BANKRUPTCY ACT (1987:672) Chapter 1 Introductory provisions

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1 BANKRUPTCY ACT (1987:672) Chapter 1 Introductory provisions Section 1 By means of bankruptcy, all creditors collectively and compulsorily take the total assets of a debtor for payment of their claims. During bankruptcy the assets of the bankruptcy estate are taken into possession on behalf of the creditor. Section 2 A debtor who is insolvent shall following his own or a creditor s petition be declared bankrupt, unless otherwise provided. Insolvency means that the debtor cannot pay his debts when due and that this incapacity is not merely temporary. Section 3 The administration of a bankruptcy estate is managed by one or more administrators. The administration of the estate is subject to the supervision of a supervisory authority. Section 4 An insolvent bankruptcy estate can be declared bankrupt. The provisions of this Act concerning debtors shall in such cases apply to the bankruptcy estate. Section 5 When applying this Act, a legal charge on real property is equated to other special priority right applicable to the property and not based on an execution. The provisions apply concerning creditors with rights of pawn pledge of movable property also apply as regards debtors entitlement to retain movable property as security for a claim (lien). (Act 1994:481) Section 6 If in some other act there is a provision deviating from this Act, that provision applies. 1

2 As regards the applicability of the Code on Judicial Procedure, provisions are laid down in the following. Chapter 2 Petition for bankruptcy and bankruptcy decisions, etc. Bankruptcy petitions etc. Section 1 A petition for bankruptcy are made in writing to the district court where the debtor should answer in a contentious case relating to liability to pay in general. The petition documents should be personally signed by the petitioner or the representative of the petitioner. The applicant shall state and prove the circumstances whereby the court is competent, if these are not known. A petition should be rejected if it does not indicate which district court is competent and the petitioner does not comply with a direction to rectify the deficiency. Section 2 If a bankruptcy petition has been made at a district court that is not competent, the court should immediately send the documents in the matter to the district court which, according to what the documents indicate, is competent and notify the petitioner. The petition shall be considered made when the petition documents are delivered to the former district court. Section 3 If the petition is made by the debtor, the petition documents should enclose a signed schedule of the assets and debts of the estate signed by the debtor with information of the name and postal address of every creditor together with accounts and other documents affecting the estate. If an estate of a deceased person or part-owner of an estate of a deceased person applies for the estate to be declared bankrupt, the petition documents should include the estate inventory of the deceased person or, if registration has taken place, information of the date of registration. If an estate inventory has not been prepared, information on the name and address of every partowner of the estate shall be provided. (Act 1995:793) Section 4 If the petition is made by a creditor, he should in the petition provide information about his claim and the circumstances 2

3 generally upon which he bases the demand. He should also enclose the original or copies of those documents he wishes to refer to. The petition document and those documents enclosed with it must be submitted in duplicate. Section 5 A petition shall be rejected if, in the respects referred to in Section 3 or 4 or otherwise, it is so deficient that it cannot form a basis for determining the matter on the merits and the petitioner does not comply with a direction to rectify the deficiency. Section 6 If the claim of a creditor is confirmed by a court or by the enforcement authority under the Act on Orders for Payment and Assistance (1990:746), this shall be accepted as a basis for entitlement to request that the debtor be declared bankrupt even if the determination has not entered into final legal force. However, this does not apply if a court has ordered that the determination must not be enforced. A claim which has been determined by an arbitration award shall also be accepted, if the arbitration award may be enforced under Chapter 3, Section 15 or 16 of the Enforcement Code and a court has not issued such an order as is referred to in Section 18 of the said chapter. In cases other than those referred to in the first and second paragraphs, the creditor shall prove his entitlement to request that the debtor be declared bankrupt. (Act 1991:857) Evidence of insolvency Section 7 Information from the debtor that he is insolvent shall be accepted unless there is special reason not to do so. Section 8 Unless otherwise shown, a debtor is deemed to be insolvent when, in the event of enforcement under Chapter 4 of the Enforcement Code, within six months before the bankruptcy petition, it transpired that he did not have assets for full payment of the claim executed. This also applies if the debtor has declared that he has stopped payments. Section 9 A debtor, who is or within one year prior to the bankruptcy petition has been, liable to keep accounts under the Bookkeeping Act (1976:125) shall, unless otherwise shown be deemed to be insolvent, if : 3

