Thursday, March 26, 2009

Swedish Law – Company Reorganisation – Compulsory Composition (continued)

Only creditors whose claims arose prior to the application for company reorganisation may participate in composition proceedings.

A creditor whose claim may be satisfied through set-off or whose claim is subject to rights of priority may not participate in the proceedings. If a creditor has a subordinated claim, he is not allowed to participate in the composition proceedings, unless the other creditors who are participating in the proceedings should consent to this.

If a creditor waives its rights of set-off or priority, in whole or in part, the creditor may participate in the proceedings to a corresponding extent. It should be noted that a creditor may participate in the proceedings, even if his claim is not due and payable or is tied to certain conditions in order to be payable.

(to be continued)

Tuesday, March 24, 2009

Swedish Law – Company Reorganisation – Compulsory Composition

According to the old Composition Act of 1970 the creditors could be force to accept a composition provided a majority of the creditors voted for such a solution. The procedure under the old act was not part of a reorganisation procedure but a separate institute.

When the new legislation on company reorganisation was introduced in 1996 the old Composition Act was recalled and the composition procedure was integrated as a part of the new reorganisation procedure. It is, thus, no longer possible to obtain a forced composition outside the scope of a reorganisation.

Under normal circumstances and in order to be valid

  • the composition must provide all similarly entitled creditors with similar rights,
  • the composition must provide at least 25 percent of the amount of the claims, and
  • the prescribed minimum distribution shall be paid within one year following the composition order.

(to be continued)

Tuesday, March 17, 2009

Swedish Law – Company Reorganisation – Termination of Reorganisation

Before I go into the next steps in a successful company reorganisation, I find it appropriate to mention the situations where the reorganisation will be terminated by the district court. They are:

  • when the purpose of the reorganisation is deemed to have been achieved,

  • if the company requests a termination and a decision to proceed to composition has not been passed,

  • if the company fails to participate in the creditors’ meeting,

  • if the administrator or a creditor so requests and the purpose of the reorganisation is deemed not to be possible to achieve and

  • if a special cause otherwise exists for a termination.

As mentioned in an earlier blog post, the time period during which the administrator should finalise his action to achieve a reorganisation is three months from the date of the reorganisation decision by the court. In line with that, the court has a duty to terminate the reorganisation three months from that decision.

However, if special causes exsist, the court may prolong this period by additional periods, each time of a maximum of three months, but the total reorganisation period may not exceed one year.

Monday, March 16, 2009

Swedish Law – Company Reorganisation – Right to Set-Off (continued)

The first of the exemptions from the right to set-off mentioned in my last blog post covers claims on the company acquired from a third party later than three months prior to the date when the application for company reorganisation was filed. Such a claim may only be offset against a claim which the company possessed at the time at which the creditor acquired its claim, if the acquisition could be deemed as ordinary.

Also exempted are claims where the creditor has incurred liabilities towards the company under such circumstances as may be equated with payment other than by customary means of payment, but only to the extent such payment could have been the subject of recovery procedures according to the recovery rules in the Swedish Company Reorganisation Act (1996:764). These rules will be covered later as they are part of the provisions regarding judicial composition.

It should be noted that a claim of a guarantor or other person who has acquired a claim, because he has satisfied an obligation (right of recourse), shall be deemed to have been acquired at the time when the obligation of the guarantor or such other person arose and not at the later date when the claim was acquired.

If, after the date when the application for company reorganisation was filed, the company transfers a claim in such a manner that a creditor thereby loses its right to set-off, the company shall compensate the creditor.

Thursday, March 12, 2009

Swedish Law – Company Reorganisation – Right to Set-Off

The basic rule concerning right to set-off is that anyone who held a claim against the company when the application for company reorganisation was filed has the right to offset such claim against claims which the company had at such date against such person. The right to set-off applies even if the claim was not due and payable.

There are, of course, some exemptions to this basic rule and I will cover them in my next blog post.

Wednesday, March 11, 2009

Swedish Law – Company Reorganisation –Company’s Agreements (continued)

The provisions about what happens to the agreements of a Swedish company undergoing reorganisation apply even if the parties have agreed otherwise. Any agreement contrary to the rules in the Act is null and void.

It should also be noted that the provisions do not apply to employment contracts not to creditors holding financial instruments or currency as security.

Thursday, March 05, 2009

Swedish Law – Company Reorganisation –Company’s Agreements

If a party to an agreement with the company was entitled to terminate the agreement prior to the reorganisation decision due to actual or anticipated delay in payment or performance, such party is prevented from effecting such termination provided the company with the administrator’s consent demands within a reasonable period of time that the agreement shall be performed. The company is also obliged at the request of the other party to provide notice whether the agreement will be performed.

There are of course certain conditions that have to be fulfilled by the company.

• If the performance of the other party is due, the company shall, if so requested, perform its corresponding obligations.

• If the performance of the other party is not due, the other party is entitled to receive security for the company’s future performance to the extent this is required by special cause in order to protect the other party against loss.

If the company should fail to provide a notice when requested by the other party or fail to fulfil the conditions mentioned above, the other party is entitled to terminate the agreement.

Tuesday, March 03, 2009

Swedish Law – Company Reorganisation - Enforcement Measures during Reorganisation

During the reorganisation period no levy of execution or other enforcement measures may take place against the company with the exception of claims where the creditor has a possessory pledge right or a right of retention.

No decisions regarding provisional attachment (arrest) or payment security may be passed during the reorganisation period.

If there is a special cause to believe that the company is acting in a way that may jeopardise a creditor’s rights, the creditor may apply for and the court may pass such decisions as it deems fit to secure such rights.

Should a creditor apply for bankruptcy during the reorganisation period, the court should stay the bankruptcy proceedings if so requested by the company.

Swedish Law – Company Reorganisation - Creditors’ Meeting

As mentioned earlier a creditors’ meeting should be held within three weeks from the date of the reorganisation decision or, if it is an unavoidable necessity, at a later date. Such an unavoidable necessity seems to have caused the SAAB creditors’ meeting to be held on April 6, 2009, more than six weeks from the date of the reorganisation decision.

The administrator will present at the meeting the information available to him concerning the financial status of the company and normally also a preliminary reorganisation plan setting out the manner in which the reorganisation can be achieved.

At the meeting the creditors are given the opportunity to express their opinion about whether the reorganisation should continue or not, but no formal vote is taken. It is of course of the outmost importance for the success of the reorganisation, that a substantial majority of the creditors agree to continue as a majority is needed in order to carry through an official composition with the creditors; although only a 40 % majority is needed to lodge an application for composition.

The creditors are entitled to request the court to appoint a creditors’ committee at the creditors’ meeting. If such a committee has been appointed the administrator shall consult with the committee in all significant issues.

It should be noted that during the reorganisation period, any creditor has the right to apply to the court for a decision to stop the proceedings. The court will agree to such an application if the court determines that the purpose of the reorganisation cannot be achieved.