Debt Collection in Sweden

• Swedish courts are fairly efficient at resolving lawsuits in a timely manner, but debt collection by pre-legal arbitration is the most effective option.

• Debt recovery becomes very complicated when the investor is insolvent, even though there are credit renegotiation plans with a legal limit of 75 per cent loan write-off, clawback procedures and title rights preservation.

• The priority principles laid down in the liquidation process make it unlikely that unsecured creditors would obtain any part of the proceeds in the event of winding up.

1. Summary

1.1. General financial information

1.1.1. Domestic company financial information is fairly available in Sweden, as all Limited Liability Companies are obliged to disclose accounts that are made public.

1.2. Key legal structures

1.2.1. Corporate debt responsibility is defined by legal structures identified as follows:

• Sole proprietorship (enskild näringsverksamhet) is essential for independently run small businesses for which no contractual arrangement is needed. In this case, the owner shall be held liable for all commercial debts. Two or more people may also decide to share responsibility and obligations by Partnerships (Trade Bolag, HB), in which case the partners may be collectively and separately liable for the other spouses' acts. Alternatively, Limited Liability Partnerships (KB) offer limited liabilities to partners.

• Limited Liability Companies (Privat Aktiebolag, AB) represent the majority of companies in Sweden because they require minimum capital contributions (SEK 50,000) while the responsibility of the investors is confined to their allocation. Public Limited Companies (Publikt Aktiebolag, AB) are used to split their resources (at least SEK 500,000) into tradable securities on larger structures. Shareholders ' interest in these companies is limited to the valuation of their stock.

• Foreign companies may instead settle in Sweden by branch offices (subsidiary offices) which do not provide the foreign parent company with liability limits. Subsidiary corporations (dotterbolag) may tend to be formed by limited liability companies. Joint ventures are an option, as well.

1.3. Regulatory framework

1.3.1. In Sweden, the judiciary divides into District Courts (competent to deal with all claims, regardless of value considerations), Court of Appeal and Supreme Court. Specialized industrial units find corporate conflicts whereas regulatory disagreements are dealt with before the judicial tribunals. In fact, the laws are codified and backed by the evolution of case law.

2. Receiving payments

2.1. DSO - Days Sales Outstanding

2.1.1. Transactions in Sweden take place on average within 30 days and the domestic companies' payment behaviour is very strong. In reality the deviations are uncommon. The DSO is slightly higher for listed companies, at 56 days.

2.2. Late interests

2.2.1. In Sweden, interest paying on late payment is fairly common. Late payment interest is governed by the Räntelagen (1975:635) Act of Interest. Unless otherwise stipulated by law, late payment interest shall be determined on the basis of the Swedish Central Bank (Sveriges Riksbank) repo rate (reproräntan), plus 8 percentage points.

2.2.2. Directive 2011/7/EU, which seeks to provide a harmonized structure against late payment activities in Europe, was transposed into the Interest Act by way of the Faster Transactions Bill (Sw. Snabbare betalningar, prop. 2012/13:36), which specifies that payment of business-to-business transactions should be rendered within 30 days from the date of issue of the invoice. Therefore, domestic law is more stringent than EU practice.

2.3. Costs of debt collection

2.3.1. Collection costs are regulated by law, with the possibility to charge a flat fee of 450 SEK which covers several debt collection actions. It is not common to charge this flat fee and many companies would rather charge a fee per each debt collection action.

2.4. Protecting ownership

2.4.1. Title preservation (RoT) arrangements aimed at retaining possession of products after full payment of the relevant invoice is admissible in Sweden as long as the goods have not been handled or transferred (in good faith) to any third party. Such deals may be used as an excuse to reclaim the products or exert pressure when collecting debt during the pre-legal process of the proceedings.

2.5. Payments

2.5.1. Bank transfers are among the most common means of payment for international transactions since they are quick, safe and supported internationally and domestically by an increasingly integrated banking network. Transfers can be covered for export purchases through a scheme on export credit protection, which can minimize the risk of immediate or accidental insolvency of consumers.

2.5.2. Standby Letters of Credit (a bank guarantees the credit quality of the debtor and the ability to repay) may also be used as a last resort instrument. In the case of export shipments, irrevocable and confirmed Documentary Letters of Credit (a debtor guarantees that a certain amount of money will be made available to a beneficiary through a bank once certain conditions, specifically agreed by the parties, have been met) are commonly relied upon.

2.5.3. Bank loans can be received at a fairly reasonable price otherwise. Checks, swap bills and promissory notes are not popular as they do not have meaningful assurances.

3. Collecting payments

3.1. Amicable action

3.1.1. Swedish litigation is highly efficient; furthermore, easy mediation options are dangerous alternatives to formal legal proceedings. Therefore, before beginning legal proceedings against a debtor, asset appraisal is important because it allows assurance as to whether the business is still successful and whether chances of recovery are at best. Therefore, it is important to be mindful of the solvency condition of the debtor: once insolvency proceedings have been launched, the execution of a loan (see below) is indeed unlikely.