4 1. the debtor has been requested by a creditor to pay a clear and due debt but failed to do this within one week and 2. the creditor requests the debtor s bankruptcy within three weeks thereof and the debt is still not paid. The request by the creditor shall contain information that a petition for bankruptcy may ensue. The request should be served on the debtor. Service in accordance with Section 12 of the Service Act (1970:428) may only take place if there is reason to assume that the debtor has absconded or in some other way is in hiding. Impediments to bankruptcy Section 10 A creditor is not entitled to have a debtor declared bankrupt, if: 1. the creditor has a secure charge or collateral equivalent thereto in property belonging to the debtor, 2. a third party has presented secure collateral for the creditor s claim and the bankruptcy petition conflicts with the conditions for the provision of the collateral, 3. the creditor s claim is not due for payment and secure collateral is offered by a third party. Collateral presented or offered by a third party also means a guarantee if the guarantor is liable as if it was his own debt. Section 10 a If a company reconstruction is proceeding under the Company Reconstruction Act (1996:764), a bankruptcy petition by a creditor shall be declared stayed pending the cessation of the company reconstruction, if the debtor so requests. However, if there are special reasons to fear that the debtor will take or fail to take a certain measure and thereby present a risk to the rights of the creditor, the court may decide to declare the debtor bankrupt. Before such a decision is issued, the person making the reconstruction shall be afforded an opportunity of expressing his views. (Act 1996:775) Security measures Section 11 If there is probable cause to approve a bankruptcy petition and if there is reason to fear that the debtor will conceal property, the court may, if there is special reason, make an order of attachment of the debtor s property pending the determination of the petition. 4

5 As regards such a security measure, the provisions applicable to attachment granted for debts under Chapter 15 of the Code on Judicial Procedure, apply unless otherwise provided by this Act. However, this does not apply to the provision in Chapter 16, Section 15, second paragraph of the Enforcement Code. The court may grant exemptions from the attachment granted. Section 12 If there is probable cause to approve a bankruptcy petition and there is reason to fear that the debtor by travelling abroad will avoid an obligation or contravene a prohibition applicable to bankruptcy under this Act, the court may, if there is special reason for so doing, prohibit the debtor from travelling abroad pending the determination of the application. If such a travel prohibition is issued, the debtor may, in conjunction therewith or later, be ordered to surrender his passport to the enforcement authority decided by the court. If the debtor does not have any passport, a prohibition of the issue of passport to him may be issued. The debtor may be detained if a travel prohibition is clearly insufficient. If the debtor is a legal entity, the first paragraph is also applicable to the members of the board, managing director, partners and liquidators who have resigned or been released from office up to one year before the delivery of the bankruptcy petition to the district court. As regards such security measures as are referred to in this section, the provisions of Chapter 15, Sections 5, 6 and 8 of the Code on Judicial Procedure apply unless otherwise provided by this Act. A security measure cannot be impeded by the presentation of collateral. Nor can a security measure granted be revoked for this reason. The expenses of detention are borne by the State. Section 13 Issues concerning security measures under Section 11 or 12 are dealt with on the request of a creditor. Before the court issues a decision in the matter, the debtor shall be given an opportunity to express his views, if this is reasonably possible. The court may hold a hearing for determination of the matter of security measures. The debtor and creditor shall be summoned to the hearing. The summons should be served. As regards detention, the provisions of Chapter 6, Section 10, third paragraph and Section 11 apply. 5

6 A decision concerning travel prohibition or the obligation of the debtor to surrender his passport shall be served on the debtor. Determination of bankruptcy petition etc. Section 14 In the event that a debtor s bankruptcy petition is dealt with, the court shall immediately determine the petition. However, the bankruptcy application of the debtor shall be determined at a hearing, if: 1. having regard to the information available or on some other ground there are special reasons not to accept the information about the insolvency of the debtor or 2. the application relates to the estate of a deceased person which has not been placed under the administration of an estate administrator and the application has not been made by all beneficiaries. The hearing shall be held within two weeks of the petition being delivered to the court. If there are special reasons, it may be held later but within one month at the latest. The debtor shall be summoned to the hearing. In the cases referred to in the second paragraph, item 2, the part-owners of the estate who are not parties to the petition should also be summoned. The petition may be finally determined even if the debtor fails to attend the hearing. He should be informed of this in the summons. A bankruptcy petition referred to in the second paragraph, item 2, shall be declared stayed if a request is made that the property of the estate of the deceased should be surrendered to administration by an estate administrator. If the property of the estate of the deceased is surrendered to administration by an estate administrator, the bankruptcy petition lapses. Section 15 A summons referred to in Section 14, third paragraph shall be served. The summons may be served in accordance with Section 12 of the Service Act (1970:428) only if there is reason to assume that the debtor has absconded or in some other way is in hiding. Service in accordance with Section 15, first paragraph of the Service Act may also be effected when the debtor is staying in a known place abroad if service cannot otherwise be effected in Sweden and the court, having regard to the circumstances, considers that it is not reasonable to demand that service be executed abroad. Section 16 6

