit agreements with bondholders to include a “cram-down” mechanism where, for example, two-thirds of the creditors can bind a minority of creditors to a debt settlement or to changed credit terms.

In an informal restructuring, there is no legal cram-down mechanism.

Informal Creditor Committees

Informal creditor committees are often part of consensual restructurings. These committees usually include representatives of the main creditors that are afforded insight into, and, to a certain extent, influence over, the restructuring process.

Generally, only banks, credit funds and other lenders are part of a restructuring and debt-settlement arrangement, with unsecured creditors standing outside the restructuring. Standstill of payments and credit agreement default waivers are often agreed.

New Money

New money is typically injected by large existing lenders on the basis that the lenders retain their current claims/securities against the debtor. Issuance of new shares is a common practice in raising money. There are no super-priority liens or rights to be awarded to new-money investors by way of law in out-of-court restructuring, while the opposite applies for in-court restructuring.

Duties on Creditors

There is no specific regulation that imposes duties to one another on creditors, the company or third parties. Out-of-court restructurings are based on voluntary agreements. However, general contractual principles may be applicable – eg, a duty to negotiate in good faith and culpa in contrahendo.

Out-of-court restructuring is based on voluntary arrangements and, in general, requires the consent of, or co-operation with, creditors, see 3.1 Out-of-Court Restructuring Process.

Application of the Company Restructuring Act

The Company Restructuring Act applies to businesses and tradesmen, and therefore essentially covers all types of legal entities (as well as natural persons conducting economic business, even if the restructurings are rare (see below)). Exceptions apply regarding, for example, credit institutions, insurance undertakings, occupational pension undertakings, investment firms, clearing organisations and central securities depositories. The Company Restructuring Act does not apply to debtors in which, for example, the state or a municipality has a controlling influence over operations.

There is a specific regulation for debt relief, the Debt Relief for Entrepreneurs Act (2016:676), for natural persons who are, or who have been, conducting business, either in the form of sole proprietorship or as a representative for a legal entity.

The Company Restructuring Act does not include any specific rules for corporate groups as such. Restructuring may be ordered for several group companies in parallel, with the same administrator being appointed for each entity, but will (in principle) comprise separate individual processes for each legal entity.

Application

A restructuring is commenced by filing for a company restructuring order with the district court where the debtor is domiciled. An application may be submitted by the company itself or by a creditor (although the latter is very unusual, and requires the consent of the debtor).

Formal Requirements

An application for restructuring may only be granted if:

• it can be presumed that the debtor cannot pay its due and payable debts, or that this will be a case in a short time; or
• the debtor, in some other respect, is having financial difficulties which entail a risk of insolvency;
• there are clear grounds for believing that the viability of the business can be secured through the restructuring (the “viability test”); and
• the debtor’s accounting records are available in an orderly form.

No Obligation to Commence Proceedings

There is no obligation under Swedish law to commence formal insolvency proceedings under certain specific circumstances, such as economic distress or insolvency (see 5.1 The Different Types of Liquidation Procedure).

General Purpose

The general purpose of an in-court restructuring is to provide companies that are fundamentally viable, but that are facing financial difficulties, with measures to reconstruct their business. The court supervises the formal steps of the restructuring, and an administrator is appointed to oversee the process.

The debtor is, in principle, prohibited from paying debts which have arisen prior to the restructuring, and there is a general protection against bankruptcy and other enforcement measures. Creditors will receive payment after the closing of the proceedings. Their claims may be set down through a debt settlement as part of the restructuring plan.

The main commercial benefits of a restructuring are the following.

• Temporary respite for the company in order to reconstruct the business/obtain new financing, for example:
1. protection against bankruptcy and enforcement measures;
2. standstill on performance of old debts/obligations; and
3. prohibition against termination of contracts with the debtor.
• Possible measures (both outside and in a restructuring plan) to address the debtor’s financial difficulties and to ensure long-term viability.

National Wage Guarantee

Compensation to employees during restructuring is covered to some extent by the national wage guarantee, thereby relieving the company of having to pay salaries during part of the restructuring. The compensation under this guarantee will, however, have to be paid back to the Swedish state after the closing of the restructuring, so this relief is only temporary.

