The Swedish insolvency and restructuring framework underwent a significant transformation in 2022 with the introduction of a new Reconstruction Act, aligning the country with the EU’s Restructuring and Insolvency Directive. The aim is clear: to provide viable but financially distressed companies with a stronger chance of survival, avoiding bankruptcy while restoring long-term stability.
At Valtus Alliance, we rely on a worldwide network of restructuring experts – because legislation and restructuring practices vary significantly from country to country. In this interview with Curt Holmertz, an experienced Executive Interim CFO, Björn Henriksson, Group CEO of Valtus, explores how the new law is applied in practice, the role of court-appointed administrators and Chief Restructuring Officers (CROs), and the common pitfalls companies face in times of crisis. Drawing on hands-on experience from recent restructuring cases, our expert shares key lessons on proactive decision-making, creditor relations, and why cash flow management remains the single most critical factor for success.
What makes the legal framework for insolvency and restructuring unique in Sweden?
“The new Swedish Reconstruction Act come into effect in 2022, represent an adaptation to the EU’s Restructuring and Insolvency Directive. The directive requires a legal framework that enables financially distressed companies, but fundamentally viable, to restructure themselves avoiding a bankruptcy scenario. The new act gives a wider toolbox but also new requirements in the process.
Even though having been involved in a few projects I still consider myself a layman when it comes to Swedish and International insolvency law. My contribution to these projects has been as additional senior resource, such as Chief Restructuring Officer (CRO), supporting both the company and court-appointed Administrator.”
Are there mandatory reports or expert opinions required in the event of a liquidity crisis or imminent insolvency?
“The court requires evidence that the company is economically viable post restructuring. Therefore, a draft restructuring plan should be prepared before to submitting the application to the court. The plan must present evidence of a realistic potential to restructure the company commercially as well as financially with the aim to restore long-term viability. Please note the wording, “draft restructuring plan”, since the plan should be adopted by relevant parties later in the process. In addition, the application to court should include a proposal for an administrator who need to consent to the draft reconstructing plan.”
In your experience, what is the most common mistake companies make in the early stages of a liquidity crisis?
“Emotions quite often take precedence over rational commercial logic leading to a reactive rather than proactive decision making, and proactiveness is always badly needed in a liquidity crisis. Typically, the Board and management put all hope to restore the liquidity crisis through a capital injection from present and/or new owners and thereby waiting too long to start to the process of formal court approved restructuring.
To summarize, whenever I am asked to support in a liquidity crisis, I try to have owners, board and management to realize that they are “too late” and the necessity to work proactively and concurrently with several initiatives, instead of sequential reactive response to the liquidity crisis.”
At what point, and in what role (e.g., consultant, CFO, CRO), should an external restructuring expert be brought in and who should mandate them (management, board, owners, banks, government)?
“My recommendation is to retain a CRO at the time of establishing the draft restructuring plan prior to apply in court. A CRO should typically report to the board as well as the administrator since the law specifically defines that much of the governance of the company falls under the administrator while the board generally have the day-to-day responsibility of the operation.
It goes without saying, the CRO should work closely with the CEO and CFO but at the same time needs to have direct access to board and owner.
Please note that a CRO will most likely not be enough of as external resource needed in the process. Typically, the company have been through quite a turbulent period of cost cutting, capital squeeze and revised strategy works, – in short, key personnel is already stretched and you will ask them to run yet another marathon… Therefore, one of the first actions for a CRO is to assess if the company have the ability and competence needed to execute the restructuring plan as well as running and growing the business at the same time. A restructuring process will affect all the companies’ functions especially within finance.
In my opinion, a seasoned senior CFO or COO would have the best background for a CRO and preferably having been through a couple of formal restructuring process, or as a minimum, can transform legal requirements into well defined operational and commercial initiatives.
The CRO should be able to proactively challenge the owner, board and management in finding solutions to challenges ahead. Therefore, I do not believe that a CRO need to have in-depth industry experience but rather a wide range of management experience. Typically, industry experience can be brought in as subject matter experts in the process of establishing the restructuring plan.”
What is your view on the use of protective shield proceedings (or equivalent local instruments) as part of a restructuring strategy? Are there such protective shields in Sweden?
“The insolvency act from 2022 is a form of protective shield giving the company time to restructure the company while being protected from creditor’s actions such as repossession. For a CRO, it’s vital to transform protective shields that are included in the insolvency act into commercial understanding and initiatives applicable to the situation. The company is typically under a lot of pressure from creditors and the CRO can, and in my opinion should, play a mitigating role between the company and its creditor’s.
