According to the European Commission's Expert Group "Best Project" final report dealing with restructuring and bankruptcy, published in 2003, Sweden had fully adopted 24 of the World Bank's Principles and Guidelines for Effective Insolvency and Creditor Rights Systems. In addition, Sweden had almost fully adopted 12 of these principles, partially adopted three, and had not adopted one. The International Monetary Fund found in 2002 that Sweden's insolvency and bankruptcy system is "highly developed" and supported by an efficient court system. Since that time, a number of sources have noted reforms in Swedish insolvency legislation, all of which aim to strike a better balance between protecting the rights of creditors while permitting the reorganization of troubled but otherwise viable firms. Many of these reports specify the relative rarity of reorganization, and cite as a primary cause of this the existing scheme by which creditors' claims, particularly the claims of banks, tend to work toward the detriment of the reorganization process. As noted in the World Bank's 2008 Doing Business report, Sweden's average time and cost of bankruptcy proceedings are 2 years and 9% of the debtor estate, respectively, compared to the Organization for Economic Cooperation and Development (OECD) averages of 1.3 years and 7.5%. Return to creditors for Sweden at 74.7 cents on the dollar is slightly above the OECD average of 74.1.

General Overview

In 2003, the European Commission's (EC) Expert Group delivered an analysis of Sweden's adoption of the World Bank's Principles and Guidelines for Effective Insolvency and Creditor Rights Systems for the EC's "Best Project on Restructuring, Bankruptcy and a Fresh Start." The analysis found that, as of 2002, Sweden had fully adopted 24, almost fully adopted 12, partially adopted 3 and not adopted 1 of the said principles. A 2002 International Monetary Fund (IMF) Financial System Stability Assessment described the Swedish insolvency and bankruptcy system as "highly developed" (p. 12) and supported by an efficient court system. The report disclosed that the then-current legal framework lacked provisions "for dealing credibly with a solvency problem in major financial institutions" (p. 30), but added that the need for new legislation to address this problem and otherwise provide for the orderly liquidation of financial institutions has been broadly accepted. However, the IMF 2002 report cautioned that, for this to be effective, there would need to be a concomitant move to harmonize its efforts with the "national legal, supervisory, and regulatory frameworks in the countries where Swedish financial institutions are systemically important" (p. 9).

Also in 2002, Philippe & Partners and Deloitte & Touche (PP&DT) undertook a review of current and prospective insolvency legislation in Sweden. The report notes that although laws on the books appear to hold that reorganization was an important tool within the larger insolvency regime, this did not prove to be the case in practice. Indeed, the report identified several weaknesses, resulting in "unnecessary destruction of asset value and... contributing to so-called bankruptcies of convenience" (p. 24). Particularly, the report points out the need for earlier commencement of proceedings, which would improve the prospects of success in reorganization efforts. The adoption of a unitary insolvency code has been suggested, but the PP&DT report cautions that there is a danger that such a code could become "incredibly complex," given that it would have to address simultaneously the concerns of both the creditor and the debtor. The PP&DT report concludes that such a unitary code is unlikely to arise in the near term. More likely would be changes in the Preferential Rights of Creditors Act that would abolish certain claim priorities, particularly rental and tax claims and, potentially, the priority claims of banks. The report notes that there are numerous difficulties with such changes that would "quite radically change the conditions for the work of the receiver" (p. 25) and would likely make some procedures more time consuming. Other legislative changes might involve the Company Reorganization Act (also referred to as the Business Reorganization Act), specifically affecting the debtor's prerogative of premature termination of reorganization agreements. Finally, the PP&DT report takes up proposed amendments to the Bankruptcy Act that would more clearly define "to what extent a bankruptcy estate has a right of accession in unregulated contractual relationships and also whether such a right is mandatory" (p. 26). In sum, the report found that "it is clear that the Swedish insolvency system as a whole still lacks a good systematic order and an overall mechanism for how the different regimes should work together" (p. 26).

Lars-Hendrik Andersson contributed a 2003 evaluation of recent and ongoing legislative reforms in Sweden as they pertained to the insolvency regime. According to Andersson, the goal of reform has been to render the legislation more coherent and objective. In 1996, the Business Reorganization Act was introduced as an attempt to improve the regime's ability to encourage reorganizations and thus "minimize the destruction of asset value, which often occurs in bankruptcy liquidation procedures" (p. 2). Unfortunately, according to Andersson, this was not achieved, and the number of reorganizations actually decreased following the passage of the act. Andersson suggested that this was due to the lack of incentives on the part of banks to participate in reorganizations. In 2003, however, new legislation was drafted in parliament that sought to address this and other problems. It was set to enter into law in 2004. Andersson reported that other reforms were contemplated that would establish a single starting point for insolvency procedures and would move forward without imposing a predetermined outcome. This sort of flexibility would facilitate creditor-debtor agreements on reorganization, while still keeping the door open to liquidation if that was perceived to be the best solution to the problem. Andersson estimated that such new legislation could be introduced no earlier than 2006.

A 2005 PricewaterhouseCoopers (PwC) report noted that Sweden's insolvency regime allows for liquidation or reorganization. The Bankruptcy Act of 1987 and the Companies Act of 1975 (a new Companies Act was passed into law in 2005) were only part of the overall insolvency regime, which also includes provisions from the 1970 Right of Priority Act, the 1992 Salary Guarantee Act, and the 2003 Act on Floating Charges. (In addition to national legislation, Sweden has ratified the European Convention on Insolvency Proceedings.) The texts of these laws are publicly available, usually in both English and Swedish versions. The PwC report characterized the rules governing bankruptcy as being "almost exclusively creditor focused," whereas the rules relating to company reorganization are "debtor focused." The PwC described the intent of parliament as being to prioritize reorganization when possible, reversing the earlier legislative intent, which favored collateral reinforcement over business rescue. This latter focus has derived from the relatively powerful position of banks, whose priority rights have historically placed their interests ahead of those of the debtors, making bankruptcy rather than reorganization the most common outcome.

The World Bank's 2008 Doing Business in Sweden snapshot of closing a business evaluates the effectiveness of the Swedish insolvency regime along three dimensions: the average time (in years) to complete a bankruptcy proceeding, the average cost of such proceedings (as a percentage of the estate), and the recovery rate to creditors (expressed in cents on the dollar). For Sweden, the time averages 2.0 years, and the cost is, on average, 9% of the estate. Creditors recover, on average, 74.7 cents on the dollar. By comparison, member states of the OECD average 1.3 years, 7.5% of the estate in costs, and a recovery rate of 74.1 cents on the dollar.