Restructuring Plan

The administrator will, together with the debtor, prepare a restructuring plan that will contain the measures which are necessary to successfully address the debtor’s financial difficulties and to ensure that the business which the debtor conducts can be continued. Such measures are not limited by law and may include:

• write-down of debt;
• conversion of debt into equity;
• change of the board of directors;
• sale of all or part of the debtor’s business; and
• renegotiation of agreements, etc.

The plan will include information on whether the debtor requires any new financial support for the purpose of implementing the plan.

Plan Negotiations

In order to have certain measures determined by the court and thus be legally binding for the parties involved, the debtor may request that the court require negotiation regarding a restructuring plan. The parties will vote on the proposed plan.

Affected Parties and Division into Groups

Parties whose claims or rights are directly affected by the restructuring plan (for example, creditors whose claims are subject to a proposed write-down, as well as shareholders if a debt-to-equity swap is proposed) will be divided into groups, such as:

• creditors with a right of priority, security interest or set-off right;
• creditors with claims under public law;
• creditors with subordinated claims;
• creditors with unsecured claims; and
• shareholders or other parties who have an ownership interest in the debtor.

The groups may, in turn, be divided into subgroups to ensure that the creditors in each group have equivalent interests.

Parties in the same group will be treated equally (pro rata) based on their respective claims or rights, while different conditions may be proposed in respect of parties in different groups.

Creditors’ Meeting, Creditors’ Committee

All creditors will receive information from the administrator within a week of the restructuring order.

A creditors’ meeting will be held before the court within three weeks of the restructuring order. The creditors will be afforded an opportunity to be heard with respect to whether the restructuring will continue. Thereafter, they may attend meetings in the court (eg, in connection with extension of the process and plan negotiations).

Upon the request of any creditor, the court will appoint a creditors’ committee (usually consisting of three creditors). The administrator will give the committee an opportunity to be heard on all important issues during the restructuring.

Determining the Value of Claims

Before the plan negotiation, the administrator, the debtor or any party involved may object to any claims and rights (eg, with regard to the amount concerned, or right of priority). Where the outcome of the vote on the restructuring plan is dependent on whether an objection to a claim or right is accepted, at the court meeting the court will examine the issue in the dispute and work towards a settlement. If a settlement cannot be reached, the court will adjudicate the objections.

Dissenting Creditors, Cram-Down

A restructuring plan may include debt settlement affecting both unsecured and secured creditors, and may also include a debt-to-equity swap (affecting equity holders).

A restructuring plan can be adopted without the consent of minority creditors if, for each group, not fewer than two-thirds of the parties voting have approved the plan, provided that their claims or rights constitute not fewer than two-thirds of the claims or rights of the group. Where a restructuring plan has been adopted, the court will decide whether the plan is to be approved. Under certain circumstances, the court may deny a restructuring plan.

In addition to the above, a cram-down mechanism also exists. Even if the restructuring plan has not been adopted, it may, upon request, be approved by the court under certain circumstances.

Non-debtor Parties

Generally, a write-down of debt does not release non-debtor parties from liabilities. A creditor does not forfeit its (full) right against a guarantor that has taken on liability for the claim. Thus, a guarantor is not entitled to the same write-down of its liability as the debtor (if there is no contractual regulation to that effect). Nevertheless, payments of the debtor relating to the debt will, in general, naturally be deducted from the guarantor’s liability.

Agreements

From the date of the restructuring order, counterparties are not allowed to terminate contracts due to delay in payment or other requirements if these occurred prior to the restructuring. The debtor may decide that an agreement will be fulfilled, in whole or in part. The debtor may terminate long-term contracts subject to a three-month notice period. A counterparty’s claim for damages due to such termination is, in general, considered to have arisen before the restructuring and will therefore be subject to a debt reduction (unsecured claim).

Confirmation by the Court

If a restructuring plan is adopted by the creditors, the court will adjudicate over whether the plan is to be approved. Under certain circumstances, the court may deny a restructuring plan (for example, when affected parties in the same group are not treated equally, or when the plan does not offer reasonable prospects to prevent the debtor from becoming insolvent or secure a viable business).

The court may also deny approval after objection from a creditor if:

• the financial outcome for the affected party is worse in the plan scenario than in a bankruptcy;
• it would be prejudicial to the affected party in some other way;
• there is no satisfactory security for the implementation of the plan; or
• there is otherwise some special cause not to confirm the plan.

