Duplication and legal uncertainty in management of insolvency practitioners

Companies that are unable to pay their debts can be declared bankrupt or undergo restructuring. The Swedish National Audit Office has examined the central government’s efforts in such insolvency proceedings. The overall conclusion is that while proceedings are mainly effective, there are some shortcomings that should be addressed.

Shortcomings have come to light regarding the management of approved trustees in bankruptcy and administrators. In Sweden, there is no authorisation for insolvency practitioners. However, the district courts’ and Swedish Enforcement Authority’s management of administrators provides a form of informal authorisation, which leads to duplication of efforts and shortcomings in terms of consistency and legal certainty.

“For example, there are no legal provisions specifying when an insolvency practitioner should no longer be appointed, and insolvency practitioners have no means of appealing against such a decision. The Government needs to take the initiative here to bring some order to the situation,” says Deputy Auditor General Claudia Gardberg Morner.

The audit also shows that the Swedish Enforcement Authority lacks the authority to speed up the closure of bankruptcies that take an unnecessarily long time, for example when the bankruptcy estate cannot pay its debts or the trustee in bankruptcy’s fees. In these cases, the taxpayer covers the trustee in bankruptcy’s fee.

Restructuring should only be undertaken if the company is fundamentally viable and can survive in the long term. In 2022, stricter requirements for long-term viability for initiating restructuring were introduced. However, to date the stricter rules have not led to a higher proportion of companies surviving; just under one in two are still in business one year after the restructuring has been completed.

The Swedish National Audit Office considers that this is partly because the courts find it difficult to assess a company’s viability. Such decisions are always made under strict time constraints and require business economic considerations, for which not all district courts have sufficient expertise. The National Courts Administration could provide valuable support in this regard.

Administrators also need to take greater responsibility in this context. They usually gain an early insight into companies wishing to enter into restructuring proceedings, and need to make an accurate initial assessment of the prospects of saving the company. The Swedish Enforcement Authority should therefore strengthen its supervision of administrators, so that fewer restructuring attempts are initiated where it is clear at an early stage that they do not have the conditions to succeed.

Insolvency proceedings are designed to provide distributions to creditors. However, no government agency is monitoring developments in this area. The changes to bankruptcy proceedings due to come into force in July 2026 will transfer responsibilities from the central government to trustees in bankruptcy, which will ultimately lead to higher costs for the bankruptcy estate and lower distribution of proceeds.

“While these changes are likely to speed up proceedings, our assessment is that the central government has placed too little emphasis on payments to creditors,” says Joakim Grausne, project leader for the audit.