7 If a creditor's bankruptcy petition is taken up, the court shall list a hearing for determination of the petition. The petition shall be held within two weeks of the petition being delivered to the court. If there are special reasons, it may be held later, but within six weeks at the latest. The parties shall be summoned to the hearing. The parties shall be informed in the summons about the sanction for non-attendance prescribed by Section 19. In the summons to the debtor, he shall be directed to answer the bankruptcy petition at the hearing. The summons shall also state that the debtor does not need to attend provided he in advance consents in writing to the petition and the court does not specially notify him that the hearing will nevertheless be held. Section 17 Section 15 applies to questions concerning summonses under Section 16. The documents submitted by the creditor shall be served on the debtor at the same time as the summons. If service on the debtor takes place in accordance with Section 15 of the Service Act (1970:428), the court may order that the property of the debtor be placed under special care. The expense for the care shall be paid for by the debtor. Section 18 If the debtor prior to the hearing consents to the bankruptcy petition of a creditor, the court shall immediately consider the petition. However, if the court, having regard to the available information or on some other ground considers that there are special reasons against assuming the insolvency of the debtor, the bankruptcy petition shall be considered at a hearing. The court shall immediately notify the debtor of this. If the question of declaring a debtor into bankruptcy is not considered at the hearing, the hearing shall be adjourned and the creditor immediately notified of this. Section 19 If the creditor fails to attend the hearing the matter shall be rejected unless the debtor consents to the petition. The petition may be determined finally even if the debtor fails to attend the hearing. Section 20 A hearing where the question of declaring the debtor bankrupt shall be determined may be postponed at the request of a party if 7

8 there are special circumstances. However, an adjournment should not be ordered if the applicant opposes this, unless there are extraordinary reasons. An adjournment for longer than four weeks must only be made if it is necessary. Section 21 If several bankruptcy petitions against the same debtor are pending in court simultaneously and if a petition other than that received first is approved, the bankruptcy decision shall be deemed to be based on the petition received first as regards issues that are dependent upon the time of the bankruptcy petition. Section 22 A bankruptcy petition may not be withdrawn after a decision of bankruptcy has been made. However, even if the debtor himself has applied for bankruptcy or consented to the bankruptcy petition of a creditor, a superior court may revoke the decision if the debtor on his appeal shows that he is solvent. Section 23 As regards the question of entitlement to compensation for expenses on determining the bankruptcy petition of a creditor, the relevant parts of Chapter 18 of the Code on Judicial Procedure apply. However, the provisions of Chapter 18, Section 2 shall not apply. Notwithstanding Chapter 18, Section 14, the creditor may in the bankruptcy make claims for compensation for such expenses in the order applicable to other claims. Measures on bankruptcy decisions, etc. Section 24 When a decision on bankruptcy is made, the district court shall: 1. immediately decide the date for the meeting at which the debtor shall make an estate inventory oath (meeting for the administration of oaths), 2. appoint an administrator as soon as possible, 3. summons the debtor, administrator, supervisory authority and the creditor who presented the bankruptcy petition to the meeting for the administration of oaths. Public notice of the bankruptcy decision shall be given immediately. Other debtors are summoned to the meeting for the administration of oaths by the public notice. The summons of the debtor under the first paragraph, item 3 shall be served. Section 25 8

9 If a superior court revokes a bankruptcy decision, the district court shall immediately give notice of the decision of the superior court. Property in the estate shall be restored to the debtor to the extent that it is not required to pay the bankruptcy expenses and other debts that the estate has incurred. Transfer of a bankruptcy Section 26 If following the issue of a bankruptcy decision there are extraordinary reasons for dealing with this bankruptcy at another district, the court may, following consultation with the district court at the other district, decide that the bankruptcy should be dealt with by the latter court. Chapter 3 Effects of bankruptcy The debtor s loss of power of control Section 1 Following the issue of a bankruptcy decision, the debtor may not control property belonging to the bankruptcy estate. Nor can he enter into obligations which could be claimed in the bankruptcy. Section 2 A legal act between the debtor and some other person taken not later than the day following that on which the public notice of the bankruptcy decision was inserted in Post och Inrikes Tidningar (Official Gazette) shall, notwithstanding that provided in Section 1, apply unless it can be shown that the other person knew of the decision or that circumstances existed whereby he had reasonable cause to assume that the debtor was declared bankrupt. The transfer of or other disposal of property by reason of this shall nevertheless, if the bankruptcy estate without unreasonable delay so claims, be annulled on the estate compensating the other party for what he has paid together with necessary or beneficial expense. If a person satisfies an obligation towards the debtor after the date stated in the first paragraph, this shall be credited to him if the circumstances indicated that he was in good faith. Notice of termination or other similar legal act taken against or by the debtor after the said date shall apply if the circumstances indicate that the other party was in good faith and it is clearly unreasonable that the legal act should not be valid against the bankruptcy estate. 9