Such causes could, for instance, include:

• some kind of wrong-doing or deception during the plan negotiation; or
• the debtor favouring a certain creditor in order to influence the voting.

Timeline and Closing of a Restructuring

A restructuring is expected to take a fairly short period of time. The maximum period is 12 months, unless the court has ordered a plan negotiation beforehand. In this case, the restructuring will end not later than 15 months after the restructuring order. However, the protection against enforcement and bankruptcy will not be extended beyond the first 12 months, even if the restructuring continues.

The court will order the restructuring to terminate if, for example:

• the purpose of the restructuring is presumed to have been achieved;
• the debtor requests a termination and no order regarding plan negotiation has been issued;
• the administrator requests termination;
• it can be presumed that the purposes of the restructuring will not be achieved; or
• it would be unreasonable in respect of one or more creditors or groups of creditors for the restructuring to continue.

Failure to Observe the Terms of the Restructuring Plan

The court may, upon request, revoke an approved restructuring plan where the debtor has materially breached its obligations under the terms of the plan. The Company Restructuring Act does not include specific sanctions for a creditor or financier failing to observe the terms of the restructuring plan. However, general contractual principles regarding breach of contract may be applicable.

Continued Business

The company’s management retains its positions and responsibility for the company’s day-to-day operations and property during a restructuring, although under the direction/supervision of the administrator (see below regarding approval).

Approval by the Administrator

The company under reconstruction will, for instance, require the administrator’s approval in order to:

• perform or provide security for obligations that arose prior to the restructuring;
• assume new obligations that do not fall within the scope of day-to-day business; and
• transfer, pledge or grant any rights in property of material significance to the debtor’s business.

An action performed by the debtor without the administrator’s consent (where required) will be rescinded if requested by the administrator.

New Money During Restructuring

It is often necessary for the company to obtain new financing in order to carry on its daily business and to implement the restructuring plan. The restructuring plan will contain information regarding any potential new financial support that will be provided for the purpose of implementing the plan. A party providing new financing, which is included in a confirmed restructuring plan, is entitled to a general right of priority in the event of a later bankruptcy, to the extent and during the time stated in the restructuring plan.

Pledge of Property

The debtor’s property may be pledged as security for new loans, if approved by the administrator. In the case of pre-existing security for other creditors, only the excess collateral may be encumbered.

See 1.3 Statutory Officers.

Enforcement Measures

Generally, no enforcement measures are permitted against the debtor. Exceptions apply primarily with regard to chattel mortgages or rights of retention, provided that:

• it is unlikely that the restructuring will thereby be jeopardised; or
• the impact on the creditor would otherwise be unreasonably burdensome; and
• the realisation is approved by the administrator.

Unless the administrator has approved the enforcement, the enforcement act is invalid.

A creditor’s petition for bankruptcy shall, upon request of the debtor, be stayed as long as the restructuring is pending.

Set-Off Right

Generally, a creditor with a claim against the debtor which arose prior to the restructuring can exercise their set-off right during the restructuring, provided that the set-off conditions are met (see 2.4. Unsecured Creditors). However, there are limitations, for example:

• when the creditor has acquired a claim later than three months prior to the restructuring; or
• when the creditor had reason to believe that the debtor was insolvent when acquiring the claim.

Trading of Claims Against the Company

There is no prohibition on trading claims against a company undergoing restructuring. Certain limitations with regard to setting off may, however, be applicable. General rules regarding perfection of trade will apply, such as a requirement to notify the debtor regarding transfer.

Unsecured Creditors

Unsecured creditors with claims that arose prior to the restructuring order will, in general, be treated equally. Unsecured creditors are limited in their capacity to influence a restructuring process.

Unsecured creditors with claims that arise after the restructuring order are, as a general rule, entitled to full payment.

Shareholders’ Rights

The Company Restructuring Act does not include any specific rights for owners to be heard or to influence the process (as shareholders per se). Equity owners’ claims (shareholders’ contributions) are, in general, subordinated to the creditors’ claims (both secured and unsecured).

With regard to the shareholders’ ownership of the debtor, such ownership will in general continue to exist, unless, for example, a debt-to-equity swap is proposed in the restructuring plan. In this case, the shareholder will be considered an affected party and have the right to vote regarding adoption of the plan.

