Bankruptcy

Lindahl is one of Sweden's leading law firms in insolvency law, with extensive and solid experience in bankruptcies. We act as bankruptcy trustees and are appointed in a variety of courts. Our lawyers have handled some of the largest bankruptcies in Swedish history.

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The bankruptcy process

A prerequisite for bankruptcy is insolvency, which means that a company or individual (hereinafter also referred to as "debtor") cannot pay their debts as they become due, and this inability is not merely temporary.

Placing a company into bankruptcy aims to liquidate the company and its assets through a consolidated process.

It is the district court in the location where the company is registered that decides on bankruptcy. An application to the district court can be made either by the company itself or by a creditor. In the case of a self-application for bankruptcy, the decision is made immediately, while an application from a creditor is examined more thoroughly by the district court after a bankruptcy hearing.

When the bankruptcy decision is made, the district court also appoints a bankruptcy trustee. In the bankruptcy application, it is possible to suggest who the district court should appoint as the bankruptcy trustee.

The role of the bankruptcy trustee

With the bankruptcy decision, the debtor loses the right to manage the business and assets, which are instead managed by the bankruptcy estate (a separate legal entity) represented by the bankruptcy trustee. Therefore, the trustee must promptly take control of the debtor's business and secure its assets following the bankruptcy decision. The trustee is also responsible for handling the debtor’s accounting records. During the bankruptcy, the company's representatives (board members and CEO) are obligated to provide the information about the company that the trustee requests.

If there are employees in the business, they are terminated by the trustee due to a lack of work. The trustee also decides on the state wage guarantee for the employees, providing them with significant financial protection in the event of bankruptcy. The wage guarantee is then paid out by the County Administrative Board.

The trustee must prepare an inventory of the company's assets and liabilities as of the bankruptcy date, including a list of the company's accounting materials. At a meeting with the trustee, the company's representatives must confirm that the inventory's contents are accurate. When an individual is in bankruptcy, it is, of course, that individual who must provide the confirmation.

No later than six months from the onset of bankruptcy, the trustee is also required to prepare a trustee's report. In this report, the trustee must, among other things, comment on why and when the company became insolvent. Based on a review of accounting and past business transactions, the trustee must also comment on whether the accounting obligations have been fulfilled and whether any actions in the company can be challenged under the rules on recovery according to Chapter 4 of the Bankruptcy Act or the return of unlawful value transfers according to Chapter 17 of the Companies Act. The trustee must also comment on whether the company’s management has committed any actions that could result in liability for damages. The report should also attempt to specify when the so-called critical capital shortage occurred, with the accompanying obligations for the board to prepare a control balance sheet, among other things.

In addition to the review work to be reported in the trustee's report, the trustee is also obligated to notify the Swedish Economic Crime Authority if there is reason to suspect accounting offenses or other economic crimes in the business. A very common reason for such notifications is the debtor's neglect of their accounting obligations in the period leading up to bankruptcy.

Realization of assets and distribution to creditors

The bankruptcy trustee is responsible for converting the debtor's assets into cash for the bankruptcy estate. Outstanding claims must be collected, and both real and personal property must be sold. It is not uncommon for the trustee to transfer the entire business, which is then taken over free of debts. All sales typically occur through some form of open auction process, although private sales also occur.

The funds thus acquired by the bankruptcy estate, after covering the costs of the bankruptcy, are to be distributed to the creditors. When distribution is considered and the debt relationships are not entirely clear, a formal claims verification process is held in the district court where creditors must register their claims. If a creditor fails to register their claim, they generally forfeit their right to distribution in the bankruptcy.

The distribution on creditors' claims is determined based on their position in the order of priority. Some creditors, therefore, have precedence over others. Creditors with special priority have secured their claims with specific assets, such as a pledge on a specific item or property, or through a floating charge on the company's operations (e.g., machinery, inventory, and receivables, but not, for example, bank funds). Additionally, there may be claims with general priority, such as auditors' and accountants' claims for payment for work performed within six months before the bankruptcy application. Most creditors, such as suppliers, landlords, and even the Swedish Tax Agency, lack priority, and their distribution is therefore usually very limited.

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Corporate restructuring

Corporate restructuring can be an alternative to bankruptcy when your company cannot pay its debts.

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