10 There are special provisions on the effect of the debtor s transfer or pledging of negotiable promissory notes, share certificates or certain other comparable instruments. Property included in a bankruptcy estate Section 3 A bankruptcy estate includes, to the extent not otherwise provided by Section 2, all property belonging to the debtor when the bankruptcy decision was made or that accrues to him during the bankruptcy and that are such that they may be attached. The bankruptcy estate also includes the property that can be brought into the estate by recovery under Chapter 4. Section 4 In order to claim the wages of the debtor and benefits equivalent thereto exceeding the reserved amount, the administrator may on behalf of the bankruptcy estate request attachment by the enforcement authority under Chapter 7 of the Enforcement Code. Chapter 7, Section 19, second paragraph of the Enforcement Code provides that attachment of wages in progress at the commencement of the bankruptcy may continue for the account of the bankruptcy estate. (Act 1995:308) Section 5 The debtor is entitled to receive from the bankruptcy estate such property which in accordance with Chapter 5, Sections 1, 2 and 4 of the Enforcement Code is exempt from attachment. Instead of applying Chapter 5, Section 1, item 7 of the Enforcement Code, if no other means of support exists, necessary maintenance may be paid from the bankruptcy estate to the debtor and his family or other person entitled to maintenance for one month from the date when the bankruptcy decision was issued or, if there are extraordinary reasons for so doing, for a longer period. In the bankruptcy of a deceased person, the surviving family of the deceased have such benefits as are referred to in the first paragraph. Instead of the second paragraph, Chapter 18, Section 5, second paragraph of the Inheritance Code applies. Section 6 Disputes between the administrator and the debtor or other person on issues referred to in Sections 4 and 5 shall be determined by the supervisory authority on the application of the administrator, a creditor, the debtor or a person entitled to maintenance. The authority shall take into account expressions of views to the extent necessary for the determination. The decision of the authority applies immediately even if it is appealed against. 10

11 The decision shall be altered following the application if later circumstances made known or an altered situation give reason for so doing. The decision of the supervisory authority in a matter referred to in the first paragraph may be appealed against by a person whose rights are affected by the decision. The provisions of the Enforcement Code on appeals against decisions on attachment of wages apply to matters concerning such an appeal. (Act 1995:793) Attachment on bankruptcy Section 7 Following the issue of a bankruptcy decision, property belonging to the bankruptcy estate may not be attached for claims against the debtor unless otherwise provided by Chapter 7, Section 19, first paragraph of the Enforcement Code. Attachment made in contravention of this is ineffective. Nevertheless, bankruptcy property to which a legal charge for a certain claim applies may be attached for the claim. (Act 1996:132) Section 8 If attachment of the debtor has taken place before a decision of bankruptcy is issued, enforcement shall proceed notwithstanding the bankruptcy unless otherwise provided by the second or third paragraph. If the applicant for attachment did not have a legal charge and if the priority right that he has attained by the attachment should be annulled, a sum, which according to the Enforcement Code would have been payable to the applicant for attachment or other creditor without a legal charge, shall be reported to the administrator. At the request of the administrator, enforcement shall be postponed if it is necessary to protect the rights of the creditors or if there are other extraordinary reasons for so doing. Postponement may also be requested by a creditor whose entitlement depends thereon. If an auction is scheduled, the bankruptcy estate shall pay the expense wasted by reason of the postponement. If the applicant for attachment did not have a legal charge and if the priority right that he has attained by reason of the attachment is annulled, the attachment shall also be annulled if the administrator requests this before the property has been sold. Bankruptcy litigation, etc. Section 9 If litigation is proceeding between the debtor and some other person concerning such property as belongs to the bankruptcy estate, the bankruptcy estate may take over the debtor s action. If 11

12 the estate, although it has been notified of the litigation, does not take over the debtor s action, the property shall be deemed not to belong to the bankruptcy estate. The property may not, while the bankruptcy is proceeding, be attached for a claim that can be made in the bankruptcy. If the bankruptcy estate takes over the debtor s action, that prescribed by the Code on Judicial Procedure apply to the person to whom the transfer has been made in accordance with Chapter 13, Section 7 of the same Code concerning the obligation of the estate to pay for litigation expense. If an action is pursued against the debtor concerning a claim that may be made in the bankruptcy, the bankruptcy estate may enter into the litigation on the side of the debtor. The debtor shall notify the court about the bankruptcy in those cases referred to in the first and second paragraphs. The court shall notify the bankruptcy estate of the litigation. In cases concerning orders for payment and assistance, these provisions regarding the court apply instead to the enforcement authority. (Act 1991:857) Section 10 If the administrator considers that an offer of settlement concerning an uncertain or contentious asset should be accepted, the debtor may himself, subject to an obligation to provide reports to the bankruptcy estate, pursue the dispute if he provides security for that tendered by the settlement. Chapter 4 Recovery by bankruptcy estate Introductory provisions Section 1 Recovery by a bankruptcy estate may, at the request of the estate, take place in accordance with that stated in this chapter. However, there can be no recovery of: 1. payment of tax or other fees referred to in Section 1 of the Priority Rights regarding Taxes Act (1971:1072) if the debt is due for payment, 2. payment of or priority right to maintenance allowance in accordance with the Marriage Code or the Code on Parents, Children and Guardians if the amount of the allowance was due for payment and the person entitled to maintenance has not been favoured in an improper manner. 12

