- The payment behaviour of domestic companies is good and domestic courts are fairly efficient in dealing with disputes in a timely manner. However, collecting debt through pre-legal negotiation remains the most effective option.
- Recovering debt becomes virtually impossible when the debtor becomes insolvent since debt-renegotiation schemes allow up to 75% of the debt to be written off, while the priority rules set forth in liquidation proceedings make it unlikely for unsecured creditors to receive any part of the proceeds.
Collecting in Sweden
Availability of financial information
Financial information on domestic companies is fairly available and reliable in Sweden, as all Limited Liability Companies are obliged to disclose financial statements, which are made public.
Allianz Trade in Sweden cross-verifies financial information on domestic companies with credit information providers, and allocates each company a grade reflecting its financial health and how it conducts business. Grades represent a core of our knowledge and analyses, and help clients identify and avoid risk. Data is continuously monitored to offer the most up- to-date information to support management decisions.
Main corporate structures
Liability for business debts is determined by legal structures, which are described as follows:
- Sole Proprietorship (enskild näringsverksamhet) is available for small businesses managed by an individual and for which no commercial structure is necessary. In this case, the owner is held liable for all business debts. Two or more individuals may also decide to share ownership and responsibilities through Partnerships (handelsbolag, HB), in which case the partners may be jointly and individually liable for the actions of the other partners. Limited Liability Partnerships (kommanditbolag, KB) alternatively offer limited liability to the partners.
- Limited Liability Companies (Privat Aktiebolag, AB) represent the majority of businesses in Sweden since they require minimal capital funds (SEK 50,000=EUR 4,928) while the partners’ liability is limited to their contribution. Public Limited Companies (Publikt Aktiebolag, AB) are used for larger structures willing to divide their capital (at least SEK 500,000=EUR 49,280) into tradable shares. In these entities, the shareholders’ liability is limited to the value of their shares.
- Foreign companies may alternatively settle in Sweden through Branch Offices (filial) which provide no liability limitations to the foreign parent company. Subsidiaries (dotterbolag) would rather be set up through Limited Liability Companies. Joint Ventures are also an option.
Days Sales Outstanding (DSO)
Payments in Sweden take place within 30 days on average and the payment behaviour of domestic companies is very good. Delays are rare in practice.
For listed companies, the DSO is slightly higher but has remained stable over the last few years.
Late payment interest
Charging interest on late payment is fairly common in Sweden. Late payment interest is regulated under the Interest Law (Räntelagen (1975:635)). Unless a contract stipulates otherwise, interests for late payment must be calculated on the basis of the repo rate (reproräntan) of the Swedish Central Bank (Sveriges Riksbank) plus 8 percentage points. The Directive 2011/7/EU aiming at providing a harmonized framework against late payment practices in Europe has been transposed into the Interest Law through the Faster Payments Bill (Sw. Snabbare betalningar, prop. 2012/13:36), which states that payment in business-to-business transactions ought to occur within 30 days following the invoice’s issuing date.
The domestic rule, therefore, is more demanding than the EU standard.
Debt collection costs
Bank transfers are among the most popular payment means for international transactions as they are fast, secured, and supported by an increasingly developed banking network internationally and domestically. For export transactions, transfers may be guaranteed through an Export Credit Insurance policy, which helps minimize the risk of sudden or unexpected customer insolvency. Allianz Trade’ worldwide network of risk offices monitors the financial well-being of customers and grants them a specific credit limit up to which clients may trade and claim should something go wrong. Standby Letters of Credit (a bank guarantees the debtor’s credit quality and repayment abilities) may also be used as an instrument of last resort. In relation to export shipments, irrevocable and confirmed Documentary Letters of Credit (a debtor guarantees that a certain amount of money is made available to a beneficiary through a bank once certain terms, specifically agreed by the parties, have been met) are commonly relied upon.
Bank guarantees may otherwise be obtained at a fairly reasonable price. Checks, bills of exchange and promissory notes are not common since they do not offer efficient guarantees.
When the debt is certain and undisputed, and provided that the debtor’s assets are traceable, creditors may first rely on fast-track proceedings. An injunction of payment application (Betalningsföreläggande) may be filed with the Swedish Enforcement Administration (kronofogdemyndigheten) 12 days after the collection letter was sent to the debtor. If the injunction is granted, the debtor will be given two weeks to reply or it will be added to the official registers, thus most likely degrading their creditworthiness. If the claim for payment is not disputed, the Swedish Enforcement Authority (Sw. Kronofogdemyndigheten) may also issue a Payment Order (without any hearings of the parties required), which becomes fully enforceable four weeks later by the Authority. The execution cost is SEK 600= EUR 59. If a debtor opposes the Order, the creditor normally has ten days to file a request for the case to be heard by the Court through an ordinary lawsuit.
If the amicable phase fails or if the debtor questions the claim, the option of starting legal proceedings remains. Legal action would commence with the filing of a claim with the District Court, which then serves the debtor with Summons. The debtor must bring a defence within a couple of weeks, otherwise the creditors would be entitled to request a default judgment from the court. The parties would then exchange arguments and a hearing would be set up by the court prior to making a decision. The courts are to decide on remedies for damages, interest, litigations and also punitive damages. Where the debtor company is present in other EU Member States and provided that the debt is undisputed, the District Courts are also able to issue a European Payment Order enforceable in all European Union countries (except Denmark) without exequatur proceedings (Regulation 1896/2006/EC).
