A bankruptcy estate may take action for the claw back of transactions that have been carried out in relation to a certain creditor before the initiation of bankruptcy proceedings, if such transactions have been adverse to the interests of other creditors. Certain transactions can be reversed during a five-year hardening period if the relevant creditor knew, or should have known, that the debtor was insolvent when the transactions were undertaken.
The Supreme Court recently decided that a claim for dismissal pay, based on an employment agreement having been entered into during reorganisation, constituted a super-priority claim in bankruptcy. The court concluded that a super-priority right exists if the claim is based on an agreement that the debtor entered into with the approval of the administrator during reorganisation.
The Court of Appeal recently ruled on a director's personal liability for corporate debt which arose after she had resigned from the board. Although the defendant had sold her company to an unknown person, thus knowingly allowing an undercapitalised company obliged to undergo liquidation to continue business, the court decided that she was not to be held personally liable for the debts in question.
Once a company reorganisation has been initiated, a number of parties will be affected, especially those which have previously entered into agreements with the company. The debtor's agreements are not affected by company reorganisation, meaning that both parties are bound by the agreement just as they were before the reorganisation was initiated.
When a company goes bankrupt in Sweden the landlord is one of the many parties affected. It is crucial that the landlord act as soon as the bankruptcy has been brought to its attention and request in writing that the bankruptcy estate provide, for example, a guarantee that the rent will be paid.
The Supreme Court recently found that Sweden has in accordance with the motive of the EU Insolvency Regulation. The court had to decide whether Sweden had jurisdiction over a recovery action involving a Norwegian defendant. It noted that a court in a member state where an insolvency proceeding has been opened also has jurisdiction over a recovery action against a defendant in another member state.
The Court of Appeal recently established that newly appointed directors were objectively liable for obligations which arose during a liability period. The court found that the directors had arranged an issue of new shares fully covering the company's equity shortage and had not acted negligently when the claim arose. The directors could therefore not be held personally liable and the claim was dismissed.
If a debtor is unable to pay its debts as they fall due, or will shortly become unable to do so, it may apply for company reorganisation, which grants undertakings with financial difficulties respite to take measures to improve their business and negotiate a judicial composition with creditors. The Wage Guarantee Act provides for a loan on a short-term basis that improves the debtor's possibilities to reorganise the business.
The Supreme Court recently clarified the interpretation of the rules on set-off in bankruptcy. The case concerned a creditor's right to offset a claim against the bankruptcy estate's claim of payment. The triable issue was whether the settlement agreement was to be considered as a substituted contract, meaning that the bankruptcy estate's claim had occurred after the date of bankruptcy.
The Supreme Court recently clarified the interpretation of the rules on lodging proof of debt in bankruptcy. The case initially concerned a situation where a creditor that had received an interim dividend failed to lodge its claim in the proof-of-claim procedure. Due to specific circumstances, the creditor was still entitled to a dividend. However, in different circumstances, the outcome could have been different.
The Companies Act states that directors can be held personally liable for all debts that arise after the equity of a company has fallen below 50% of the registered share capital. In such circumstances the board of directors has a duty to act in order to avoid personal liability. In a recent case the Court of Appeal had to consider how a new board of directors in a company with insufficient capital should act.
Chapter 2, Section 20 of the Company Reorganisation Act specifies how a debtor's existing contracts should be handled in a corporate reorganisation. Contracts are naturally an important asset for a company undergoing reorganisation. The primary aim of this rule is to facilitate reorganisation, but also to protect the debtor's counterparty against financial loss.
In recent years legal issues concerning state aid in company reorganisations have attracted much attention. One controversy to have arisen is over the question of the circumstances under which a write-off of state claims in a creditor arrangement within the framework of a company reorganisation constitutes a form of state aid, which is forbidden under EU law.
The Supreme Court recently delivered a decision regarding title retention of IP rights, ruling that a buyer of an IP right receives protection towards the seller's creditors through the agreement and that there is no need for a separate perfection measure. Therefore, by analogy, there is no need for a perfection measure in order to uphold a contractually valid termination given before the buyer entered into bankruptcy.
In response to the financial crisis, in 2009 the Swedish government introduced a scheme of temporary tax relief. During that year companies could apply for one year's respite with regard to the payment of payroll taxes relating to two months. It will soon be known whether companies which availed of the tax respite but are yet to repay their debts can survive, or whether the respite scheme merely delayed their bankruptcy.
If a buyer of chattels wishes to receive protection against the seller's creditors, Swedish law demands, in most cases, that a tradition of the property be executed. In order to be effective, the tradition must involve a change in possession of the right to dispose of the property. However, it has been argued that the principle of tradition should be repealed and replaced by the principle of immediate transfer of ownership.
The Company Reorganization Act has been criticized for its inconsistencies with the Bankruptcy Act and its failure to provide instruments with which to conduct successful reorganizations. A special investigator has now submitted a report to the Ministry of Justice that proposes a unified Insolvency Act in order to improve reorganization processes and their coordination with bankruptcy proceedings.
Under normal market conditions the administrator of a bankrupt credit institution, in order to create liquidity, would simply sell or transfer parts of the securities into bank paper. However, during the financial crisis this was deemed to be unsatisfactory. Therefore, the government has drafted a proposal to clarify the administrator's authority in such cases.
In 2004 the Right of Priority Act was extensively revised with the aim of creating conditions in which distressed companies could more easily recover. However, the changes led creditors to increase their demands for granting credit and the act has now been returned to a form similar to that before its 2004 revision.
The Company Reorganization Act sets out the procedure for commencing specific proceedings for the reorganization of undertakings which are experiencing difficulties in fulfilling their payment obligations. The instruments available under the act include debt rescheduling through judicial composition and government-funded wage guarantees to increase liquidity.