13 Section 2 By `day of grace is meant the day when the petition to declare the debtor bankrupt was delivered to by the district court. If a decision has been issued concerning a company reconstruction in accordance with the Company Reconstruction Act (1996:764), `day of grace means instead the date for the petition for company reconstruction, provided that the bankruptcy petition has been made during the company reconstruction or within three weeks of the court deciding that the company reconstruction should discontinue. If an application concerning debt reconstruction in accordance with the Debt Relief Act (1994:334) has been made, `day of grace means instead the day of that application, provided that the bankruptcy petition has been made within three weeks of the matter of debt reconstruction being determined. If the estate of a deceased person has been surrendered to administration by an estate administrator, 'day of grace' means the day of application for this, provided that the estate administrator was appointed up to three months before the date which would otherwise be regarded as a day of grace. (Act 1996:775) Section 3 Close relative of the debtor means a person who is married to the debtor or is a sibling or is a direct descendant or ancestor of the debtor or is related trough marriage to him by a direct descendant or ancestor or where one is married to the other s sibling as well as a person who in another way is particularly close to the debtor. Furthermore, close relative of a businessman or a legal entity means: 1. a person who has a substantial joint interest with the businessman or the legal entity based on entitlement to a share or financial interest equivalent thereto, 2. a person who not alone but together with a close relation to him has such a joint interest with the businessman or the legal entity mentioned under item 1, 3. a person who, by a management position, has a decisive influence on the operation conducted by the businessman or the legal entity, 4. a person who is a close relative of someone who is a close relative according to items 1 to 3. Section 4 13

14 A disposition of real property is not considered to have taken place before a land registration application is made. Preconditions for recovery Section 5 A legal act, whereby a particular creditor has in an unfair manner been favoured in preference to others or whereby the property of the debtor has been concealed from the creditors or his debts have been increased, is annulled if the debtor was or by the procedure, solely or in combination with another factor, became insolvent and also the other person knew or ought to have known of the insolvency of the debtor and the circumstances making the legal act improper. A close relative of the debtor shall be considered to have such knowledge stated in the first paragraph unless it is shown that he probably neither knew nor ought to have had such knowledge. If the legal act took place more than five years before the day of grace, it is only annulled when it applies to a close relative of the debtor. Section 6 A gift is annulled if it has been completed up to six months before the day of grace. A gift completed before then but up to one year or, when it has been made to someone who is a close relative of the debtor, up to three years before the day of grace, is annulled unless it can be shown that the debtor after the gift retained property that could be the subject of execution and which clearly met his debts. The first paragraph also applies to sales, exchange or other agreement if, having regard to the disproportion between the consideration of the respective parties, it is manifest that the agreement was partially in the nature of a gift. Support and customary gifts that were not disproportionate to the financial circumstances of the debtor are exempt from recovery under this section. Section 7 A division of property between the debtor and his spouse or the estate of a deceased spouse, whereby the debtor has relinquished his entitlement to a considerable extent or declined property in respect of which a claim against him has been allocated to his portion, is annulled to a corresponding extent, if the division of property document has been delivered to the court up to three years before the day of grace and it is not shown that the debtor after the division of property retained property that could be the subject of execution and which clearly met his debts. 14

15 That provided in the first paragraph concerning the case where the debtor has declined property by means of a claim against him being allocated to his portion does not apply if the property constituted the joint home or household chattels of the spouses and was taken over by the other spouse by virtue of the provisions in Chapter 11, Section 8 of the Marriage Code. Section 8 The payment of wages, fees or pension, made up to six months before the day of grace and which obviously exceeded what could be regarded as reasonable having regard to the work performed, the profitability of the operation and circumstances in general, is annulled at a sum corresponding to the excess. If the payment was made before then but up to one year or, when it has been made to someone who is a close relative of the debtor, up to three years before the day of grace, it is annulled to a corresponding extent unless it is shown that the debtor after payment retained property that could be the subject of execution and which clearly met his debts. Section 9 A transfer of resources to a pension fund, which occurred up to six months before the day of grace and which has meant that the fund obtained an access of capital, is annulled by a sum corresponding to the excess. If the transfer occurred before this but up to one year or, where the measure materially favoured the debtor or a close relative of his, up to three years before the day of grace, it is annulled to a corresponding extent unless it is shown that the debtor after payment retained property that could be the subject of execution and which clearly met his debts. A transfer to a pension fund in cases other than those mentioned in the first paragraph is annulled if the transfer occurred up to three months before the day of grace. If the transfer substantially favoured the debtor or a close relative of his, it is also annulled if the measure occurred before then and up to two years before the day of grace and it cannot be shown that the debtor either was, or by the measure became, insolvent. A transfer of resources to a staff fund is annulled if the transfer occurred up to six months before the day of grace. If the transfer took place before that but up to one year or, where the measure materially favoured the debtor or a close relative of his, up to three years before the day of grace, it is annulled unless it is shown that the debtor after the transfer retained property that could be the subject of execution and which clearly met his debts. 15