Please note that protective shields work two ways; the administrator might, or in extreme cases will, consider stopping the restructuring process with bankruptcy as most likely scenario if the company favours one creditor at the expense of the others. Again, the CRO can play a vital role in making sure avoiding such situations through implementation of well-established governance.”
Do employees in Sweden continue to receive their salaries and bonuses in the event of insolvency or do they lose the entire or part of the wages?
“Employees are partly protected for accrued salary at the time of court approval of reconstruction through state wage guarantee (lönegaranti). However, this only covers amount up to a maximum of four “price base amounts” (prisbasbelopp) as defined in Swedish Social Insurance Code – currently equal to 235.200 SEK (21.000 Euro). Any exceeding amount, or personnel debt not covered by state wage guarantee, is treated as unsecured debt and will be included in the reconstruction proceeding.
Salaries for work done after court approval should generally be paid by the company itself. The company needs to show evidence in the court application/draft restructuring plan that it has the financial ability to pay salaries during the reconstruction process.”
In cases of insolvency or bankruptcy, how do Executive Interim Managers working in restructuring ensure they receive their remuneration?
“Typically, bi-weekly payment in advance, but I recommend having this approved by the administrator.”
Could you describe a recent restructuring and/or turnaround case?
“Yes, I helped an online FMCG Group that was one of the first companies that applied for reconstruction after the new Reconstruction Act had become effective back in 2022. We basically used all new tools available such as super priority bridge loan, cram-down and early termination of unfavourable contracts. This gave me valuable insights for future projects.”
From your experience, what are the most critical success factors for companies undergoing reconstruction under the new Swedish Reconstruction Act?
“Key takeaways for me:
- A general misconception, and more so with the new Reconstruction Act, is that reconstruction only means write down of debt. However, debt write down will most likely not pass a resolution unless the owner/s contributes to the reconstruction proceeding. Hence it is important to address this early in the process. The current owner(s) will retain no more than 5–15% ownership after the reconstruction unless they contribute with cash or cash-equivalent assets.
- Teamwork between owners, board and management team is key to success. Frequent open and honest meetings focusing on the challenges ahead instead of “finger pointing”.
- Proactiveness and ability to think outside the box – the new toolkit gives a lot of opportunities to tailor a reconstruction plan that was not possible before, or hard to achieve, prior to the new Reconstruction Act becoming effective.
- “Cashflow is King”: this is not an understatement; you cannot afford to go out of cash. Tight cashflow forecasting and follow up is vital for success in a reconstruction.”
In your jurisdiction, how efficient is the collaboration
between management, creditors, and courts in formal
restructuring proceedings?
“I would say that its rather efficient but depends on the relationship with creditor´s prior to restructuring.”
In the event of a severe profitability and liquidity crisis, what would you consider the best course of action for a foreign corporation with a local subsidiary in your country?
“Local presence; I do not believe that such a server situation can be solved on remote basis since you need to understand root causes and evaluate impact of mitigating actions.
An interim CRO might be good option at hand to ensure local presence and an objective view of the situation.”
How do you assess the role of relationship banks during a restructuring process – more as partners, obstacles, or both?
“It is vital since bank related debt normally have seniority and potentially will become new owners through debt-to-equity conversion in the new toolkit. I would regard them as partners but at the same time obstacles and very importantly; since they normally have seniority, they will always compare a reconstruction proceeding with a bankruptcy scenario. To the best of my knowledge, you have to offer a debt to equity to more or less all creditors affected by the reconstruction plan. This shows an advantage that equity holders had over creditors prior to the new Reconstruction Act. This should be viewed as a tool to gain necessary approval of the plan and how the reconstruction proceeding is distributed, (the alternative for the owner is to repay a debt with seniority that will negatively impact the financial viability of the company – the alternative for such creditor is otherwise to be repaid in a bankruptcy proceeding). Another example is nonpriority debt such as shareholders loan that is first written down and then offered a debt-to-equity conversion.
Does your government support companies in crisis – for example, through specific subsidies or state-backed loans?
“Generally speaking, there is no government support available during reconstruction other than through state wage guarantee (lönegaranti) that will be part of the reconstruction proceedings. The state as creditor, such as VAT debt, will be included in the reconstruction proceedings. It´s important to secure a good relationship with the tax authorities since they normally play an important role in the reconstruction process. There is no minimum requirement – but customary is a 25% as a starting point.”