Företagsrekonstruktion eller konkurs? - en analys ur ett borgenärsperspektiv
Reorganization or bankruptcy? - an analysis from a creditors perspective
Author
Summary, in English
The main issue in this essay is from a creditors perspective. Analysis will cover two alternatives for the reorganization of companies: First, the Swedish correspondence, “FrekL,” to the American Chapter 11 and, second, reorganization through bankruptcy.
FrekL is a fairly new law within the Swedish insolvency law. Earlier reorganization of companies were almost always made through bankruptcy, even if AckL existed as an option. The creation of FrekL was thought to expunge the difference in dividend between prioritised and unprioritised claim holders and provide better possibility to reorganize a company not only economically but also corporately.
There are four conditions that have to be fulfilled for a company to enter reorganization. There must be an illiquid debtor who is a businessman or manufacturer. The application shall fulfill the formal demands that are stipulated by law. Finally the application shall be checked formally as well as materially by a court. In that occasion the court shall examine if the goal of the reorganization might be reached.
For the realization of the reorganization an administrator is appointed. The administrator shall examine the problems of the debtor and come up with suggestions how they should be solved. He shall also lead and project the reorganization and finally show the result for the creditors and the court. The debtor is obliged to cooperate with the administrator throughout the reorganization and inform the administrator in some legal events of importance.
When reorganization begins a moratorium for the debtor also starts. No execution and liquidation petitions are allowed against the debtor. Furthermore, all agreements made with the debtor before the reorganization are protected against termination.
An almost compulsory requirement for a reorganization to succeed is a composition with the creditors. Composition means that the creditors agree on a lower reimbursement with a certain percentage, although never below 25 percent. However, the lowest dividend of 25 percent can be relinquished in particular cases.
A reorganization shall be finished when the purpose of it has been reached or as soon as it is clear that a successful reorganization cannot be achieved. The reorganization shall be concluded within three months, even if exemptions from this time limit are possible.
The Swedish bankruptcy code is the oldest insolvency code within Swedish insolvency law. The main purpose behind the law is to under, arranged circumstances, liquidate non-competitive businesses and maximize the dividend on creditor’s claims.
If a business is to be liquidated it needs to be insolvent. In other words, the business must not be able to pay its debts in the same order as they arise. The inability to pay the debts must also be permanent. Lawmakers have written a couple of prospective rules to help assess if a company is bankrupt or not. A decision of bankruptcy presupposes an application handled in to the court by the debtor himself, or one of his creditors.
The administration of a bankruptcy shall be managed by one or a couple of administrators. The administration shall also be under supervision by a certain bankruptcy authority. During the bankruptcy the debtor loses all his right of disposition over the property to the administrator. The first task for the administrator is to investigate the economical condition of the bankrupt estate and subsequently create a record, which the debtor shall confirm its rightness under oath. The administrator shall thereafter sell all the property within the bankrupt estate as fast as possible to the highest feasible profit. Bankruptcy is declared “complete” by the court when the income of the sale has been divided between the creditors as long as they suffice. The remuneration to the administrator and the debtor’s employee’s wages are always granted by the state.
If the debtor, shortly before the outbreak of the bankruptcy, has sold property, that property or its value can be taken back by the administrator to the bankrupt estate. The debtor can, for example, have sold under valued property to relatives when he or she fears bankruptcy. Another common situation is that the debtor has favoured one creditor over another.
The bankruptcy procedure can be adventageous when reorganizing a company. The owner behind the bankrupt company can through a recently formed company buy the property within the bankrupt estate. This makes the new company free from debt and competative on the market, although it is still the same company with the same owner as the bankrupt company.
It is combined with a lower risk for the preferential creditors with a bankruptcy, as they do not risk their securities to lose value, which might be the case in reorganization. Thus reorganization is more favourable for the non-preferential creditors since they are granted a certain dividend.
A successful reorganization demands capital. It is easier for a big company to raise the funds that is needed than it is for a small company to do so. It might for that reason sometimes become too expensive for a small company to go through reorganization. A healthy debtor also creates better opportunities for its creditors to gain earnings.
One of the main reasons in introducing FrekL was to equalize the disparity in dividend between preferential and non-preferential creditors. If one alternative gives advantages to a debtor, the debtor will certainly select that alternative without respect to what is best for the creditors.
