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11 June 2010
In July 2007 a special investigator received a mandate from the Ministry of Justice to come up with suggestions on how to improve the processes of company reorganization and coordinate them better with bankruptcy proceedings. The investigator was also asked to consider the issue of debt reduction for over-indebted entrepreneurs with personal liability for debts accrued through their business activities. The investigator was also mandated to consider a proposal for lifting the ban on the recovery (ie, claw-back) of taxes and tax-related fees in bankruptcy.
Subsequently, the investigation was divided into two parts. The investigator presented the first part - entitled "The road back for the over-indebted" - in 2008. The second part was submitted to the Ministry of Justice in January 2010.
The existing Company Reorganization Act was passed in 1996 and has been criticized for, among other things: (i) its failure to provide instruments with which to conduct successful reorganizations, and (ii) inconsistencies in relation to the Bankruptcy Act. In this context, the investigator proposed that the proceedings for bankruptcy and company reorganization be unified in a new Insolvency Act.
The proposed statute would involve either a reorganization of the debtor's operations or a winding-up by abandonment or clearance sale. Reorganization would be conducted according to a reorganization plan which would contain a composition offer and a statement of the measures necessary for the company to become viable once again. Such measures might include changes in corporate governance and ownership, or the closure of unprofitable lines of business. Any reorganization plan would need to be approved by the creditors before being implemented.
A petition for insolvency proceedings can be made by the debtor itself or by a creditor. The proposed starting point for the new insolvency process is the appointment, by the court, of an insolvency administrator. Once appointed, the insolvency administrator would assume the right to dispose of all of the debtor's property and it would fall to the administrator, after consulting with the creditors, to decide on the direction of the insolvency proceedings (ie, to reorganize the debtor or to wind up its operations).
A serious obstacle to successful insolvency proceedings is the fact that the debtor usually initiates the reorganization process at a stage when it is already too late to make a difference. In order to rectify this situation, the investigator has proposed that in certain cases, the debtor should be given the opportunity to enter into insolvency proceedings without losing the right to dispose of its property.
Were the proposed legislation to take effect, the legal terms 'bankruptcy' and 'company reorganization' would be discarded from Swedish insolvency law and replaced with the umbrella term 'insolvency'. The investigator recommends that the proposed legislation come into force in January 2012.
For further information on this topic please contact Margareta Andersson or Jörgen Wistrand at Wistrand Advokatbyrå by telephone (+46 31 771 21 00), fax (+46 31 771 21 50) or email (firstname.lastname@example.org or email@example.com).
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