Bankruptcy

An application for bankruptcy will be filed with the district court where the debtor is domiciled, and can be filed by either a creditor or the debtor itself. The bankruptcy procedure applies to both legal entities and natural persons.

Requirement of Insolvency

The requirement for a bankruptcy order is that the debtor is insolvent. If the application is made by a creditor, the creditor must provide evidence that it has a claim against the debtor and that the debtor is insolvent.

According to the Bankruptcy Act, a debtor is deemed insolvent when it is unable to pay its debts as they fall due, provided that the inability is not merely temporary. The definition of insolvency includes not only situations of “actual insolvency” (ie, when the company already has unpaid debts), but also situations where there is a risk that the company will, within the foreseeable future, become unable to pay its debts as they fall due. To assess whether a company is insolvent, a forecast with regard to cash flow, potential new financing and future obligations is needed. The Bankruptcy Act contains presumption rules for insolvency in the case of an application by a creditor.

No Obligation to Commence Insolvency Proceedings

There is no obligation under Swedish law to commence formal insolvency proceedings under certain specific circumstances, such as economic distress or insolvency. However, if the company continues its business during insolvency, the representatives may risk committing a criminal offence against creditors, see 7.4 Other Consequences for Directors and Officers.

There is also a risk of personal liability for representatives in the event of capital deficiency (see 7.3 Duties and Personal Liability of Officers). If the company’s equity falls below one half of the registered share capital, the representatives have an obligation to immediately prepare a special balance sheet for liquidation purposes, and to then ensure that a series of measures are carried out. If these rules are not adhered to, personal liability for obligations incurred by the company after this failure to act may arise. A measure for avoiding personal liability is, for example, to petition the court for a liquidation order or bankruptcy (an application for restructuring does not, in principle, affect the risk of personal liability). 

Liquidation

Swedish law prescribes a process for winding up a (solvent) company through voluntary liquidation. The liquidation process for limited liability companies is regulated by the Companies Act.

It may be noted that liquidation of partnerships is handled by the partners themselves, in general without an appointed liquidator, and the liquidation is closed after an agreement on the distribution of assets has been signed. 

With regard to limited liability companies, the general meeting of the company resolves that the company will enter into liquidation and the date on which the decision will become effective. The resolution is filed with and registered by the SCRO.

It is not a formal requirement, but a liquidation pre-supposes that the debtor is solvent (otherwise, the liquidator will file for bankruptcy).

Bankruptcy

A court-appointed trustee replaces the management of the debtor and is the (sole) decision-maker in relation to all aspects of the bankruptcy estate. The board of directors is not authorised to act for the company after the bankruptcy order.

In bankruptcy, there is no appointment of a formal creditors’ committee. However, the trustee is obliged to consult with affected creditors regarding significant matters. 

Continued Business

The business of the debtor may be continued after a bankruptcy decision under the control of the trustee, though generally only for a shorter period before a sale or closedown of the business.

Employees will, under certain conditions and limitations, receive payment for salaries, etc from the Swedish state under the national wage guarantee.

Existing Agreements

The bankruptcy estate may argue for a right to enter into the bankrupt company’s agreements and demand fulfilment, or to not enter into the contract, in which case the contracting party will, in principle, have an unsecured claim (for example, damages) in the bankruptcy.

Estate Inventory, Confirmation Under Oath, and Bankruptcy Report, Etc

The trustee will prepare an estate inventory and state the value of assets and debts.

The directors of the debtor will have to submit a confirmation of the estate inventory at an estate inventory meeting or at the district court (both under oath).

Within six months from the bankruptcy decision, the trustee will submit a Bankruptcy Report to the court. Such report shall include information regarding:

• the economic situation in the bankruptcy estate;
• the reason and time for the debtor’s insolvency;
• a summary of the debtor’s assets and debts;
• information on transactions that may be clawed back;
• whether there are reasons to believe that the debtor’s equity is/has been less than one half of the registered share capital;
• whether the debtor has paid out any dividend in breach of the Companies Act; and
• whether the debtor’s accounts were in order according to law.

The trustee has an obligation to investigate if any criminal offences have been committed and to notify the public prosecutor.