Lodging an appeal
Enforcing court decisions
How long could legal action take?
Undisputed cases that are brought to the County Court (Kantongerecht) or the District Court (Rechtbank) will take approximately one month. If the case is disputed, however, the courts could give a judgment within one year.
In principle, domestic courts do not take longer to deal with cases involving a foreign party than to deal with cases involving domestic parties only. In practice, some extra delays may nonetheless occur depending on the complexity of each case, for instance if a complex foreign law rules the transaction, if foreign witnesses or experts must be heard, etc.
How much could this cost?
Alternatives to legal action
Alternative Dispute Resolution methods (ADR)
Alternative Dispute Resolution methods are not necessary in relation to debt disputes since the domestic courts are efficient in delivering timely decisions. ADR under the Arbitration Act (Sw. Lagen om skiljeförfarande) is nonetheless common in Sweden, where mediation and arbitration are considered as a means to obtain decisions in a confidential and efficient manner.
Mediation involves the nomination of a mediator who is given responsibility for helping the parties reach a compromise. In other words, the mediator has no authority to decide on the behalf of the parties and they cannot bind the parties with a decision. An agreement is only binding if a settlement agreement is entered into between the parties at the end of the mediation. The mediator indeed acts as a facilitator to settlement.
Arbitration involves the parties agreeing to rely on an independent and impartial third-party arbitrator, who is given authority to settle their dispute on their behalf. The arbitrators’ decision will be binding on the parties.
As an out-of-court settlement method, ADR can be cost-effective, generally reduces delays, allows preserving confidentiality and offers a binding decision which may then be enforced before the courts, if necessary. When international transactions are involved, international arbitration may also be considered. The Stockholm Chamber of Commerce is particularly renowned for its competence on the matter.
Again, a foreign forum in relation to debt litigation is not necessary in Sweden, but it may be noted that the country is a signatory to the Rome I Regulation on the law applicable to contractual obligations, which stipulates that the parties to a contract may, by mutual agreement, choose the law applicable to their contract, and select the court that will have jurisdiction over disputes. Sweden is also a signatory to the Hague Convention of 15 June 1955 on the law applicable to international sale of goods, which stipulates that contracts shall be governed by the law chosen by the parties, the general spirit of the agreement and the circumstances of the case.
However, domestic courts would typically retain exclusive jurisdiction over specific areas of law (bills of exchange and checks, real estate, etc.). It is essential that the agreement be characterized by an international connection (for example, one party has elected domicile in another country, or the place of execution is located abroad), and that a jurisdiction clause is specifically drafted for this purpose.
Enforcing foreign awards
As previously mentioned, use of foreign forums in order to obtain enforceable decisions against local debtors is rather unusual.
Nonetheless, foreign decisions issued against foreign debtors may be enforced in certain circumstances.
On one hand, decisions rendered in an EU country would benefit from particularly advantageous enforcement conditions. Apart from EU Payment Orders which are normally enforceable directly in domestic courts, the two main methods of enforcing an EU judgment in Sweden are by the use of a European Enforcement Order (EEO, as provided under Regulation EC No. 805/2004) when the claim is undisputed, or by registering the judgment under the provisions of the Brussels I Regulation (44/2001).
If the judgment qualifies as an uncontested claim, it can be enforced directly (i.e. without registration) by use of an EEO provided that the debtor has identified assets in the country. A European Small Claims Procedure (as provided by Regulation EC 861/2007) aiming at eliminating intermediate steps may similarly be relied upon while enforcing decisions up to EUR 2,000.
If the claim is disputed, the procedure for registering an EU judgment with domestic courts is relatively simple. The judgment holder must apply to the relevant court for the judgment to be registered and provide the court with, among other documents, an authenticated copy of the judgment, a certified translation and, if interest is claimed, a statement confirming the amount and rate of interest at the date of the application and going forward. Once the judgment has been registered, it can be enforced as if it were issued by domestic courts (according to the Recast Regulation EC 1215/2012, such an exequatur procedure is no longer required from January 2015).
On the other hand, judgments issued in non-EU countries would be recognized by the Svea Court of Appeal and enforced provided that the issuing country is party to a reciprocal recognition and enforcement treaty with Sweden.
Restructuring the debt
Under the Company Reorganization Act (1996:764), companies deemed unable to pay their debts can apply for reorganization (rekonstruktion) as long as there are reasonable grounds to believe that the reorganization can achieve its purpose. An administrator (rekonstruktör) is appointed to supervise the company while the parties negotiate a debt restructuring plan (underhandsackord) under which up to 75% of the debt may be written off.
During the reconstruction period, a moratorium is set up to prevent payment of old debts occurred before the proceedings. A reconstruction takes six months and can be postponed an additional twelve months.
When the debtor’s assets cannot compensate the debts, the creditors may file a bankruptcy (Konkurs) petition with the court. A preliminary administrator is appointed to assess the economic situation of the debtor company and to establish a list of the creditors. The company’s assets are then sold, while the proceeds are distributed to the creditors according to their respective priority ranks.
When the debtor’s assets can cover its debt, by contrast, the debtor may voluntarily file for ‘Likvidation,’ in which case the court would conduct the selling of the company’s assets as it deems necessary to cover the debt. A compulsory liquidation process (Tvångslikvidation) may also be considered in certain specific circumstances.