Swedish Law – SAAB Reorganisation

The Local’s latest SAAB news. It does not add very much to my latest post on the subject.

Swedish Law – SAAB Reorganisation

Three points to note:

1. The future custom duties problem of SAAB seems to be solved through an agreement between SAAB and the company ”Tullxperten”. The release of the material already held by the Swedish Customs is, however, still a problem to be solved.

2. The sub-suppliers of SAAB consider the agreement they were asked by GM’s company, GPSC UK Ltd, to enter as tough. GPSC UK Ltd offered to purchase the claims of the sub-suppliers on SAAB but to this purchase were tied some tough conditions.

3. Saab AB, the defence and security company, and the car manufacturer Saab Automobile AB are two different companies with unrelated ownership structures. Since 2000 Saab Automobile AB is 100 percent owned by General Motors and Saab AB is listed on the Stockholm Stock Exchange. For further information check Saab – one name, two different companies.

Swedish Law – Company Reorganisation - Company’s obligations

During the reorganisation the company has to provide the administrator with all financial information of significance in the reorganisation and shall comply with the administrator’s instructions regarding the way the company’s business shall be conducted.

The Company needs the consent of the administrator

• to pay debts incurred prior to the reorganisation decision by the court,
  
• to provide security for such debts,
  
• to incur new obligations and
  
• to transfer, pledge or grant any rights in property of material significance to the company’s business.

If the company fails to obtain the administrator’s consent this does not affect the validity of the company’s action.

It should be noted that the administrator may give his consent only where special cause exists.

Swedish Law – Company Reorganisation

Duties of the Administrator

The administrator is obliged to inform all known creditors of the company of the reorganisation decision within one week. Such information shall also include

• a preliminary schedule of the assets and liabilities of the company,
  
• the most recent balance sheet and any additional information required about the company’s financial position,
  
• the reasons for the payment difficulties and how the business activities of the company may be reorganised and
  
• information about the date of a creditors meeting set by the court in connection with the reorganisation decision.
  

The last mentioned court meeting shall be held within three weeks from the date of the reorganisation decision or, if it is an unavoidable necessity, a later date.

The Swedish Company Reorganisation Act requires the administrator to examine if the business activities of the company can be continued, in whole or in part, and, if so, how this can be achieved, and, finally, if it is possible for the company to obtain a composition with the creditors.

A plan which sets out the manner in which the goals of the reorganisation shall be achieved shall also be prepared by the administrator in consultation with the company.

What the act does not explicitly state is that the administrator, together with the management and board of the company, has to find ways to finance the continued activities and the possible composition with the creditors. Normally this is the major obstacle and less than 10 per cent of the Swedish company reorganisations are successful.

The administrator has to take these actions within a period of three months unless the court finds it necessary to prolong this period for additional periods of three months but no longer than one year.

Swedish Law – Company Reorganisation

Application and Court Decision
The application for reorganisation should be filed with the district court which has territorial jurisdiction over the company. The court will make a decision immediately if the application has been made by the company; normally on the day the application is filed. If the application is filed by a creditor, a court meeting to try the application will be held within two weeks.

If the court decides that a reorganisation shall take place, it will also appoint an administrator of the reorganisation and decided a date for a creditors meeting, which normally will be held within three weeks.

The decisions of the local court may be appealed to the applicable Court of Appeal, if permission is granted, and to the Swedish Supreme Court.

Swedish Law – Company Reorganisation – Administrator Appointed

As a very short update about the SAAB Automobile AB reorganisation I can tell you that the Swedish lawyer Guy Lofalk of Lofalk Advokatbyrå in Stockholm has been appointed administrator of the SAAB reorganisation by the City Court of Vänersborg.

The creditors meeting will take place in Vänersborg on April 6, 2009.

For further information about the SAAB reorganisation you may read this news item from The Local, "Sweden’s News in English".

Swedish Law – Reorganisation Requirements

I will in a couple of blog posts go in to more detail about the Swedish Company Reorganisation procedure. From the press coverage of the SAAB decision to avail itself of the Swedish reorganisation rules I note that some journalists do not seem to be very well informed of the content of the rules.

