Swedish Bankruptcy Law – Employee Claims

An employment contract does not automatically terminate because the employer is declared bankrupt. The receiver has to decide whether or not to give notice of termination.

An employee’s salary claim is considered as a general preferential status. Unpaid salaries due within three months before and within one month after the bankruptcy decision have such preferential status. Claims in respect of salary or other remuneration, which have preferential status, are also at least partly covered by a ‘salary guarantee’ according to the Swedish Wage Guarantee Act of 1992. To the extent the assets of the bankrupt estate are not enough to cover these employee claims, the employees will be able to obtain a limited compensation from the Swedish Government.

Floating charges

The most common form of general preferential claims is a floating charge (“företagsinteckning”). It is a security which covers all business assets with certain exceptions e.g. liquid funds. However, creditors with a special preferential claim to a certain asset have, of course, priority before the holder of a floating charge.

For a couple of years the floating charge has been limited to only 55 per cent of the value of the assets to allow for an increased possibility of payment of non-preferential claims. On January 1, 2009 this will be changed and 55 will become 100 per cent again.

Swedish Bankruptcy Law – Preferential claims (claims with “förmånsrätt”)

Creditors who have a security with a special preferential claim are entitled to receive payment out of the assets of the bankruptcy estate so secured before other creditors. This may be the case, for example, where a certain asset has been pledged in security.

If a creditor has obtained an attachment by the Swedish Enforcement Authority (“Kronofogdemyndigheten”) of an asset, he has also a special preferential claim in such an asset.

Creditors who have a security with a general preferential claim are entitled to receive payment out of all the assets of the bankruptcy estate not covered by a special preferential claim before both creditors with lower preferential claims and creditors with no preferential claims. Non-preferential claims are treated equally in the distribution of the assets remaining after costs and preferential claims.