The new Swedish company restructuring act

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ACCESS TO THE COMPANY RESTRUCTURING PROCEDURE
1. A company will have access to the procedure if there is a likelihood of insolvency or the company is deemed unable to make payment as they come due, or such inability will exist within short time. Further there must be good reasons to assume that the viability of the business can be secured through the restructuring.

COURTS
2. Restructuring cases shall be handled by a limited number of courts.

DEBTOR-IN-POSSESSION
3. The debtor is left in the control of its assets and the day-to-day operation of the business. A professional in the field of restructuring (the ”Administrator”) will, however, act alongside the debtor, as described below.

4. In absence of consent from the Administrator, the debtor may not: (i) fulfil an obligation that arose before the court’s decision on company restructuring, e.g., pay or provide security for such debt, (ii) incur new obligations outside the day-to-day operations of the business, and (iii) transfer, pledge, or grant any rights in property of material significance to the debtor’s business.

ADMINISTRATOR
5. The court shall appoint an Administrator.

6. Only highly qualified persons with extensive experience shall be appointed at Administrators. Experience from handling insolvent liquidations (bankruptcies) or similar experience is important. The court shall also consider if the person nominated as Administrator by the debtor has support from the Supervisory Authority (a special department within the Enforcement Authority) and the major creditors.

7. The Administrator shall assist, advise, instruct, and supervise the debtor. There is a possible clash between the debtor’s control of the business (see 3 above) and the Administrator’s right to instruct the debtor.

8. The Administrator can apply for the termination of the restructuring procedure if the debtor does not follow the Administrator’s instructions. The Administrator can also request the court to order a reversal of a transaction concluded by the debtor without necessary consent from the Administrator.

STAY OF INDIVIDUAL ENFORCEMENT ACTIONS
9. During the restructuring procedure no levy of execution or other enforcement measures may take place in respect of the debtor. However, claims for which the creditor possesses a lien may be enforced, unless there is a risk an enforcement will jeopardise the success of the company restructuring. Even if such risk exists enforcement is possible if the creditor otherwise would be affected unreasonably hard.

DEBTOR’S OLD CONTRACTS
10. An old contract is a contract that was entered into before court’s decision to commence a company restructuring procedure regarding the debtor.

11. The debtor can request that an old contract with unperformed obligations should be fulfilled. If the debtor chooses to request fulfilment of a contract, claims that arise after that point in time are to be considered as have arisen during the company restructuring procedure, which means that they cannot be written down through debt settlement in the restructuring plan.

12. A party to an old contract cannot be forced to extend new credit to the debtor.

13. There is no superpriority for claims for payment of goods or services delivered to the debtor during a company restructuring procedure based on an old contract (but see 18 below regarding claims based on new contracts).

14. There is a prohibition of ipso facto clauses, i.e. clauses that grant a party the right to cancel a contract if the other party applies for or commences a company restructuring procedure.

DEBTOR’S NEW CONTRACTS
15. A new contract is a contract that has been entered into after the court’s decision to commence a company restructuring procedure regarding the debtor.

16. The debtor may obtain credit and incur debt within, but not outside (see 4 ii above) the day-to-day operations, i.e., to borrow money, or accept goods on credit.

17. A party cannot be forced to enter into a new contract with the debtor and to extend new credit.

18. According to the Rights of Priorities Act a creditor has superpriority if the creditor’s claim is (i) based on a new contract entered with the debtor during the restructuring procedure, and (ii) the Administrator has consented to the new agreement.

19. A superpriority claim has first priority in the debtor’s unencumbered assets and constitutes a ”priming” lien on property encumbered by a floating charge, i.e. a superpriority claim subordinates a creditor (normally a bank) with a floating charge on debtor’s property.

RESTRUCTURING PLANS AND THEIR CONFIRMATION
20. The regulation on restructuring plans in the new law can be described as Swedish version of Chapter 11 in the US Bankruptcy Code.

21. The debtor has the initial exclusive right to propose a plan and to request that the court orders the commencement of a separate restructuring plan procedure within the company restructuring procedure. A restructuring plan can also be proposed by the Administrator but only if the debtor’s proposal does not lead to the confirmation of a restructuring plan.

22. Creditors and other shareholders shall be divided into classes based on common interests. Stakeholders who are unimpaired by the restructuring plan shall not be divided into classes.

23. A restructuring plan becomes binding if it accepted by all classes and confirmed by the court.

24. The restructuring plan is accepted by a class if there is requisite majority (two-thirds in number of creditors/shareholders voting on the plan and two-thirds of total amount of the claims/interests).

25. A restructuring plan can, under certain conditions, be confirmed by the court even the requisite majorities have not been reached in all classes (cross-class cram-down).

26. A restructuring plan may include just about anything, for example (i) debt write-down, (ii) increase/decrease of share capital, (iii) change of board members, (iv) conversion of debt to equity (debt-to-equity-swap) and (v) new financing with superpriority.

27. The stay of individual enforcement actions is available for a maximum of twelve months after the court’s decision to commence a company restructuring procedure. In practise it will be difficult to continue a restructuring plan procedure when the stay has lapsed.

ANALYSIS
28. The new law provides for a fast, efficient, and flexible company restructuring procedure. The result will be better and more stable restructurings.