16 There are provisions contained in Section 117 of the Insurance Contracts Act (1927:77) concerning entitlement to demand the return of insurance premiums, etc. in certain cases. Section 10 Payment of a debt that occurred up to three months before the day of grace and which was made with something other than customary means of payment, prematurely or in an amount that has considerably caused the deterioration of the financial position of the debtor, is annulled unless it can nevertheless be considered ordinary having regard to the circumstances. If the payment was made to someone who is a close relative of the debtor before then but up to two years before the day of grace, it is annulled unless it can be shown that the debtor neither was, nor by the measure became, insolvent. The provisions of the first paragraph concerning recovery of payments also apply when set-off has taken place, if the creditor was not entitled to a set-off in the bankruptcy in accordance with Chapter 5, Section 15 or 16. Section 11 Payment for a bill of exchange or a cheque is annulled in those cases referred to in Section 10 only to the extent that the person receiving the payment was entitled to refuse to do so without losing the right to the bill of exchange or the cheque against some other person against whom he could have received cover. If recovery of a payment is excluded as a consequence of that stated in the first paragraph, the person who would have borne the final loss if payment had not been made is liable to pay compensation under the same preconditions as had applied for recovery, if payment had been made to him as creditor. Section 12 Security that the debtor has transferred up to three months before the day of grace is annulled unless it was provided when the debt was created or was transferred without delay after the creation of the debt. If the security was transferred to a person who is a close relative of the debtor before then but up to two years before the day of grace, it is annulled in accordance with the conditions stated unless it is shown that the debtor neither was, nor by the measure became, insolvent. Other measures by the debtor or creditor intended to secure the rights of the creditor are equated with a transfer of security. When a precondition for security is registration, delay referred to in the first paragraph shall be considered to exist if the application 16

17 has been made later than on the day of registration first occurring two weeks after the creation of the debt. Section 13 A priority right or payment which a creditor has gained by attachment is annulled if the priority right occurred up to three months before the day of grace. If attachment occurred for the benefit of a person who is a close relative of the debtor, the priority right or payment is also annulled if the priority right arose before then but up to two years before the day of grace and unless it is shown that the debtor either was, or by the measure became, insolvent. The provisions of the first paragraph do not apply if the priority right arose on the exchange of property which was attached up to three months before the day of grace or, in a case referred to in the first paragraph, second sentence, up to two years before the day of grace. (Act 1994:481) Effect of recovery Section 14 On recovery, the property which the debtor has provided is restored to the bankruptcy estate. A person who has provided the debtor with some consideration for the property is entitled to the return of what he provided. However, this does not apply to such consideration as has not been for the benefit of the estate if the person providing the consideration knew or ought to have known that the intention of the debtor was to deprive the creditors of this. If the property which should be recovered in accordance with the first or second paragraph is not retained, compensation for its value shall be paid. If recovery of specific property involves special inconvenience for the person obliged, he may be allowed to pay compensation in place of the property. Section 15 A person who is liable to restore property shall also pay the proceeds attributable to the period after recovery was claimed. If the property constitutes a sum of money or if compensation is paid for the value of property, interest is paid in accordance with Section 5 of the Interest Act (1975:635) until and including the day when the liability to repay the amount or pay compensation arises and in accordance with Section 6 of the Interest Act for subsequent periods. If a person should restore property on recovery in accordance with Section 5, he may be declared liable to pay also the proceeds attributable to the period from when he received the property 17

18 until recovery was claimed. Interest for such time is computed in accordance with Section 5 of the Interest Act. A person who has spent necessary or beneficial expense on the property recovered is entitled to receive compensation for that unless there are special reasons against it. If security based on registration is recovered, the registration document shall be restored or if it is required as evidence for the debt, made available for exchange or mortification of the registration. If this cannot be done compensation should be paid. Section 16 If a third party has presented property as security for an obligation of the debtor and had the security returned after the debtor has satisfied the obligation, the person who has returned the security is not liable on recovery to restore more than that exceeding the value of the security if he cannot obtain its return and, when he returned the security, neither knew of nor ought to have known of the insolvency of the debtor. A third party is liable to the creditor or, if the bankruptcy estate requests, direct to the estate to once again provide the security or compensate for its value on the same preconditions as would have applied for recovery of the satisfaction if it had instead been made to him. The first and second paragraphs also apply when a third party has entered into a guarantee for the obligation of the debtor and the debtor has satisfied the obligation. Section 17 The obligation of some person other than the bankruptcy estate in accordance with Section 14, 15 or 16 to deliver property or pay compensation, return or make available a registration document or once again present security or a guarantee may be adjusted if there are extraordinary reasons. Section 18 If the property that may be recovered has been transferred to another, the bankruptcy estate has the same right of recovery against that person if he knew or ought to have known of the circumstances forming the basis of that entitlement. Actions for recovery, etc. Section 19 The administrator may demand recovery by: 1. instituting proceedings in a general court, 18

