The current economic situation in Sweden is tough. Recession is a fact, due (among other things) to:

• high inflation;
• increasing interest rates;
• a weak currency; and
• moderate consumption.

During 2023, bankruptcies in Sweden have increased compared to recent years. In September 2023, the number of bankruptcies was 21% higher compared to September 2022. Sectors particularly challenged include construction, catering and retail, subject to several major restructurings and bankruptcies.

Many companies have received aid from the Swedish state during recent years in response to COVID-19 and the electricity crisis. Furthermore, many companies have received, and will receive, deferrals of tax payments. When tax deferrals expire, severe economic consequences are expected for a large number of the affected companies. It can be assumed that the number of bankruptcies and restructurings will increase as a result thereof, in combination with the weakening economy.

The legal framework governing bankruptcy is the Bankruptcy Act (1987:672).

In-court company restructuring is regulated in the Company Restructuring Act (2022:964). There is no specific regulation of voluntary out-of-court restructuring.

Voluntary and involuntary liquidation is regulated in the Companies Act (2005:551).

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

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

A company may enter into involuntary liquidation after a decision from the Swedish Companies Registration Office (SCRO) – for instance, if the company has failed to fulfil mandatory requirements (eg, regarding composition of the board) or failed to file its annual report. A company may also enter into involuntary liquidation after a decision from the court, in connection with a petition due to capital deficiency (see 10.1 Duties of Directors). 

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

Bankruptcy is a procedure for winding up an insolvent company. A bankruptcy estate represented by a trustee takes control, and realises the assets, of the company in order to distribute the dividend to the creditors. Bankruptcy may be a de facto way to restructure a business, by transferring the business to another company.

Swedish law does not contain an obligation to commence formal insolvency proceedings under certain circumstances (such as economic distress or insolvency). However, if the company continues the business during insolvency, the representatives may risk committing a criminal offence against creditors.

There is also a risk of personal liability for representatives in the case of capital deficiency. 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 thereafter 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 such 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 in principle not affect the risk of personal liability). 

A petition for bankruptcy may be filed with the court by a creditor. The creditor must provide evidence proving that it has a claim against the debtor and that the debtor is insolvent.

An application for restructuring may be filed with the court by a creditor (but restructuring will not be granted unless the company consents to the application).

As set out in 2.2 Types of Voluntary and Involuntary Restructurings, Reorganisations, Insolvencies and Receivership, the SCRO may place a company into involuntary liquidation.

Bankruptcy presupposes that the company 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.

A restructuring proceeding requires:

• that the company cannot pay its due debts;
• that such inability will occur in the short term; or
• that the company in some other respect has financial difficulties which entail a risk of insolvency (thus, the threshold is somewhat lower than for insolvency).

In addition, there must be clear grounds for believing that the viability of the business can be secured through restructuring (the “viability test”).

If a company states that it is insolvent or facing financial difficulties, such a statement is generally accepted by the court.

Insolvency is not a requirement for a liquidation. If a company is considered insolvent during liquidation, the liquidator is obliged to apply for bankruptcy.

The Banking and Financing Business Act (2004:297) incorporates specific provisions pertaining to banks and other credit institutions commencing restructuring, insolvency or voluntary liquidation proceedings. The Insurance Business Act (2010:2043) contains corresponding provisions in relation to insurance undertakings. Further, the Bank Recovery and Resolution Directive (BRRD) was implemented into Swedish law through the Resolution Act (2015:1016), which came into effect on 1 February 2016.

As a general rule, all types of legal entities are covered by the Company Restructuring Act. However, the act explicitly excludes application to:

• credit institutions;
• insurance undertakings;
• occupational pension undertakings;
• investment firms;
• clearing organisations;
• CSDs; and
• financial institutions or holding companies which are placed into resolution pursuant to the Resolution Act.

Further, the act does not apply to debtors in which the Swedish state, a municipality, a region or a municipal association has a controlling influence over the operations.

Swedish law does not provide a legal framework for voluntary out-of-court workouts or restructurings. All such arrangements must, in principle, be based on voluntary agreements.

