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18 December 2009
In January 2009 the Right of Priority Act was again extensively revised. In order to ensure that all parties had enough time to adapt to the amendments, provisional regulations applied for 2009. Thus, the new revision will enter into full force on January 1 2010.
In 2004 the Right of Priority Act was extensively revised. Priority rights in bankruptcy were abolished for taxes and tenancy. Changes were also made so that floating charges could be claimed on 55% of the creditor's assets only. The aim of the revision was to improve conditions in order to give distressed companies the opportunity to reorganize rather than face bankruptcy, and to encourage creditors to focus on profitability rather than security when approving credit. Another aim of the revision was to create an increase in the dividend in bankruptcy for unsecured claims.
However, it was widely felt that the revision did not achieve its desired effect quickly enough. Instead, small and medium-sized companies began to suffer from other consequences of the amendments, as creditors increased their demands for granting credit. As a result of these unforeseen effects of the revision, industry participants began to call for the regulation to be revised again.
In January 2009 a further revision entered into force. Essentially, the regulation returned to its 2004 form, whereby floating charges could be claimed on 100% of a creditor's assets. The amendments reinforce the priority right for floating charges to facilitate the granting of credit for small and medium-sized companies, and hence increase the dividend in bankruptcy for banks and other credit lenders with such securities. This is likely to have a negative effect on the dividend in bankruptcy for creditors with unsecured claims. Another important change is that the priority right of the state concerning wage guarantees is abolished and such claims will have no priority right. A side effect of the revision is that the practice and doctrine established before 2004 will, to a large extent, become relevant once more.
Provisional regulations applied in 2009, to the effect that the old regulations still applied to old floating charges and bankruptcy applications made before the end of 2009. The amendments will take full effect on January 1 2010.
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 (email@example.com or firstname.lastname@example.org).
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