19 2. making an objection to a lodged proof of debt or in connection with distribution proceedings, contest the claim in other procedures concerning payment or priority rights in the bankruptcy, or 3. making an objection against another application presented in litigation against the bankruptcy estate. If the administrator does not wish to demand recovery and a settlement in the matter is not made, a creditor may require recovery by instituting proceedings in a general court. No special measure is required for annulment of priority rights gained through execution. (Act 1994:481) Section 20 A recovery action in a general court may be instituted within one year of the day of the bankruptcy decision. An action may also be instituted within six months of when grounds for doing so became known to the bankruptcy estate. If the debtor has disposed of real property or if there is a question of annulment of a division of property, an action may also be instituted within six months of the date when land registration was applied for or the division of property document was submitted to the court. A creditor conducting proceedings is responsible for litigation costs but is entitled to obtain compensation for these from the estate, to the extent that the expense covered the benefit accruing to the estate by the litigation. Section 21 A person who by reason of recovery obtains an entitlement in the bankruptcy need not lodge proof of claim. If distribution has taken place, he is, when making the return to the estate, entitled to deduct what he ought to have received as a share in accordance with a previous proposal for distribution had the claim then been known. In the event of later distribution, the share is computed for what may remain of such a claim. Chapter 5 Claims in bankruptcy Claims which are recognised Section 1 In bankruptcy, only claims arising before the issue of the bankruptcy decision may be recognised unless provided differently by Chapter 3, Section 2. 19

20 A claim may be recognised in bankruptcy even if it is dependent upon conditions or is not due for payment. Section 2 In bankruptcy, claims for wages, fees or pensions are not recognised to the extent that the claim manifestly exceeds that which may be regarded as reasonable having regard to the work done, profitability of the operation and circumstances generally. A person who in accordance with Chapter 4, Section 3 is to be regarded as a close relative of the debtor cannot make a valid claim beyond the extent considered reasonable having regard to that stated in the first paragraph and may not in any case refer to a period prior to one year before the bankruptcy petition was delivered to the district court. Section 3 A claim for pension may not be recognised as valid to the extent that it is paid by a pension fund. Claims subject to joint liability to pay Section 4 If several persons have undertaken, or in some other way incurred, joint liability to pay and if the debt is partially paid, the distribution for the remaining claim of a creditor in the bankruptcy of a jointly liable debtor is computed on the amount of the claim without deduction for repayments that a joint debtor has made: 1. if the repayment took place following composition, bankruptcy or other distribution of an insolvent joint debtor s estate, 2. if it took place up to three months before the day of grace referred to in Chapter 4, Section 2, or 3. if and to the extent that the repayment involved entitlement for the joint debtor to reclaim the amount from the bankrupt debtor (right of subrogation). However, if the bankrupt debtor has satisfied a subrogation demand of a joint debtor and recovery of this has not taken place a deduction shall be made. If the distribution exceeds the remainder of the creditor s claim, the excess shall be distributed in accordance with the liability of the debtors inter se for the claim. 20

21 Chapter 2, Section 20 of the Trading Partnership and Sole Trader Act (1908:1102) prescribes how distribution of a claim against a trading partnership is computed in the bankruptcy of a partner. Section 5 When payment has been made of a claim in respect of which several persons are jointly liable and distribution to the creditor should in accordance with Section 4 be computed at a sum greater than the remaining claim, the distribution is computed jointly for the creditor and a joint debtor who has a subrogation claim. The creditor has priority for payment over the joint debtor. If several joint debtors are entitled to payment of that remaining after the creditor has received his part, the excess shall be distributed between them in accordance with the liability of the debtors inter se for the claim. The relevant parts of the first paragraph also apply when a joint debtor asserts a subrogation claim as a result of what he later may have to pay in excess of that which should be attributed to him. Section 6 If a creditor receives a distribution in a case where the bankrupt debtor has presented security in his property for a subrogation claim which a jointly liable debtor may obtain against him, the entitlement of the joint debtor to utilise the security is reduced with the amount of the distribution to the extent that the distribution has been computed on an amount corresponding to the value of the security. The first paragraph also applies when the bankrupt debtor has a claim against the joint debtor which the bankrupt debtor could have used as a set-off. Section 7 If a joint debtor who is jointly liable has paid the debt up to three months before the day of grace stated in Chapter 4, Section 2 the distribution for the subrogation claim which he has thereby obtained shall be computed on the same amount as would have applied as regards a distribution to the creditor if the debt had not been paid. However, if any other joint debtor who is jointly liable has a subrogation claim by reason of a previous repayment, the distribution shall be divided between the joint debtors in accordance with the liability of the debtors inter se for the claim. Section 8 If a jointly liable debtor has been declared bankrupt and if that bankruptcy has not been closed before the joint debtor was declared bankrupt, the bankruptcy estate of the former is entitled to a portion of the excess in accordance with Section 4, third paragraph, even if a claim for subrogation was not lodged in the bankruptcy of the joint debtor. 21