3.2. Legal action

3.2.1. Ordinary proceedings. If the debt is certain and unquestioned, and if the debtor's properties are traceable, creditors may first depend on fast-track proceedings. An injunction to apply for payment (Betalningsföreläggande) may be filed with the Swedish Enforcement Administration (kronofogdemyndigheten) 12 days after the debtor's letter of collection has been sent.

3.2.2. If the injunction is issued, the debtor will be given two weeks to respond or it will be applied to the official records, weakening their creditworthiness as a result. If the demand for reimbursement is not contested, the Swedish Compliance Authority (Kronofogdemyndigheten) may also impose a payment order (without any parties' proceedings required), which will be completely enforceable by the Authority for four to twelve weeks later. The sum of their execution is SEK 300. If a claimant refuses the Order, it normally takes ten days for the borrower to lodge an appeal for the dispute to be considered by the Court through a regular complaint.

3.2.3. If the amicable phase fails, or if the debtor questions the claim, there remains the option to initiate legal proceedings. Legal action will proceed with the filing of a lawsuit with the District Court, which then issues Summons with the defendant. The claimant would present a defense within a few weeks, otherwise the investors would be entitled to ask the court for a default judgment.

3.2.4. The sides would then trade claims, and the court would hold a trial before making a decision. The courts shall decide the relief for loss, debt, negligence and punitive damages as well. Where the debtor business is located in other EU Member States and where the debt is undisputed, the District Courts may also impose a European Payment Order enforceable without exequatur action in all European Union countries (except Denmark) (Regulation 1896/2006/EC).

3.2.5. Required documents: Invoices, financial summary, distribution notes and any other documentation that show the creditors ' privileges.

3.2.6. Time limits. Legal lawsuits typically have to be made within 10 years. These time limits are deemed to be legitimate legal requirements, so failure to comply with the rules will prohibit entry to justice.

3.2.7. Precautionary measures. Pending a final decision, precautionary measures can help to protect the interests of the creditor. Upon appeal, the courts will usually require interim remedies aimed at preserving the status quo and mitigating irreparable damage (attachment of the debtor's properties, compulsory injunctions for doing something, banning injunctions for preventing doing something, rights defense, etc.).

3.2.8. Nevertheless, it would be necessary to demonstrate that the lawsuit has a good chance of success and that, in the absence of precautionary measures, negligence alone would not satisfy. For emergency situations, the court may rule ex parte (i.e. without the applicant being present), but the court will usually ask the defendant to provide expense security to protect the respondent against reckless behavior.

3.2.9. The filing of a first-instance appeal case may be challenged within three weeks of notice, if the court gives the petitioner an appeal leave. Next, the Court of Appeal reviews the argument taking into account all substantive and empirical issues. Therefore, rulings made in second instance may be challenged before the Supreme Court, given that there is a question of legal interpretation at issue.

3.2.10. Enforcement of court decisions. A verdict can be applied as long as it becomes definitive (i.e. when all the areas of appeal are exhausted). If the debtor fails to pay, the Enforcement Authority (Kronofogdemyndigheten) may order seizure and sale of the debtor's properties.

3.2.11. Duration of a legal action. Undisputed cases brought before the District Court (tingsrätten) will take around one month. Nevertheless, if the argument is challenged, a verdict could be issued by the judiciary within a year.

3.2.12. Domestic courts do not in principle take longer to deal with cases involving a foreign party than dealing with cases involving only domestic parties. In fact, however, certain potential delays can exist depending on the complexity of each situation, for example if the agreement is regulated by a specific foreign law, if foreign witnesses or consultants have to be considered, etc. The losing party would, as a general rule, be required to pay part of the court and legal costs incurred by the successful Party.

3.3. Alternatives to legal action

3.3.1. Alternative Methods of Dispute Resolution (ADR). Alternative Methods of Dispute Resolution are not required in regards to debt cases because domestic courts are successful at providing prompt judgments. Nonetheless, ADR under the Arbitration Act (Lagen om skiljeförfarande) is common in Sweden, where mediation and arbitration are seen as a means of confidential and efficient decision-making.

3.3.2. Mediation requires the selection of a mediator to support the sides in finding an agreement. In other terms, the mediator has no policy-making powers on behalf of the parties and they can not commit the parties to a judgment. The arbitration is only final where a settlement agreement is reached at the conclusion of the negotiations between the parties. Indeed the mediator serves as mediation facilitator.

3.3.3. Arbitration requires the parties agreeing to rely on an independent and impartial arbitrator from a third party who has the power to resolve a disagreement on their behalf. The decision of the arbitrators shall be binding on the parties.

3.3.4. ADR can be cost-effective as an out-of-court mediation process, usually eliminating appeals, enabling secrecy to be maintained and delivering a legal judgment that can then be implemented before the courts, if necessary. The legal tribunal may also be regarded when including international transactions. The Chamber of Commerce in Sweden is especially renowned for its expertise in this subject.