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

The general view among market participants when it comes to large-scale cross-border restructuring is a preference for out-of-court restructuring. Such informal arrangements tend to preserve the value of the company for its stakeholders, compared to in-court restructuring and even more so compared to bankruptcy. The indirect “threat” of a formal procedure, involving several different proceedings and a plethora of jurisdictions, often works as a key to reaching a voluntary solution. A voluntary restructuring is also a more flexible way to reconstruct the business than through a formal restructuring (even though the Company Restructuring Act that entered into force on 1 August 2022 provides more flexibility and instruments than the previous Company Restructuring Act (1996:764)).

In general, banks, credit funds and other lenders are supportive of borrower companies experiencing financial difficulties, as long as the write-down of debts (whether through an out-of-court restructuring or in-court restructuring) is not major (generally, 20–30% is accepted; whereas creditors are more reluctant when it comes to a write-down of or above 50%). The approach from the creditors also depends on the type of business and the prospects of the company being successful in the long-term.

Representatives of a company may find it favourable to initiate an in-court restructuring (or bankruptcy), instead of an out-of-court restructuring, due to the risk of personal liability for taxes under the Tax Procedures Act (2011:1244). If a representative of a company, whether intentionally or through gross negligence, has not paid the company’s taxes, such representative may become jointly liable with the company for its unpaid taxes. The representative may avoid liability (for debts which have arisen before the restructuring that have not fallen due) by taking appropriate measures to settle the company’s liabilities by the due date, by filing a petition for in-court restructuring or bankruptcy (noting that an out-of-court restructuring is, in general, not an available action for avoiding joint liability).

Out-of-court restructuring is based on voluntary arrangements and, in general, does require the consent of, or co-operation with, creditors. It is common that only banks, credit funds and other lenders are part of the restructuring and debt-settlement; whereas unsecured creditors stand outside the restructuring. Standstill of payments and credit agreement default waivers are often agreed.

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

During a consensual restructuring, it is important for the company’s representatives to:

• adhere to applicable regulations regarding obligations to prepare a special balance sheet in the case of capital deficiency;
• ensure that payments of taxes are made in due time, in order to avoid personal liability;
• ensure that creditors are treated in an equal way; and
• ensure that transactions agreed are made at market terms, in order to not commit a crime against creditors.

New money is typically injected by large existing lenders, on the basis that these lenders retain their present claims/securities against the debtor. Issuance of new shares is a common way to raise 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, in contrast to in-court restructuring.

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

It is common that credit agreements with bondholders include a certain cram-down mechanism, whereby, for example, two thirds of the creditors can bind a minority of creditors to a debt settlement or to changed credit terms.

In informal restructuring, there is no legal cram-down mechanism in contrast to in-court restructuring. This is generally not considered a major obstacle to informal restructuring.

Creditors usually request securities in, for example:

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

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

Generally, no enforcement measures are permitted against the debtor during in-court restructuring. 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.

In bankruptcy, 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 and cash are exempt and may be sold immediately on an arm’s length basis. If the secured assets consist of shares in a subsidiary that is not listed, the bankruptcy estate must first be given the opportunity to redeem the shares.

See 4.2 Rights and Remedies.

Priority to payment among various classes of secured and unsecured creditors follows from the Rights of Priority Act. The priority for secured creditors is either special or general (the latter is only applicable in bankruptcy; see 5.5 Priority Claims in Restructuring and Insolvency Proceedings). It is noteworthy that the trustee’s fee and expenses (with a few exceptions) gets paid first from the assets in a bankruptcy, notwithstanding the Rights of Priority Act.

Special rights of priority may attach to, for example:

• maritime and aircraft liens;
• possessory liens;
• ship mortgages; and
• floating charges.

In principle, a special right of priority has precedence over a general right of priority.

Claims without priority (unsecured creditors) are treated as one group and have equal rights. These claims have priority to subordinated claims.

