Bankruptcy and financial difficulties

Pay claims

If your employer does not pay your salary, you need to act quickly. If you agree to continue working without pay in exchange for a promise that your salary will be paid later, there is a high risk that you will not receive a wage guarantee payment in the event of bankruptcy, as the wage guarantee scheme does not cover older salary claims.

You can read about how to pursue a pay claim and how we can help you on the page Pay claims – when you have not received your salary (Swedish).

What happens in the event of bankruptcy

The company, its employees or its suppliers can file for bankruptcy with the district court if the company is unable to meet its financial obligations.

An insolvency administrator is appointed to manage the company

If the district court decides that the company is bankrupt, an insolvency administrator takes over the management of the company and deals with its assets. The task of the insolvency administrator is to represent and safeguard the rights of all creditors.

The insolvency administrator will try to sell the company or its property and distribute the money from the sale among those who have claims on the company. After that, the company’s activities are to be discontinued. However, to prevent the destruction of capital, the company may continue to operate for a period of time.

If you have any questions about what will happen to your company’s business and your employment, you should contact the insolvency administrator. The insolvency administrator will usually call a meeting with the employees to explain what is going to happen.

Your employment situation

Usually, the insolvency administrator will terminate the employees’ employment due to shortage of work or redundancy. Your employment contract remains in force until it is cancelled either by you or by the insolvency administrator and the notice period has expired. If the company is unable to pay your salary, you are entitled to compensation from the government’s wage guarantee scheme.

If your salary is covered by the wage guarantee scheme and there is work available, you are obliged to work. It is up to the insolvency administrator to decide whether or not you need to do so. However, if you do not receive a salary or compensation, you may be entitled to stay at home. Contact us for advice if you are not receiving the salary you are entitled to. You can read about how to pursue a pay claim and how we can help you on the page Pay claims – when you have not received your salary (Swedish).

If your employment is not terminated but you continue to work for the bankruptcy estate after one month from the date of the adjudication of bankruptcy, you are not entitled to compensation from the wage guarantee scheme for your continued employment.

The wage guarantee scheme only compensates you for the notice period you have under the Employment Protection Act and does not take into account any other notice period agreed.

To receive compensation from the wage guarantee scheme, you must register as a jobseeker with the Swedish Public Employment Service (Arbetsförmedlingen) as soon as your employment has been terminated and you have been released from work.

If the business is sold, employment contracts are not automatically transferred to the new owner. However, you have a preferential right to be re-employed if the new employer needs to recruit.

Money and property are divided up

The money from the sale of the company’s property will be distributed to creditors in the order and to the extent provided for in the Swedish Rights of Priority Act (Swedish).

Employees are entitled to ‘preferential creditor’ status in terms of their salaries, and sometimes the money is sufficient to pay salaries that are not covered by the government’s wage guarantee scheme.

Company restructuring

The purpose of company restructuring is to try to restore the viability of a company in financial difficulties, thus avoiding bankruptcy.

The company applies for restructuring to the district court, which appoints a restructuring administrator. The restructuring administrator examines the possibilities of the company’s operations being continued and investigates the position in terms of writing down the company’s liabilities. Pay claims that are entitled to preferential treatment are not included in the writing down of liabilities.

The restructuring administrator acts as an adviser to the company, which continues to be run by the board of directors and management.

Restructuring a company can last for three months or be extended to a maximum of one year. The company cannot be declared bankrupt during that time.

Your salary and employment situation

During the restructuring, the usual employment law rules apply, such as those relating to terminations, seniority rules and automatic transfer if the business is sold.

If the company is unable to pay your salary during the restructuring period, you are entitled to compensation from the government’s wage guarantee scheme according to the same principle that applies in the event of bankruptcy.

The wage guarantee scheme

The insolvency administrator, or the restructuring administrator, decides who is entitled to a wage guarantee payment and what the amount should be. The Swedish Tax Agency pays out compensation from the wage guarantee scheme. If you have a claim for compensation from the government's wage guarantee scheme, you should notify the insolvency administrator or the restructuring administrator.

You can lodge an appeal against the decision to the district court within three weeks of the notification of the decision.

The wage guarantee scheme can reimburse claims for wages earned in the three months prior to the bankruptcy or restructuring petition being filed and one month after the adjudication of bankruptcy or restructuring decision.

Read more on our page About the government’s wage guarantee scheme (Swedish).

CEOs and the wage guarantee scheme

A CEO is also entitled to compensation from the government’s wage guarantee scheme. However, you are not entitled to a wage guarantee payment if you or a close associate own a substantial proportion of the company and have a controlling interest in the business.