Divisions|Reorganisation

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Businesses with potential should be reorganised

As a rule, businesses with good market prospects, which for various reasons find themselves in financial difficulties, should be reorganised without going bankrupt.

Reorganisation takes place either under the Business Reorganisation Act (Lagen om företagsrekonstruktion), or by way of a voluntary business reorganisation (underhandsrekonstruktion). The profit and loss account and balance sheet of the business, together with market conditions and other external factors are carefully analysed and evaluated. A reorganisation plan is prepared following discussions with owners, lenders, suppliers, government agencies and others. The plan describes the financial problems of the business and sets out a solution.

The procedure normally involves a legally regulated compulsory (public) composition or a voluntary composition in which creditors waive a proportion of their claims. In some cases a grace period of varying duration may suffice, with the creditors ultimately receiving full payment.

A business reorganisation rescues the legal entity

In many instances the term "business reorganisation" is used as soon as any change is made to improve the profitability of a business. The term is also used when asset transfers are made before or during a bankruptcy to rescue a certain part of the company's business. A better term for actions of this kind is "operational reorganisation". A business reorganisation rescues the legal entity by reorganising it.

Business reorganisation under the Business
Reorganisation Act

The Act (1996:764) defines the term "business reorganisation" as a procedure available to an enterprise in order to reorganise its business. Reorganisation must follow the steps prescribed by law. During the reorganisation the debtor is protected against specific enforcement actions, such as distraint or bankruptcy, brought by individual creditors. An administrator appointed by the district court must be involved in carrying out the business reorganisation.

Business reorganisations may be carried out in various ways. In particular, a distinction is drawn between operational reorganisations and financial reorganisations. A composition is normally a key element in a financial reorganisation.

Operational reorganisation

An operational reorganisation involves taking action to change the debtor's production apparatus to improve profitability. This may entail changes in the range of products sold, a change in business premises or in the number of employees. When a financial crisis actually strikes, an operational reorganisation alone is not usually enough. A financial reorganization is needed to temporarily resolve the financial problems. An operational reorganisation is needed to ensure sound finances in the long term. The actions involved in an operational reorganisation are those taken on a day-to-day basis by most businesses.