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The Swedish legislator (riksdagen) issued new rules regarding both right of priority and floating charges on July 17 2003.

The existing Swedish right of priority legislation is set forth in the Right of Priority Act (SFS 1970:979). These rules become applicable when assessing a creditor's right of priority in the event of execution of debt, bankruptcy or insolvent liquidation. The rules relating to floating charges are set forth in the Floating Charges Act (1984:649).

The objectives of the new legislation are: (i) to focus decisions with respect to loans more on the borrower's repayment ability than on security; (ii) to enable business reorganization without bankruptcy through earlier reorganizations; and (iii) to abolish the possibility of competition on unequal terms that arises when an estate in bankruptcy may continue the operation of its business, because wages to dismissed employees who work for the estate are compensated by the Swedish state wage guarantee.

The main points of the new legislation are as follows:

  • that the floating charge be reconstituted into a general right of priority in 55% of all the property of the business;
  • that the right of priority for tax claims and public fees be abolished;
  • that the right of priority for wage claims be restricted to wages which accrued during a period of three months before the filing of the bankruptcy petition; and
  • that the Swedish state wage guarantee for those who work for the estate during the period after notice of dismissal be abolished (except for the first month after the commencement of the insolvency proceedings) and that the wages instead shall be paid by the bankrupt estate; and
  • that the right of priority for rental claims be abolished.

The new rules will enter into force on January 1 2004. However, the current rules regarding floating charges will apply until January 1 2005 in relation to floating charges created before January 1 2004.

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