Step-by-Step Guide to the Bankruptcy Process

When an individual or a company (the debtor) is unable to meet their debt obligations in a timely manner and is unlikely to do so in the foreseeable future, they are deemed insolvent and should be declared bankrupt. Our step-by-step guide to the bankruptcy process addresses several important questions, including: What are the stages involved in the bankruptcy process, and what specific responsibilities accompany each stage? How are the debtor's assets and liabilities managed during the bankruptcy? What role does the bankruptcy administrator play in this process? How are the assets distributed among creditors once the bankruptcy concludes, and what regulations govern this distribution according to the hierarchy of claims? This guide offers a comprehensive overview of the bankruptcy process, ensuring clarity on the procedures and responsibilities involved.

A bankruptcy follows a series of defined steps

Steps in the Bankruptcy Process

Filing for Bankruptcy: A bankruptcy application is submitted to the District Court (tingsrätt). This application can be made either by the debtor or by a creditor. The applicant may propose a bankruptcy administrator whom they trust.
Court Decision: The District Court decides to declare the debtor bankrupt and appoints a bankruptcy administrator.
Asset Management: The bankruptcy administrator investigates and takes possession of the debtor's assets.
Inventory of Assets and Liabilities: The bankruptcy administrator prepares an inventory detailing the debtor's assets and liabilities.
Oath of Accuracy: The debtor takes an oath affirming that the information provided in the inventory regarding assets, liabilities, and accounting records is accurate.
Evaluation of Business Transfer: The bankruptcy administrator assesses whether the whole or part of the business can be transferred to new owners who can continue its operations.
Sale of Non-transferable Assets: Parts of the business that cannot be transferred to new owners are sold through other means, often via auction. Outstanding customer receivables and other debts owed to the debtor are also collected.
Wage Guarantee Decisions: The bankruptcy administrator determines the wage guarantees for the company's employees.
Financial Review: The bankruptcy administrator reviews the debtor’s accounting records and prepares a report detailing the state of the accounts, the cause and timing of insolvency, any grounds for recovery to the bankruptcy estate, instances of illegal asset transfers, the timing for the board's obligation to prepare a balance sheet for control purposes, and any potential grounds for damages.
Distribution of Assets: The funds collected for the bankruptcy estate are distributed among the creditors after the costs of the bankruptcy process have been settled, in accordance with the regulations outlined in the preferential rights legislation.