3.3.5. Foreign forums. Again, a foreign debt arbitration tribunal in Sweden is not required, but it may be remembered that the nation is a signatory to the Rome I Agreement on the law relevant to contractual obligations, which stipulates that the parties to the contract may, by mutual agreement, choose the law applicable to their contract and choose the court with jurisdiction. 3.3.6. Sweden is also a signatory to the Hague Convention of 15 June 1955 on the law applicable to the international sale of goods which provides that contracts are governed by the law chosen by the parties, the general spirit of the agreement and the circumstances of the case.

3.3.7. Nevertheless, in addition, domestic courts will hold sole authority over particular areas of law (exchange and review bills, real estate, etc.). It is necessary that the arrangement be distinguished by an external relation (e.g. one individual has chosen domicile in another country, or the place of execution is situated abroad), and that a provision of authority be drawn up expressly for this.

3.3.8. Enforcing international awards. As stated above, it is rather rare to use foreign fora to achieve enforceable rulings against local debtors. Nevertheless, under certain conditions, international decisions taken against foreign debtors may be followed.

3.3.9. On the one side, decisions made in an EU country will profit from the especially favorable requirements for compliance. In comparison to EU enforcement judgments which are usually enforceable immediately in domestic courts, the two key ways of imposing an EU judgment in Sweden are the use of a European Compliance Order (EEO, as provided for in Regulation EC No 805/2004) where the allegation is unchallenged or the declaration of the judgment under the terms of Brussels I Regulation (44/2001).

3.3.10. If the judgment applies as an uncontested assertion, it can be strictly implemented (i.e. without registration) through the use of an EEO given the debtor has established properties in the nation. Similarly, a European Small Claims Process (as provided for in Regulation EC 861/2007) aimed at removing intermediate steps can be counted on while applying judgments of up to EUR 2000.

3.3.11. The process for filing an EU decision with domestic courts is relatively simple, if the argument is contested. To order for the judgment to be recognized, the judgment holder will appeal to the court involved and provide the court with, among other records, an approved copy of the judgment, a validated transcript and, if interest is asserted, a letter stating the amount and interest rate at the time of the application and forwards.

3.3.12. Once the judgment has been published, it can be applied as if it were given by domestic courts (such an exequatur process is no longer required from January 2015, according to Recast Regulation EC 1215/2012).

3.3.13. On the other side, the Svea Court of Appeal will accept and uphold decisions rendered in non-EU countries, providing that the originating country is subject to a mutual acknowledgement and compliance arrangement with Sweden.

4. Managing insolvent debtors

4.1. Insolvency in Sweden

4.1.1. The treatment of insolvent debtors Swedish insolvency legislation does not have a clear set of legal guidelines, although the Swedish Bankruptcy Act (1987:672) describes insolvency as being incapable of paying one's creditors in a proper manner where such incapacity is not immediate. Insolvent people may be declared bankrupt I konkurs), irrespective of whether they are legitimate or natural persons.

4.2. Insolvency proceedings

4.2.1. Out-of-Court proceedings. For the renegotiation of their debt, both companies and private persons can enter into negotiated and confidential agreements with creditors. These agreements are not governed directly by statute although they are handled in the same way as other types of agreement.

4.2.2. Debt restructuring. Under the Company Reorganization Act (1996:764), companies that are considered unable to pay their debts that file for reorganization (reconstruktion) as long as there are fair grounds to believe the reorganization will achieve its aim. An administrator (rekonstruktör) is named to manage the business while the parties are discussing a debt restructuring package (agreement) under which up to 75% of the debt can be balanced.

4.2.3. A moratorium is established during the reconstruction period to prevent payment of old debts that occurred prior to the proceedings. A restoration requires three to six months and a further twelve months can be delayed.

4.2.4. Winding up proceedings. The creditors can file a bankruptcy (konkurs) petition with the court when the debtor's assets are unable to pay the debts. A provisional supervisor is named to assess the debtor company's economic situation and to draw up a creditor register. The assets of the company are then sold, while the proceeds are allocated to the creditors according to their respective priority ranks.

4.2.5. In comparison, when the debtor's assets would exceed his liability, the debtor may willingly apply for' Likvidation,' in which case the court will enforce the auction of the company's assets as it finds necessary to cover the debt. In certain specific circumstances also a mandatory liquidation procedure (tvångslikvidation) may be regarded.

4.2.6. Priority rules. Complex priority rules usually occur when the proceeds from the sale of debtor's properties are transferred to the creditors. Usually, covered obligations (such as debts incurred as a result of the insolvency proceedings) would be tackled first. The demands of the employers (allmän förmånsrätt) will continue while unsecured creditors would be deemed last and their loans are seldom paid in court.

4.2.7. Cancelation of suspicious transactions. Liquidators are usually allowed to order the court to cancel suspicious transactions that have been made previous to insolvency. In particular, any measure taken by the debtor would typically be void, deemed fraudulent or detrimental to the creditors. Suspects can qualify for a term of up to five years.

4.2.8. Required documents. Copies of invoices, financial statements and distribution notes will be needed to prove and protect the interests of investors to launch legal action.