Requirements
Provided it could be assumed that a Swedish company will be unable to pay its debts due or that such a situation is likely to arise in the near future, a court decision to reorganise the company may be passed, unless there is no good reason to assume that the purpose of the Swedish Company Reorganisation Act will be achieved. A further requirement is, of course, that the company either itself applies for reorganisation or consents to an application made by a creditor.

It is thus a clear legal requirement that that there is some chance of a reorganisation succeeding. However, as long as the possibility of the reorganisation is not excluded there still is such a chance.

It should also be noted that the possibility of success will be looked upon at the meeting of the creditors held within three weeks from the court’s reorganisation decision, when the additional information about the situation in the company will be presented by the administrator.

Swedish Law – Company Reorganisation

In view of today’s decision by the Swedish car manufacturer SAAB, belonging to the General Motors Group, to apply for company reorganisation according to the Swedish Company Reorganisation Act (1996:764), in Swedish only, it may be interesting to provide some information about the Swedish company reorganisation procedure. I will follow up today’s short outline with more detailed blog posts later.

Short Outline of Procedure

1. The company applies to the court for reorganisation.

2. The court decides on the same day that the company shall be subject to reorganisation and appoints an administrator.

3. The administrator will investigate if the business activities of the company can be continued, in whole or in part, and, if so, how this can be achieved, and, finally, if it is possible for the company to obtain a composition with the creditors. The administrator’s findings will be presented in a reorganisation plan presented to the court and the creditors.

4. The payments of the company are suspended and require the consent of the administrator.

5. Only certain secured debts of the company can be enforced.

6. Claims in respect of salary or other remuneration, which have preferential status, are at least partly covered by a ‘salary guarantee’ according to the Swedish Wage Guarantee Act of 1992, in Swedish only.

7. The administrator informs the creditors within one week of the situation.

8. A creditors meeting is held at court within three weeks.

9. At the meeting the administrator normally presents a preliminary reorganisation plan setting out the manner in which the reorganisation can be achieved.

10. In more than 90 per cent of the cases no reorganisation is achieved and the company becomes subject to normal bankruptcy proceedings.

11. In less than 10 per cent of the cases the reorganisation procedure continues and turns into a creditor composition procedure under the Company Reorganisation Act. The court will decide to initiate a composition procedure provided at least 40 per cent of creditors representing 40 per cent of the total unsecured debt of the company agree to the composition.

12. Depending on the dividend, a majority of either 60 per cent or 75 per cent is required for the composition to be enforced.

Swedish Law – Aval

I was recently asked by a client what ”aval” or “avalize” meant. A foreign manufacturer had asked his customers for “avalized banker’s drafts”. From my legal studies – in a long distant past – I seemed to remember that it had something to do with guarantees of drafts or checks.

From the excellent Investopedia I obtained the following information:

What Does Aval Mean?
A guarantee added to a debt obligation by a third party who ensures payment should the issuing person default.

Investopedia explains Aval
The debt obligation could be a note, bond, promissory note, or draft. The third party providing the aval is usually a bank. Since avals can be forged, caution should be taken when accepting these notes. Banks usually only provide an aval to issuers with very good credit ratings.

The process of avalizing is performed mainly in Europe. In the United States, banks have restrictions as to what instruments may be provided an aval.


What Does Avalize Mean?
The act of having a third party (usually a bank or lending institution) guarantee the obligations of a buyer to a seller per the terms of a contract such as a promissory note or purchase agreement. The bank, by "avalizing" the document (usually "by aval" will be written on the document itself), acts as a cosigner with the buyer in the transaction.

Investopedia explains Avalize
To avalize means "to give one's accord". It is a rarely used but is an effective method of securing the rights of the receiving party in the transaction. This is an obligation that a bank will only take on with lucrative customers. It is seen as an act of good faith by both parties.


In Sweden you will find the rules about “aval” in the 4th chapter of the 1932 Draft Act and in the same chapter of the 1932 Check Act.

Swedish Law - Civil limitations/ "preskription"

The rules on civil limitation/"preskription" are found in the Swedish Limitations Act/"Preskriptionslag (1981:130)". I can not find any English translation of the act on the internet. It can be found as a part of "Swedish Commercial Legislation" available here.

The ordinary period of limitation in Sweden is ten years. However, the period of limitation for claims against consumers is three years, where the claim relates to goods, services or other commodities supplied by a manufacturer in the course of its business activities, for primarily personal use by the consumer.

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.