Not everything that comes from Sweden is complex, difficult to understand or obscure. Our addiction to IKEA, worry about Kurt Wallander’s mood or strange admiration of the Girl with the Dragon Tattoo should not colour judgement of the Swedish approach to Insolvency.
It should not, but it does…
Swedish insolvency laws
Despite Sweden’s dour, cold, functional and dark image it does have a clear set of legal protocols and laws that govern the insolvency of companies. The choices facing sickly Swedish companies and their creditors are clear and resemble other European nations that recognise the influence of EU harmonisation:
- Liquidation (various forms but, all end in the sale of assets and distribution of proceeds to creditors)
- Reconstruction (formerly known as Ackord with turnaround and survival of the business – if not the company – as the aim). (Cook and Pond, 2006)
It is relatively simple to list the similarities between, say, the UK insolvency regimes and the Swedish ones but ONE feature stands out that differentiates Sweden and give rise to options and strategies not available in other jurisdictions:
The Swedish wage guarantee
As part of its social care and focus on individuals, rather than corporations, Swedish law, since 1992, has offered a state guarantee of workers’ wages for 3 months prior to an insolvency and one month after it, subject to a maximum per person of SEK 179,200 (€18,500) (Eurofound, 2018).
In the UK this is dealt with by giving wages owed by an insolvent company (subject to a smaller maximum per worker of £800) preferential status, that is to say, payment after the secured creditors and insolvency fees and in preference to unsecured and floating charge creditors.
So, for Swedish companies an insolvency practitioner acting between 1992 and 2005 would have a distinct benefit, by way of a non-refundable subsidy of €18,500 per employee to choose liquidation. This was because the wage guarantee applied only to liquidated companies. Naturally, the number of reconstructions was low as this added to the disadvantages of rescue.
Since 2005, however, the wage guarantee has applied to reconstructions and liquidations alike. A welcome shot in the arm for the Swedish rescue culture?
Correlation does not indicate causality but the proportion of insolvencies dealt with as reconstructions has changed from 2% in 1996 (Cook and Pond, 2006) to 3% in 2016 (Häger et. al, 2017).
This could also have something to do with the activities of unique specialist re-organisation body Ackordscentralen (2018) whose history and rationale deserve a whole blog post of their own.
Ackordscentralen (2018), http://ackordscentralen.se/eng/home
Cook, G and Pond, K (2006) Explaining the choice between alternative insolvency regimes for troubled companies in the UK and Sweden, European Journal of Law and Economics, 22(1), pp.21-47, ISSN: 0929-1261. DOI: 10.1007/s10657-006-8979-1.
Eurofound, (2018) Sweden: Wage guarantee in case of insolvency, available at: https://www.eurofound.europa.eu/observatories/emcc/erm/legislation/sweden-wage-guarantee-in-case-of-insolvency
Häger et. al, (2017), The Restructuring Review SWEDEN– Edition 10, The Law Reviews. Overview available at: https://thelawreviews.co.uk/edition/the-restructuring-review-edition-10/1147164/sweden