Unsecured creditors with claims that arose prior to the restructuring order will, in general, be treated equally. However, there is a possibility for dividing unsecured creditors into different subgroups that may be treated differently in connection with a restructuring plan. Unsecured creditors with claims which arise after the restructuring order are, as a main rule, entitled to full payment.

In bankruptcy, 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.

In restructuring, 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 closing of the proceedings. Their claims may be set down through a debt settlement as part of the restructuring plan. Unsecured creditors have limited possibilities for influencing a restructuring process.

In liquidation, there is no protection against bankruptcy or enforcement measures. Hence, unsecured creditors may disrupt the process.

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

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

The applicant must provide security for potential damage.

In bankruptcy, the trustee’s fees and expenses, as well as costs incurred by the bankruptcy estate, shall in principle be paid before any dividend to the creditors in the bankruptcy.

The following claims related to insolvency proceedings have a general right of priority to a dividend in bankruptcy:

• creditors’ costs for the bankruptcy application;
• prior administrator’s fee and costs;
• claims regarding new financing included in a restructuring plan; and
• claims based on agreements entered into with the consent of an administrator.

Thereafter, the following claims have a general right of priority:

• 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.

Claims with a specific right of priority take precedence over claims with a general right of priority (with some exceptions regarding floating charges and levy on execution).

Tax claims are unsecured claims.

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

The main commercial benefits of a restructuring are the following.

• Temporary respite for the company in order to reconstruct the business/obtain new financing, etc – 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.

Compensation to employees during restructuring is covered by the national wage guarantee to some extent, 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. Hence, the relief is only temporary.

Application

A restructuring is commenced by filing for a company restructuring order with the district court. An application may be submitted by the company itself or by a creditor (though this is unusual).

An application for restructuring may be granted only if:

• it can be presumed that the debtor cannot pay its due and payable debts or that such inability will exist within a short time, or
• the debtor, in some other respect, is having financial difficulties which entail a risk of insolvency; and
• there are clear grounds for believing that the viability of the business can be secured through the restructuring.

The debtor’s accounting records must be available in an orderly form.

Timeline and Closing of a Restructuring

A restructuring is intended to continue for a shorter period of time. The maximum period of time is 12 months, unless the court has ordered a plan negotiation prior thereto. In such case, the restructuring shall terminate not later than 15 months after the restructuring order. However, the protection against enforcement and bankruptcy will not be prolonged after the first 12 months even if the restructuring continues.

The court shall 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.

Restructuring Plan and Plan Negotiations

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

A restructuring plan shall 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;
• debt being converted 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 shall include information on whether the debtor requires any new financial support for the purpose of implementing the plan.

The company’s management retains its positions and responsibility for the company’s day-to-day operations and property during a restructuring, though under the direction/supervision of the administrator (see 6.7 Restrictions on a Company’s Use of Its Assets regarding approval).

As a general rule, during a restructuring the company is not allowed to pay debts that arose prior to the restructuring order (ie, “old debts”). Such debts will be paid after a debt settlement. New debts that arise after the restructuring order must, in general, be paid as they fall due (or in advance, if requested by the creditor).

It is often necessary for the company to obtain new financing in order to carry on the daily business, and to implement the restructuring plan. A party providing new financing included in a confirmed restructuring plan is entitled to the right of priority given to the financing party in the restructuring plan.

As a general rule, no enforcement measures are allowed against the debtor during a restructuring. A creditor’s petition for bankruptcy shall, upon request of the debtor, be stayed as long as the restructuring is pending.

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) shall be divided into groups, such as:

• creditors with a right of priority, security interest or right to set-off;
• 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 shall 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.

All creditors shall receive information from the administrator within a week from the restructuring order, including, for example:

• a list of assets and debts;
• information regarding the debtors’ financial status;
• the cause(s) of the economic difficulties; and
• how the business may be reconstructed.

A creditor’s meeting will be held before the court within three weeks of the restructuring order. The creditors shall be afforded an opportunity to be heard regarding whether the restructuring shall continue. Upon request of any creditor, the court shall appoint a creditors’ committee (consisting of at maximum three creditors). The administrator shall afford the committee an opportunity to be heard on all material issues during the restructuring.

