The new Corporate Restructuring Act entered into force on 1 August 2022, following an extensive legislative review. The reforms align the Swedish restructuring framework with EU law requirements in this area, as the new act implements the underlying EU Restructuring and Insolvency Directive. The key changes introduced by the new legislation are summarised by Hannah Berglund, Associate at Fylgia.

Under the new legislation, which entered into force on 1 August 2022 following an extensive review, the threshold for applying for corporate restructuring has been lowered. Previously, a prerequisite for initiating restructuring was that the debtor was unable to pay debts as they became due, or such inability was imminent. The new law clarifies this by allowing restructuring where the debtor is at risk of insolvency. This change aims to encourage viable companies to seek restructuring at an earlier stage.

Simultaneously, the so-called viability test has been reinforced. Moving forward, only companies assessed as viable may be granted and undergo restructuring. It is now a requirement that there is a well-founded reason to believe that the proposed restructuring will restore the viability of the business. Previously, it was sufficient that there was no reasonable cause to believe the restructuring would fail. The burden of proof has thus shifted, now requiring positive evidence of viability.

Confirmation of Restructuring Plan and Cross-Class Cram-Down

One of the most significant reforms is the possibility to formally confirm a restructuring plan. Under the previous law, a restructuring plan outlining recovery measures could be prepared, but it was not subject to judicial confirmation. The new law replaces the previous composition procedure, allowing the plan to cover more than just financial settlements.

The restructuring plan is negotiated among involved parties, who are divided into classes based on their claims and interests. As a general rule, all classes must approve the plan for it to be adopted. A class is deemed to have approved the plan if two-thirds of votes support it. However, if not all classes consent but a majority approve it, the court may still confirm the plan through a cross-class cram-down.

A cross-class cram-down requires at least one approving class to consist of secured or preferential creditors, or at least two approving classes must be comprised of creditors likely to receive a dividend in bankruptcy. Moreover, dissenting classes must be treated at least as favourably as others of the same priority and must receive full satisfaction before lower-priority classes receive any value under the plan.

Once voted through, the restructuring plan is confirmed by the court and becomes binding on the debtor and involved parties.

Early Termination of Contracts and Invalid Legal Acts

The new law allows the debtor, with the administrator’s consent, to terminate long-term contracts early. The general rule is a three-month notice period. Previously, early termination required the counterparty's consent. Now, the counterparty is entitled to compensation for damages resulting from the early termination.

Legal actions taken by the debtor without the administrator's consent during the restructuring period may also be subject to annulment if challenged by the administrator within a reasonable time after becoming aware of the action.

Stricter Requirements for Administrators and Expanded Supervision

The criteria for appointing a restructuring administrator have been tightened. In light of previous concerns regarding non-serious practitioners, the new rules aim to build greater confidence in the restructuring system. Administrators must now meet qualifications comparable to those required of bankruptcy trustees.

Furthermore, administrators may be held liable for damages intentionally or negligently caused to the debtor, creditors, or other involved parties. This liability is part of a broader supervisory framework introduced in the new legislation.

The Swedish Enforcement Authority (Kronofogden) has been appointed as the supervisory authority over administrators. It has the right to submit opinions during the court’s appointment, dismissal, or compensation proceedings involving administrators.

Time-Limited Super Priority Claims

As under the previous law, claims arising from contracts entered into during the restructuring with the administrator’s consent are granted super-priority status. However, this right is now time-limited: it applies only for the period defined in the confirmed restructuring plan, or for up to three months after the restructuring ends if no plan is confirmed.

Summary

The new law represents a major overhaul of the Swedish corporate restructuring framework. Rather than amending the existing legislation, it was replaced entirely to better align with EU objectives and improve effectiveness. The aim is to provide viable companies with a genuine second chance and to harmonise restructuring procedures across the EU.

As court practice is still emerging, it remains to be seen how the new rules will be applied in practice and what effects they will have on restructuring outcomes.