Liquidation

The SCRO will appoint a liquidator (which may be an individual proposed by the company). The liquidator will replace the former representatives of the company and assume control of the company. In liquidation there is no appointment of a creditors’ committee.

Summons to Unknown Creditors

The liquidator will immediately apply to summon the company’s unknown creditors pursuant to the Notice to Unknown Creditors Act (1981:131). Notice to unknown creditors is issued by the SCRO and requires the creditors to file a written notice of their claims not later than six months after the date of the notice.

Winding Up the Business

The liquidator will wind up the company’s business. The business may be continued for a certain period of time if required for the winding up or to afford the employees a reasonable time to secure new employment.

The liquidator will prepare an annual report for each financial year the liquidation continues, to be presented at an annual general meeting.

Bankruptcy

When all assets of the bankruptcy estate have been converted into cash, the bankruptcy can be completed, either with or without a dividend to the creditors.

In bankruptcies where unsecured creditors will receive a dividend, a claims proceeding in court is usually held. The creditors must lodge their claim with the court within a certain time period, whereafter the trustee and other creditors may object to such claims. A reconciliation meeting may be held in court. If objections are not settled, the disputed claim may be decided upon by the court after a full-scale proceeding.

The trustee will prepare a dividend proposal to be adopted by the court, whereafter payments of dividends will be made to the creditors.

After closing of the bankruptcy, the debtor will be dissolved (if the debtor is a legal entity).

Liquidation

The liquidation can be closed at the earliest after the notice period for unknown creditors has lapsed.

After payment of all claims (including the liquidator’s fees) and the termination/settlement of all liabilities, the liquidator will distribute the remaining funds to the shareholder(s).

The liquidator will prepare a final report on the management of the liquidation, including a description of the distribution of assets and accounting documentation. After closing of the liquidation, the company will be dissolved.

If it is noted during the liquidation procedure that there are insufficient funds to pay the debts, including the liquidator’s fees, the liquidator must apply for bankruptcy.

Bankruptcy and Prohibition Against Execution

During bankruptcy, property belonging to the debtor may not, in principle, be attached for claims against the debtor.

Ongoing Legal Proceedings

Ongoing legal proceedings will not automatically be stopped after a bankruptcy order. With regard to proceedings concerning property which belongs to the bankruptcy estate, the bankruptcy estate may choose to:

• enter into the proceedings (in which case the bankruptcy estate will be liable for litigation costs); or
• notify the court that it will not enter into the proceedings (in which case the property shall be deemed to not belong to the bankruptcy estate).

Where an action is brought against the debtor, the bankruptcy estate may join the litigation as a co-party with the debtor (though this is uncommon).

Right to Separate Goods

A creditor has a right to separate goods in the possession of the debtor, provided that the creditor:

• has legal title to the goods (for example commission, consignation, retention of title);
• that the goods are specialised (non-fungible assets, even if exceptions may apply); and
• that the goods are identifiable (among the debtor’s other goods of similar kind). 

Right to Withhold Performance (Stoppningsrätt) and Possessory Lien (Retentionsrätt)

A creditor generally also has a right to withhold performance and may have a possessory lien during bankruptcy, see 2.4. Unsecured Creditors.

Right to Set-Off

The creditor’s right to set-off in a debtor’s bankruptcy is essentially similar to the right to set-off during reconstruction, with some exceptions. In addition to general principles regarding right to set-off, see 2.4 Unsecured Creditors, the following principles apply:

• both claims must have occurred prior to the bankruptcy order;
• if a creditor has both prioritised and unprioritised claims, the creditor can choose to set off against either the prioritised or an unprioritised claim;
• set-off can be executed with a claim that has not fallen due; and
• the set-off right does not, in principle, apply if the creditor has acquired a claim later than three months prior to the application for bankruptcy, or if the creditor had reason to believe that the debtor was insolvent when acquiring the claim.

Unsecured Creditors

Unsecured creditors will (if funds are available) receive a dividend in connection with closing of the bankruptcy. Unsecured creditors cannot disrupt or stop the bankruptcy process.

Secured Creditors

A secured creditor which has possession over the security assets may carry out a sale of the assets without the involvement of the trustee. However, unless the trustee consents otherwise, the sale may not occur earlier than four weeks from the day of the meeting for the taking of oaths in the bankruptcy.