22 Section 9 The provisions of Sections 4 to 8 concerning joint liability to pay also apply in those cases where the debtor has obtained a legal charge or other security in the property of a third party. Certain claims which are dependent on conditions Section 10 If a claim is dependent upon a condition whereby the creditor is not entitled to receive the amount of the claim unless a certain event occurs, distribution for the claim shall not be computed in one distribution proposal if there is no reason to assume that the condition will be satisfied. Computation of interests for claims during bankruptcy, etc. Section 11 As regards a claim that is subject to a priority right and which bears interest, the interest shall be computed up to the date when the distribution proposal was prepared or, if funds are paid in advance, the date of payment. If a claim that is subject to a priority right but does not bear interest could have been made interest bearing by service of a summons or by an application for an order to pay, interest on it shall be computed in accordance with Section 5 of the Interest Act (1975:635) from the day of the bankruptcy decision, if the claim was then due for payment, and otherwise from the later date on which the claim fell due for payment. Interest shall be computed up to the date referred to in the first paragraph. For claims without a priority right, interest between the creditors is computed from the date of the bankruptcy decision only if the estate is sufficient to pay more than the amount of all claims in the bankruptcy without priority rights including, when appropriate interest accrued at the time of the bankruptcy decision. Interest is decided by applying the first and second paragraphs. (Act 1991:857) Section 12 As regards a claim that does not bear interest before the due date for payment, the distribution is computed only on the amount which after annual interest of five per cent comprises the value of the claim on the date stated below, provided the claim is not then due for payment, namely: 1. if the claim is paid in full or with priority right, the day on which the distribution proposal is prepared, 22

23 2. if the claim is not subject to a priority right and is not paid in full, the day of the bankruptcy decision. If funds are paid in advance to the creditor for a claim referred to in the first paragraph, item 1 and if the claim was not then due for payment, the distribution shall instead be computed according to the value of the claim at the day of payment. Valuation of certain claims Section 13 A claim relating to a benefit which is not payable in money shall on distribution be estimated at a reasonable amount. A claim for pension that is not due for payment on the date when the distribution proposal is prepared, shall be estimated to be the sum that corresponds to the part of the pension commitment that had accrued on that date. The estimation is made with the guidance of Sections 2 and 3 of the Pensions Undertaking Security, etc. Act (1967:531). A claim for interest or other benefit to be paid during the lifetime of a person and which is not due for payment on the date when the distribution proposal was prepared, shall be estimated with the guidance of Section 3 of the said Act. A claim in foreign currency shall be computed according to the rate of exchange applicable on the day when the distribution proposal is prepared. If funds are paid in advance to the creditor, the computation is made according to the rate of exchange at the day of payment. Section 14 If a debtor who made a composition in a bankruptcy is once again declared bankrupt before the composition is satisfied, a creditor whose claim has been reduced by the composition is entitled to distribution for the whole of the claim s original amount after deduction of what he has already received. However, he may not receive more than what he was entitled to under the composition. The first paragraph also applies when the debtor made a composition in accordance with the Company Reconstruction Act (1996:764). (Act 1996:1056) Set-off in bankruptcy Section 15 A claim against a debtor which may be recognised in the bankruptcy may be used by the creditor to set-off a claim that the debtor had against him when the bankruptcy decision was issued. However, this does not apply if set-off was excluded out of the bankruptcy by reason of the nature of the claims. 23

24 If a claim is dependent upon a condition whereby the creditor is entitled to receive the amount of the claim only if a certain event occurs, the creditor shall nevertheless complete his obligation although he was otherwise entitled to a set-off. However, if he, before the date on which the distribution proposal is prepared, shows that the condition has been met, he is entitled to the return of a corresponding amount to the extent that it does not exceed what he is able to claim. If there is reason to assume that the condition will be satisfied later, an estimated amount shall be reserved for the creditor when the distribution proposal is prepared. Section 16 A claim against the debtor acquired by a transfer from a third party up to three months before the day of grace stated in Chapter 4, Section 2 may not be used in set-off against a claim which the debtor had when the creditor acquired his claim. This also applies if a claim against the debtor has been transferred previously by such transfer and the creditor then had reasonable reason to assume that the debtor was insolvent. A creditor who has placed himself in debt to the debtor in circumstances equivalent to payment by means other than customary means of payment, may not set-off to the extent that such payment could have been the subject of recovery. Section 17 A claim for compensation held by a guarantor or some other person by reason of an obligation that he has satisfied (subrogation claim) is, when applying Sections 15 and 16, deemed to have been acquired when his obligation was founded. Even if a proof of claim procedure takes place in the bankruptcy, a creditor with a right of set-off need not lodge proof of his claim to the extent that it is covered by the claim of the debtor. When a setoff cannot be effected, the creditor may nevertheless deduct that which should have been paid to him as a distribution in the bankruptcy if his claim up to the amount of the debt had been lodged in good time. If the estate transfers a claim so that a creditor thereby loses entitlement to set-off, the estate shall compensate the creditor for this. Chapter 6 Obligations of the debtor, etc. Prohibition on conducting business operations during bankruptcy 24