FrekL is a fairly new law within the Swedish insolvency law. Earlier reorganization of companies were almost always made through bankruptcy, even if AckL existed as an option. The creation of FrekL was thought to expunge the difference in dividend between prioritised and unprioritised claim holders and provide better possibility to reorganize a company not only economically but also corporately.
There are four conditions that have to be fulfilled for a company to enter reorganization. There must be an illiquid debtor who is a businessman or manufacturer. The application shall fulfill the formal demands that are stipulated by law. Finally the application shall be checked formally as well as materially by a court. In that occasion the court shall examine if the goal of the reorganization might be reached.
For the realization of the reorganization an administrator is appointed. The administrator shall examine the problems of the debtor and come up with suggestions how they should be solved. He shall also lead and project the reorganization and finally show the result for the creditors and the court. The debtor is obliged to cooperate with the administrator throughout the reorganization and inform the administrator in some legal events of importance.
When reorganization begins a moratorium for the debtor also starts. No execution and liquidation petitions are allowed against the debtor. Furthermore, all agreements made with the debtor before the reorganization are protected against termination.
An almost compulsory requirement for a reorganization to succeed is a composition with the creditors. Composition means that the creditors agree on a lower reimbursement with a certain percentage, although never below 25 percent. However, the lowest dividend of 25 percent can be relinquished in particular cases.
A reorganization shall be finished when the purpose of it has been reached or as soon as it is clear that a successful reorganization cannot be achieved. The reorganization shall be concluded within three months, even if exemptions from this time limit are possible.
The Swedish bankruptcy code is the oldest insolvency code within Swedish insolvency law. The main purpose behind the law is to under, arranged circumstances, liquidate non-competitive businesses and maximize the dividend on creditor’s claims.
If a business is to be liquidated it needs to be insolvent. In other words, the business must not be able to pay its debts in the same order as they arise. The inability to pay the debts must also be permanent. Lawmakers have written a couple of prospective rules to help assess if a company is bankrupt or not. A decision of bankruptcy presupposes an application handled in to the court by the debtor himself, or one of his creditors.
The administration of a bankruptcy shall be managed by one or a couple of administrators. The administration shall also be under supervision by a certain bankruptcy authority. During the bankruptcy the debtor loses all his right of disposition over the property to the administrator. The first task for the administrator is to investigate the economical condition of the bankrupt estate and subsequently create a record, which the debtor shall confirm its rightness under oath. The administrator shall thereafter sell all the property within the bankrupt estate as fast as possible to the highest feasible profit. Bankruptcy is declared “complete” by the court when the income of the sale has been divided between the creditors as long as they suffice. The remuneration to the administrator and the debtor’s employee’s wages are always granted by the state.
If the debtor, shortly before the outbreak of the bankruptcy, has sold property, that property or its value can be taken back by the administrator to the bankrupt estate. The debtor can, for example, have sold under valued property to relatives when he or she fears bankruptcy. Another common situation is that the debtor has favoured one creditor over another.
The bankruptcy procedure can be adventageous when reorganizing a company. The owner behind the bankrupt company can through a recently formed company buy the property within the bankrupt estate. This makes the new company free from debt and competative on the market, although it is still the same company with the same owner as the bankrupt company.
It is combined with a lower risk for the preferential creditors with a bankruptcy, as they do not risk their securities to lose value, which might be the case in reorganization. Thus reorganization is more favourable for the non-preferential creditors since they are granted a certain dividend.
A successful reorganization demands capital. It is easier for a big company to raise the funds that is needed than it is for a small company to do so. It might for that reason sometimes become too expensive for a small company to go through reorganization. A healthy debtor also creates better opportunities for its creditors to gain earnings.
One of the main reasons in introducing FrekL was to equalize the disparity in dividend between preferential and non-preferential creditors. If one alternative gives advantages to a debtor, the debtor will certainly select that alternative without respect to what is best for the creditors.
Department/s
Publishing year
2011
Language
Swedish
Full text
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Document type
Student publication for professional degree (Master's level)
Topic
- Law and Political Science
Keywords
- Insolvensrätt Konkurs Företagsrekonstruktion Obestånd
Supervisor
- Eva Lindell-Frantz (Assistant Professor)