The creditor must notify the trustee at least one week prior to the sale, thereby giving the bankruptcy estate the opportunity to redeem the pledged property. However, pledged financial instruments (with some exceptions) and cash are exempt and may be sold immediately on an arm’s length basis.

Shareholders

Shareholders do not have any special rights in bankruptcy, or any means to interrupt the process. After a completed bankruptcy, the company is dissolved, which means that there is no remaining value for the shareholder.

Liquidation

There is no stay of ongoing legal proceedings or protection against enforcement or bankruptcy. Therefore, unsecured creditors may disrupt the process. A creditor’s right to set-off during liquidation corresponds to that which is applicable outside liquidation.

See 6.2 Jurisdiction–6.5. Co-ordination in Cross-Border Cases.

Sweden is a member state of the European Union (the “EU”). Within the EU (except Denmark), jurisdiction is determined in accordance with the Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on Insolvency Proceedings (the “EU Insolvency Regulation”). As a main rule, the courts of the member state in whose territory the centre of the debtor’s main interests (“COMI”) is situated shall have jurisdiction to open insolvency proceedings (so-called main insolvency proceedings). In the case of a company, the place of the registered office is presumed to be the COMI. If the COMI is situated within the territory of one member state, the courts of another member state still have jurisdiction to open so-called territorial or secondary insolvency proceedings against the debtor if it possesses an establishment within the other member state. The effects of these proceedings are restricted to the assets of the debtor situated in the territory of the other member state.

When the EU Insolvency Regulation is not applicable, whether and which Swedish courts (or agencies) have jurisdiction depends on the applicable provision in Chapter 10 of the Code of Judicial Procedure. Generally, Swedish courts have jurisdiction if the debtor is domiciled (eg, has a registered office) in Sweden. Swedish courts may also have jurisdiction if the debtor has assets in Sweden, but the effects of such proceedings are limited to the assets of the debtor located in Sweden.

If Swedish courts have jurisdiction to open a restructuring or insolvency proceeding, Swedish restructuring and insolvency law generally applies to the restructuring or insolvency proceeding at hand. Swedish law therefore determines the conditions for the opening of these proceedings, their conduct, and their closure.

It should be noted that the law applicable to the relationships between the debtor and creditors or counterparties is not, in itself, affected by the existence of insolvency or restructuring proceedings. The law applicable to these relationships is therefore normally determined by the general rules of private international law. For example, foreign law may be applicable to third parties’ rights in rem or employment contracts and relationships.

Recognition of Restructuring or Insolvency Procedures

As a member state of the EU, Sweden recognises insolvency proceedings opened in other member states (except Denmark) pursuant to the EU Insolvency Regulation.

Sweden is also a party to the Nordic Bankruptcy Convention, together with Norway, Denmark, Finland, and Iceland. Sweden thus recognises insolvency proceedings commenced in the Nordic jurisdictions. It should be noted that, in relation to insolvency proceedings in Finland, the EU Insolvency Regulation takes precedence over the Nordic Bankruptcy Convention.

Additionally, Sweden has numerous bilateral agreements with other countries which may include recognition of insolvency and restructuring proceedings. However, Sweden has not adopted the UNCITRAL Model Law on Cross-Border Insolvency. In the absence of an applicable multilateral or bilateral agreement, foreign restructuring or insolvency proceedings are generally not recognised in Sweden.

It should be noted that in the case of foreign proceedings from outside the Nordic countries or the EU, it may often be unclear whether the proceedings in question are to be regarded as restructuring or insolvency proceedings or rather as civil and commercial matters. If they are considered a civil matter, and not restructuring or insolvency proceedings, the treaties and conventions described in the section below will apply instead.

Enforceability of Foreign Judgments

A foreign judgment may, as a main rule, only be recognised and enforced under Swedish law if there is a treaty or a convention in place allowing for recognition. For example, the Regulation 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the “Brussels I Regulation”) and the Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the “Lugano Convention”) are both applicable in Sweden. Hence, judgments delivered within the EU or in Iceland, Norway, and Switzerland are recognised and enforceable in Sweden.