Creditors have the possibility of attending meetings in the court (for instance, in connection with prolongation of the process and plan negotiations).

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 shall adjudicate if the plan is confirmed. 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 confirmed by the court under certain circumstances.

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

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

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

• perform or provide security for obligations which arose prior to the restructuring;
• assume new obligations which are not in the course of the 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) shall be rescinded if requested by the administrator.

The representatives of the company retain control over the business and assets of the company during restructuring, and hence will execute transfer agreements, for example. In order to transfer property of material significance in relation to the debtor’s business, the administrator must consent (see 6.7 Restrictions on a Company’s Use of Its Assets).

There is no hindrance to a creditor making a bid for assets or to them acting as a stalking horse in a sales process.

A purchaser may acquire title to the assets, but is (as with other parties) not protected from potential third-party claims or claw-back claims during the restructuring or in the case of a later bankruptcy (for example, if the purchase price is below market value).

It is, in principle, possible to effectuate a pre-negotiated asset sale, provided that applicable regulations regarding, for example, the administrator’s consent are duly complied with (if applicable).

In general, secured creditor liens and other security arrangements are not released during a restructuring.

The restructuring plan shall contain information regarding any potential new financial support that shall 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.

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.

Before the plan negotiation, it is possible for the administrator, the debtor or an affected party to object to claims and rights (for example, with regard to the amount or right of priority). Where the outcome of the vote is dependent on whether an objection to a claim or right is accepted, at the court meeting the court shall examine the issue in the dispute and work towards a settlement. If a settlement cannot be reached, the court shall adjudicate the objections.

If a restructuring plan has been adopted by the creditors, the court shall adjudicate whether the plan shall be confirmed. 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 have reasonable prospects of preventing the debtor from becoming insolvent or securing a viable business).

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

• the financial outcome for the affected party is worse due to the plan compared to 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 some otherwise special cause not to confirm the plan.

Such prejudicial reasons could, for instance, include:

• betrayal during the plan negotiation; or
• when the debtor has favoured a certain creditor in order to influence the voting.

From the date of the restructuring order, counterparties are not allowed to terminate contracts due to delay in payment or other performances if such occurred prior to the restructuring. The debtor may decide that an agreement shall 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 termination is, in general, considered to have arisen before the restructuring and hence will be subject to a debt reduction (unsecured claim).

Generally, a write-down of debt does not release non-debtor parties from liabilities.

A creditor does not forfeit its (full) right against the 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 shall, in general, naturally be deducted from the guarantor’s liability.

Generally, a creditor with a claim against the debtor which arose prior to the restructuring can exercise the right to set-off during the restructuring, provided that the principles for set-off are fulfilled. However, there are certain limitations – for example:

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

The court may upon request revoke a confirmed restructuring plan where the debtor has materially breached its obligations under the restructuring 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.

The Company Restructuring Act does not include any specific rights for owners. Equity owners’ claims are, in general, subordinated to the creditors’ claims (both secured and unsecured).

Bankruptcy

The purpose of a bankruptcy is to wind down the debtor’s business and distribute its assets (in cash) to the creditors.

An application is filed to the district court where the debtor is domiciled. The requirement for a bankruptcy order is that the company is insolvent (see 2.5 Requirement for Insolvency).

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 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 of the business.

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

Ongoing litigation 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).

Under certain prescribed circumstances, creditors have a right to set-off during the bankruptcy proceeding.

The bankruptcy estate will normally 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.

The trustee will prepare an estate inventory and state the value of assets and debts (if the value is unclear, the trustee shall state estimated values). 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 shall 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.

A bankruptcy may not be closed prior to the submission of the Bankruptcy Report.

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

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 have to 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).

The pros of a bankruptcy proceeding are that the bankruptcy order will end the period of liability for representatives regarding tax as well as liability related to capital deficiency. Furthermore, the business will be discharged from its debts (without approval of creditors) and may be transferred to a purchaser; and there is, in principle, no obligation to settle all the debtors’ commitments.

