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Liquidation procedures

Eligibility

What are the eligibility criteria for initiating liquidation procedures? Are any entities explicitly barred from initiating such procedures?

There are two liquidation procedures in Sweden:

  • voluntary or involuntary solvent liquidation under the Companies Act (winding up); and
  • voluntary or involuntary insolvent liquidation (bankruptcy) under the Bankruptcy Act (SFS 1987:672).

This often leads to confusion. When Swedish lawyers refer to liquidation they often mean solvent liquidation under the Company Act, but when foreign lawyers refer to liquidation they often mean insolvent liquidations which are regulated under the Swedish Bankruptcy Act.

Procedures

What are the primary procedures used to liquidate an insolvent company in your jurisdiction and what are the key features and requirements of each? Are there any structural or regulatory differences between voluntary liquidation and compulsory liquidation?

The first step in an insolvent liquidation proceeding (bankruptcy) is the filing of an application in the court in which the debtor has been declared bankrupt. The application can be made by a creditor or by the debtor.

How are liquidation procedures formally approved?

The second step in an insolvent liquidation proceeding (bankruptcy) is that the court decides on the application for bankruptcy. 

What effects do liquidation procedures have on existing contracts?

There is no automatic effect on existing contracts. However, the other party to the contracts often sends a notice for termination to the Bankruptcy Act liquidator based on the court’s decision to declare the debtor bankrupt.

What is the typical timeframe for completion of liquidation procedures?

It varies considerably. Normally, an insolvent liquidation proceeding (bankruptcy) can be completed within one to three years of the court’s decision to declare the debtor bankrupt.

Role of liquidator

How is the liquidator appointed and what is the extent of his or her powers and responsibilities?

A Bankruptcy Act liquidator is not to be confused with a Companies Act liquidator.

A Bankruptcy Act liquidator is appointed by the court when a debtor is declared bankrupt. A Bankruptcy Act liquidator manages the assets in the bankruptcy estate. In principle, all assets of the debtor become part of the estate. A Bankruptcy Act liquidator will sell the assets and distribute money to the creditors after the bankruptcy costs have been covered. Another role of a Bankruptcy Act liquidator is to investigate if the debtor has a civil law liability or criminal liability for actions taken or not taken before the debtor was declared bankrupt.

Court involvement

What is the extent of the court’s involvement in liquidation procedures?

The court’s involvement is limited after the debtor has been declared bankrupt. Nearly all decisions of substance are taken by the Bankruptcy Act liquidator.

Creditor involvement

What is the extent of creditors’ involvement in liquidation procedures and what actions are they prohibited from taking against the insolvent company in the course of the proceedings?

The Bankruptcy Act liquidator will consult with major creditors and the Supervisory Authority in Bankruptcies before any important decisions are taken. The Supervisory Authority in Bankruptcies is a government authority which supervises the management of all bankruptcy estates. There is an automatic stay of all enforcement actions when the debtor has been declared bankrupt.

Director and shareholder involvement

What is the extent of directors’ and shareholders’ involvement in liquidation procedures?

The directors and shareholders involvement mainly consists of providing relevant information to the Bankruptcy Act liquidator. The directors are not permitted to dispose the assets in the bankruptcy estate, and the bankrupt company (a separate legal entity not to be confused with the bankruptcy estate) usually has no assets because the assets are automatically transferred to the bankruptcy estate when the company is declared bankrupt.

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