In addition, Sweden is bound by the Hague Convention of 2 July 2019 on the recognition and enforcement of foreign judgments in civil or commercial matters, as a result of accession by the EU. The Convention entered into force on 1 September 2023 and applies to the recognition and enforcement in one contracting state of a judgment in civil or commercial matters given by a court in another contracting state. Sweden is also a party to other conventions which allow the recognition and enforcement of judgments within certain specific areas of law. Foreign judgments may also be enforced in Sweden pursuant to agreements with other countries, such as between the Nordic countries.

Generally, all types of judgments may be enforced, including default, interim, and summary judgments. Judgments not conforming to basic principles of the Swedish legal system might be declared unenforceable with reference to ordre public.

Some judgments from EU member states or Nordic countries are directly enforceable in Sweden. For other judgments, it may be necessary to apply to a specific district court to have the judgment declared enforceable, a process known as exequatur. In the exequatur proceedings, the district court does not reconsider the substance of the foreign judgment, although it does perform formal checks and then declares the judgment enforceable. Thereafter, the foreign judgment can be enforced in Sweden in the same way as a Swedish judgment. If the district court has approved an application for a declaration of enforceability, the counterparty will be notified of the decision and given the opportunity to apply for an amendment thereof. After an application for amendment has been made, the court must consider whether enforcement should be refused. The court will refuse enforcement if there are obstacles to enforcement, such as:

• if the enforcement is contrary to Swedish public policy;
• if the defendant in a third-party judgment or equivalent has not been served with the summons in the correct manner or in sufficient time to prepare their defence; or
• if the judgment is in conflict with a judgment between the same parties in Sweden.

Moreover, as an exception to the main rule, it is possible to recognise a foreign judgment if there is a prorogation agreement to a foreign court (provided that the recognition is not in violation of Swedish public policy). In such case, the recognition would take the form of a summary check of the foreign judgment in a Swedish legal action, resulting in a (new) Swedish judgment based on the foreign judgment.

As a member state of the EU, Sweden adheres to the EU Insolvency Regulation, which includes certain arrangements for member state courts to co-ordinate proceedings. Sweden also adheres to the Nordic Bankruptcy Convention’s rules on judicial co-operation and co-ordination.

Foreign creditors are dealt with in the same manner as domestic creditors.

See 7.2 Personal Liability of Directors–7.4. Other Consequences for Directors and Officers.

Liability in Damages Under the Companies Act

A representative who, in the performance of their duties, intentionally or negligently causes damage to the company (or to a shareholder or others, under the condition that the Companies Act, applicable annual reports legislation or the articles of association have been violated) may be liable to compensate for such damage.

The board of directors has an obligation to act in the best interests of the company. However, the interest of the company is considered equivalent to the interest of the shareholders. This means that the shareholders, by issuing a certain instruction or acceptance, can prevent a measure from being considered a damaging act. 

Individual Liability

The liability for the board of directors is individual and not collective. An assessment based on a certain standard of care shall be carried out, where division of responsibility can be taken into consideration, which means that one or several of the directors may be held liable whereas others may not be liable. However, it should be noted that it is, in principle, not possible for a director to avoid liability simply by delegating responsibility to employees, unless followed up in an adequate way.

The damages may be adjusted in accordance with what is deemed reasonable having considered the nature of the act, the extent of the damage and the circumstances in general. If several persons are liable for the same damage, they shall be jointly and severally liable insofar as the liability for any of them is not adjusted.

Possibility to Bring Claim

Claims regarding damages to the company may be brought by the company (or the bankruptcy estate) as well as by shareholder(s) in the name of the company.

Duties in the Event of Financial Distress

When a company is financially distressed and the business is nevertheless carried on, there are special rules for the board of the company to consider in order to avoid personal liability for the company’s debts, criminal liability, liability for damages, etc. see 7.4 Other Consequences for Directors and Officers.

Personal Liability Due to Capital Deficiency

In the event a company’s equity decreases below one half of the registered share capital, the board of directors has an obligation to ensure that a series of measures are carried out.

The board has an obligation to immediately prepare and request the auditor to review a balance sheet for liquidation purposes. If the balance sheet demonstrates that the company’s equity is less than one half of the registered share capital, the board must convene an (initial) general meeting to consider whether the company will enter into liquidation or decide to use a time respite of eight months in order to restore the equity.

In the case of failure to act in accordance with the rules, board members risk personal liability, jointly with the company, for obligations incurred by the company during the period of such failure to act.