The cons of a bankruptcy are mainly the value destruction of the business/assets when sold in this context, the reputational damage and the costs and expenses of the trustee. In addition, representatives lose the control of the company, and the trustee will investigate:

• transactions that may be clawed back;
• value distribution;
• obligations in relation to capital deficiency; and
• criminal liability.

Additionally, guarantees provided by owners/representatives or group companies are, in general, not affected by a bankruptcy of the debtor.

Liquidation

Swedish law prescribes a process for winding up a (solvent) company through voluntary liquidation.

The general meeting of the company resolves that the company shall enter into liquidation and at what date the decision shall become effective. The resolution is registered by the SCRO.

A liquidation presupposes that the debtor is solvent (otherwise, the liquidator will file for bankruptcy).

The SCRO shall 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.

The liquidator shall 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.

There are no specific rules precluding contingent claims from being included in a liquidation.

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

The right for a creditor to set off during liquidation corresponds to what is applicable outside liquidation.

There is no stay of ongoing legal proceedings or protection against enforcement or bankruptcy.

The liquidation can be closed at the earliest after the notice period for unknown creditors has lapsed. After payment of all claims (including the liquidators’ fees) and termination/settlement of all liabilities, the liquidator shall distribute the remaining funds to the shareholder(s). After closing of the liquidation, the company will be dissolved.

The pros of liquidation are that the negative publicity related to bankruptcy does not occur, and value destruction is less.

The cons of liquidation are mainly that:

• the process may be more cumbersome, since all liabilities/obligations (as well as contingent liabilities and ongoing processes) must be settled;
• all claims must be paid in full or settled (which may result in the shareholders having to provide new funds); and
• liability for taxes and liability related to capital deficiency will not end.

In liquidation, the liquidator will negotiate and execute a sale of assets.

In bankruptcy, the trustee will negotiate and execute a sale of assets (after consultation with the supervisory authority and affected creditors).

The purchaser may acquire title, but conflicting third-party claims cannot be excluded regarding assets sold during liquidation or bankruptcy.

There is no hindrance to creditors bidding and acquiring the assets, or acting as a stalking horse in the sales process.

It is possible to effectuate pre-negotiated sales transactions following commencement of proceedings, provided that the trustee (in the case of bankruptcy) does not challenge the transfer. In Sweden, a buyer generally obtains protection against the sellers’ creditors first after fulfilment of a transfer of possession (hence, generally the agreement is not enough). 

In liquidation and bankruptcy, there is no appointment of a formal creditors committee.

However, in bankruptcy the trustee is obliged to consult with affected creditors regarding significant matters. 

As a member state of the European Union, Sweden recognises insolvency proceedings opened in other member states pursuant to Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on Insolvency Proceedings (the “EU Insolvency Regulation”).

Sweden, together with Norway, Denmark, Finland and Iceland, has also acceded to the Nordic Bankruptcy Convention. Sweden thus recognises insolvency proceedings commenced in the Nordic jurisdictions.

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. 

As a member state of the European Union, 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. See 8.1 Recognition or Relief in Connection With Overseas Proceedings.

See 8.1 Recognition or Relief in Connection With Overseas Proceedings.

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

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 Brussels I Regulation (Regulation 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters) and the Lugano Convention (Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters) 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 judgments may be enforced, such as default, interim and summary judgments, etc. 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 might be necessary to apply to a specific district court to have the judgment declared enforceable, which is called exequatur. In the exequatur proceedings, the district court will not reconsider the substantive aspect of the foreign judgment, although it does perform formal checks and thereafter declares the judgment enforceable, whereupon it can be enforced in Sweden corresponding to a Swedish judgment. If the district court has approved an application for a declaration of enforceability, the counterparty shall 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 shall refuse enforcement if there are obstacles to enforcement – for example:

• 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 right way or in sufficient time to prepare their defense; or
• if the judgment is contrary to 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 be carried out as a summary check of the foreign judgment in a Swedish legal action, which results in a (new) Swedish judgment based on the foreign judgment.

