A Second Chance for Struggling Companies - New Restructuring Procedure – SOU 2021:12.

A government inquiry has proposed a series of legislative changes, scheduled to enter into force on 1 July 2022, applicable to restructuring applications submitted from that date onwards.
Jacob Callmander, lawyer and deputy board member of the Institute for Corporate Restructuring (IFFR), participated in the consultation process and summarises the proposal below:

During spring 2021, the so-called “Restructuring Inquiry” submitted its findings in the form of a government report, SOU 2021:12 – "A Second Chance for Struggling Companies: A New Corporate Restructuring Act."

The inquiry is based on the EU Directive on Restructuring and Insolvency, which is to be incorporated into Swedish law. The investigation began in September 2019 following government instructions and submitted its proposal in March 2021.

Rather than amending the existing Corporate Restructuring Act, the inquiry proposes a completely new restructuring framework, introducing several novel elements not present in the current legislation.

It is important to note that the proposal underwent a consultation round (remissrunda) involving numerous stakeholders, including public authorities, courts, the Swedish Bankers’ Association, the Bar Association, among others. The responses were submitted before summer 2021, and it remains to be seen which parts of the original proposal will be retained in the final legislation.

The full report spans approximately 850 pages. Below are some of the key features of the proposal:

General Principles and Conditions for Initiating Restructuring

• The inquiry concludes that the success rate for restructurings is too low
• Stricter criteria for initiating a restructuring
• The term “economic difficulties” is broadened to include “payment difficulties”
• A more rigorous viability test prior to the approval of restructuring, aimed at improving success rates
• Higher standards for bookkeeping – must be properly organised
• Proposal that only designated courts should handle restructuring cases
• Introduction of two tiers of restructuring procedures:
  • One for larger companies,
  • A simplified version for micro, small and medium-sized enterprises (SMEs)
• The "best interest of creditors" principle underpins the entire proposed legislation

Legal Effects and Structure of the Restructuring Plan

• New opportunities for binding agreements
• Inclusion of corporate law provisions in the restructuring plan
• Court confirmation of the plan
• Introduction of creditor classes and cram-down provisions, allowing the plan to be imposed on dissenting classes (e.g., those with preferential rights)
• Possibility for courts to determine the value of the debtor’s business operations

The Role of the Restructuring Practitioner

• Stricter requirements for practitioner qualifications and experience
• Introduction of statutory liability for damages
• Proposal to establish a new supervisory authority

Handling of the Debtor’s Contracts

• Possibility of partial performance of contracts
• Stricter restrictions on contract termination
• Early termination rights
• Debts incurred during restructuring may receive super-priority status