Creditors with debts incurred during the relevant period may initiate proceedings against director(s) for personal liability.

Personal Liability due to Shortage After Value Distribution

If a value distribution (for example, new debt or security that is not commercially viable) is executed in breach of the salient provisions of the Companies Act (ie, protection of restricted equity and the prudence rule) restitution obligations for the recipient party may arise, as well as deficiency liability for the board or other parties involved (where the recipient is unable to effect restitution).

Personal Liability for Taxes

The board must ensure that all taxes and fees are paid by the company when due. In the absence thereof, the board members risk personal liability, jointly with the company, for unpaid taxes and fees.

Criminal Liability for Directors

When business is carried on during insolvency (or, in some circumstances, risk of insolvency) directors may be liable for a criminal offence according to the Penal Code (1962:700) – for example, for:

• improper favouring of a creditor;
• negligence to creditors; and
• dishonesty to creditors, etc.

The directors may be liable for damages against the company (as well as against other persons affected) based on such criminal offence(s).

Trading Prohibitions

A director that has committed a criminal offence and has grossly breached their obligations in commercial activities may be prohibited from conducting business, according to the Trading Prohibition Act (2014:836).

Historical Transactions

In bankruptcy, the trustee has an obligation to investigate transactions that may be clawed back and to pursue such claims if considered to be for the benefit of the bankruptcy estate.

Claw-back proceedings may be initiated within one year from the bankruptcy order, or six months from the date on which the bankruptcy estate became aware of the reason pertaining thereto.

Under restructuring, the provisions of the Bankruptcy Act regarding claw-back will be applied, provided that a restructuring plan which contains debt restructuring is thereafter confirmed. Claw-back measures will be taken prior to the plan meeting, but may not be conclusively adjudicated before the restructuring plan has been confirmed. Claw-back during restructuring is uncommon, mainly because the administrator risks being liable for the litigation costs.

Legal Grounds for Claw-Back

Non-exhaustive examples of legal grounds for claw-back are as follows.

• Undue transactions made later than five years prior to the bankruptcy filing date (for example, favouring a particular creditor at the expense of other creditors, withholding the debtor’s property, increasing the debtor’s debts), under the condition that the debtor was, or became, insolvent and the other party acted in bad faith. For closely related persons, a presumption of bad faith applies, and transactions made prior to five years from the bankruptcy may be recovered.
• Payment of debts made later than three months prior to the bankruptcy filing date (two years for closely related persons), if the debts are paid through a non-customary form of payment, prematurely or in an amount which significantly diminishes the debtor’s financial position, unless the payment is deemed ordinary.
• Security provided later than three months prior to the bankruptcy filing date (two years for closely related persons), if it was not conditional at the time the debt arose or was not provided without delay – unless it can be deemed customary.
• Gifts perfected later than three months prior to the bankruptcy filing date. Gifts perfected prior thereto, but later than one year prior to the filing date (three years for closely related persons), may also be affected, unless it is proven that the debtor retained property which clearly corresponded to the debt. Claw-back is also applicable regarding a transaction where, in view of lack of mutuality of consideration, it is in part considered a gift.

Other Grounds for Challenging Transactions

It should be noted that a trustee may also challenge a transaction based on, for example, contractual grounds, such as that no agreement has been entered into or that the agreement is invalid.

Proceedings Regarding Claw-Back

A claim regarding claw-back during bankruptcy is, in general, initiated by the trustee. If the trustee does not initiate claw-back, a creditor may claim claw-back to the bankruptcy estate (though this is uncommon). Furthermore, it is possible, though uncommon, for creditors to fund or provide a guarantee for litigation costs for the bankruptcy estate to pursue a claim.

In restructuring, an action for claw-back may be brought by the administrator or by an affected party.

Result of a Successful Claw-Back Claim

The general principle following a successful claim regarding claw-back is that the transactions shall be rescinded so that the original situation is restored. Thus, the property that is the subject of the claw-back claim shall be returned to the bankruptcy estate and any consideration paid to the debtor will be compensated by the bankruptcy estate. In case of claw-back regarding payment of a debt, the creditor’s claim in the bankruptcy will be re-established.

In case the property no longer exists or is not in the possession of the claw-back defendant, compensation will be paid representing the monetary value thereof.