The various types of statutory officers and their appointments are as follows:

• in bankruptcy, a trustee is appointed;
• in restructuring, an administrator is appointed; and
• in a liquidation, a liquidator is appointed.

Bankruptcy

The responsibility of a trustee is to protect the creditors’ collective rights and best interests. The trustee assumes control of the property in the bankruptcy estate and takes measures which promote a beneficial and prompt winding-up of the estate. The trustee is the sole decision-maker, but has an obligation to consult with the supervisory authority and affected creditors. 

A trustee may be liable for damages in the case of losses caused, intentionally or negligently, in the performance of the trustee’s duties in relation to the bankruptcy estate, a creditor in the bankruptcy or the debtor.

Restructuring

The administrator is obliged to investigate whether the business as conducted by the debtor shall continue. The administrator shall assist the debtor in preparing a restructuring plan and shall otherwise perform the duties set forth in the Company Restructuring Act. The administrator is obliged to seek to ensure that the interests of creditors are not disregarded.

An administrator may be liable for damages relating to losses caused, intentionally or negligently, in the performance of its duties in relation to the debtor, a creditor or other affected parties.

Liquidation

A liquidator replaces the board of directors and the CEO and is responsible for the winding-up of the company. A liquidator may, in principle, be liable for damages under the same conditions as a director. The liquidator will report to the shareholders.

Bankruptcy

A trustee must possess particular insight and experience necessary for the task and must otherwise be suitable for the appointment. Individuals with a conflict of interest may not act as trustee.

The bankruptcy applicant may suggest an individual to be appointed as trustee. The court also has a list of individuals frequently appointed. The trustee is appointed by the court after a hearing of the supervisory authority. 

A trustee may be removed from the position if it is deemed unsuitable or resigns after its own request, in which case the court will immediately appoint a new trustee.

Restructuring

An administrator must fulfil the same requirements as for a trustee in bankruptcy, and must possess the trust of the creditors. Consideration is given to experience of managing continuing business as a trustee in bankruptcy. It is common for the company applying for restructuring to propose a certain individual. The administrator is appointed by the court, and may be removed from its position if it is deemed not suitable or if other reasons exist.

Liquidation

In involuntary liquidation, the SCRO usually appoints a lawyer from a list of practitioners who frequently accept appointment as a liquidator. In voluntary liquidation resolved by the general meeting of the company, a liquidator is often proposed by the company and subsequently appointed by the SCRO.

The person appointed as liquidator must be suitable for the appointment. 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 shall be removed if the liquidator is not suitable, or if some other reason to be removed exists. A liquidator may also be removed at its own request if a reason exists.

When a company is financially distressed or insolvent 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.

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 cause 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 shall 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 make certain that all taxes and fees are paid by the company when due. In the case of failure, the board members risk personal liability, jointly with the company, for unpaid taxes and fees.

Liability in Damages Under the Companies Act

A representative who, in the performance of its duties, intentionally or negligently causes damage to the company (or to a shareholder or others, under certain circumstances) may be liable to compensate for such damage.

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.

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 Criminal 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.

Trading Prohibition

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).

See 10.1 Duties of Directors.

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. Please find below some (non-exhaustive) examples of legal grounds for claw-back.

Under restructuring, the provisions of the Bankruptcy Act regarding claw-back shall be applied, provided that a restructuring plan which contains debt restructuring is thereafter confirmed. Claw-back measures shall be taken prior to the plan meeting, but may not be conclusively adjudicated before the restructuring plan has been confirmed.

Legal Grounds for Claw-Back

Undue transactions made later than five years prior to the bankruptcy filing date may be clawed back (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) may be clawed back 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) may be clawed back 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 may be clawed back. 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.

See 11.1 Historical Transactions.

Claw-back proceedings may be initiated both in bankruptcy and in restructuring (see 11.1 Historical Transactions).

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.