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.

Swedish Bankruptcy Law – Creditor’s Set-off Rights

A creditor who has a claim against the bankrupt is allowed to a set-off against a claim which the bankrupt may have against the creditor, provided – in general terms - that the claims are of the same type (e.g. that they are both claims for money) and that the creditor’s claim has arisen prior to the date specified in the bankruptcy decision as the prior date when the bankruptcy should be considered effective (“fristdag”).

Swedish Bankruptcy Law – Lodging of Creditors’ Claims

If the assets are sufficient for full or part payment to the creditors who do not have a preferential claim, a proof of claim procedure is initiated by the receiver, who then applies to the court for such a procedure to start. The court decides on whether to grant the application and also on the length of time the procedure will last, which must be at least four but no longer than ten weeks.

The court’s decision to start a proof of claim procedure will be published in the Official Swedish Gazette and in one or more newspapers in the applicable geographical area. The creditors will then be allowed to lodge their claims in writingwith the court.

Swedish Bankruptcy Law - Creditors

The creditors, except the creditor who applied for bankruptcy, are informed of the bankruptcy through the publication of the bankruptcy decision in the papers. The bankrupt is obliged to tell the receiver, the court and the Supervisory Office who the creditors are.

The receiver will protect the rights of creditors in the bankruptcy. He/she has the right to question creditors with a particular interest on important matters to the bankruptcy estate.

Swedish Bankruptcy Law - Bankruptcy Estate Inventory Deed

The receiver will, based on information from the bankrupt, prepare and present to the court a bankruptcy estate inventory deed showing the assets and liabilities of the bankrupt. Thereafter a meeting is held in the court and the bankrupt is obliged to declare under oath before the court that the deed is correct. Before this has taken place, the bankrupt, and the directors in the case of a company, may not leave Sweden without the permission of the court.

If a creditor has lodged the bankruptcy petition, he/she will be summoned to this court meeting.

Swedish Bankruptcy Law - Effects of the Initiation of Bankruptcy Proceedings (continued)

The bankrupt, and the directors in the case of a company, is obliged to cooperate with and provide information to the receiver, the court and the Supervisory Office (“Tillsynsmyndigheten”), which is a part of the Swedish Enforcement Authority (“Kronofogdemyndigheten”) and supervises the administration of the bankruptcy estate by the receiver.

Swedish Bankruptcy Law - Effects of the Initiation of Bankruptcy Proceedings

The bankrupt may not dispose of property which belongs to the estate and he is not entitled to engage in any business activities. If the bankrupt is a company all rights to represent the company transfer to the receiver upon the bankruptcy decision by the court. Thus, the bankrupt is not entitled to enter into any agreements, sell assets or pay debts belonging to the estate.

All the bankrupt's property is included in the estate in bankruptcy and must as far as possible be used to pay off the debts. Certain exemptions apply if the bankrupt is a natural person.

The receiver administers the bankruptcy estate. He/she will consider all of the creditors’ common rights and wind up the estate as quickly as possible and will take charge of the bankrupt's property, sell the assets and finally distribute the balance, if any, among the creditors in the order of preference set out in the Preferential Claims Act (1970:979) (“Förmånsrättslagen”).

Swedish Bankruptcy Law - Initiating Procedure

A debtor who is insolvent can be declared bankrupt. Insolvency is defined in the Swedish Bankruptcy Act (1987:672) as being unable to pay one’s debts in a proper manner where such inability is not temporary. This applies to natural persons as well as companies.

The bankruptcy application can be lodged by the debtor himself or by a creditor. The application should be lodged with the court where the debtor is resident, or in the case of a company, where the debtor is established. The court decides on whether to approve or disapprove the bankruptcy application and appoints at the same time an official receiver. The bankruptcy decision will be published in the Official Swedish Gazette (“Post- och Inrikes Tidningar”) and in one or more newspapers in the applicable geographical area.

Swedish Bankruptcy Law

As I received a question relating to Swedish Bankruptcy Law recently, I have decided to write a series of short posts on the Swedish bankruptcy rules.

Unfortunately, I cannot find an English translation of the Swedish Bankruptcy Act anywhere on the net. For those of you who understand Swedish I can give this link to the Swedish original text.