Chapter 15 in combination with a Swedish business reorganisation: a powerful alternative to Chapter 11
Over the past year, there has been considerable focus on Chapter 11 bankruptcy in the United States, particularly as some Swedish companies have pursued this route. However, a lesser-known US alternative—Chapter 15—enables Swedish companies to obtain recognition of Swedish reorganisation or bankruptcy proceedings in a US bankruptcy court. This recognition can grant a US stay and facilitate the enforcement of the Swedish reorganisation, particularly in relation to US- based assets and creditors.
This option has become especially attractive in light of the new Swedish Act on Business Reorganisation (Sw. lag om företagsrekonstruktion), effective 1 August 2022. The Swedish regime now incorporates features commonly associated with Chapter 11, such as an automatic stay and the possibility of securing super senior financing similar to debtor-in-possession (DIP) financing, but at a fraction of the cost typically associated with Chapter 11.
Strategic Options for Distressed Swedish Companies with US Ties Swedish companies with operations or creditor relationships in the US should understand the distinctions between Chapter 11 and Chapter 15 when navigating complex international restructurings. Each provides particular mechanisms that can be strategically leveraged depending on the specific circumstances.
Chapter 11 Bankruptcy: A US-Focused Comprehensive Reorganisation
Overview
Chapter 11 provides a framework for companies to restructure their debt while continuing operations. This debtor-in-possession process allows existing management to remain in control, under court supervision, with the goal of emerging as a viable, solvent business.
Applicability to Swedish Companies
Swedish companies with substantial US assets or significant creditor relationships may consider Chapter 11. Key features include:
- Automatic Stay: Halts collection actions immediately upon filing, offering breathing space for restructuring.
- DIP Financing: Allows access to essential liquidity during the process.
- Familiarity for US Creditors: US creditors are generally more familiar with Chapter 11, potentially easing the renegotiation of contracts.
Caveats for Swedish Companies
- The automatic stay granted under US law is not recognised in Sweden. This was highlighted in the Northvolt case, where local contractors pursued claims despite US stay orders. Unless Swedish creditors have assets or business in the US, they are under no obligation to comply.
- Super senior financing is also available under the Swedish reorganisation process, in a manner highly analogous to DIP financing under Chapter 11.
- While US creditors may favour Chapter 11 due to its familiarity, the Swedish framework now offers many comparable protections and mechanisms.
Case Study: Scandinavian Airlines (SAS)
In July 2022, SAS filed for Chapter 11 to address its financial difficulties. This allowed it to continue operations and renegotiate debts. By August 2024, SAS exited Chapter 11 after securing $1.2 billion in investment injection from new investors, including Castlelake, Air France-KLM, Lind Invest, and the Kingdom of Denmark. SAS had significant international operations, creditors and leases that made Chapter 11 a logical choice for them. However, because US court decisions are not binding in Sweden and other certain jurisdictions where creditors of SAS were incorporated, SAS also had to conduct a parallel Swedish reorganisation.
Chapter 15 Bankruptcy: Cross-Border Coordination Tool
Chapter 15 facilitates cooperation between US and foreign courts in cross-border insolvency cases. It is not a full bankruptcy proceeding but provides recognition of the foreign (e.g. Swedish) process and allows the US court to assist with enforcement and creditor coordination.
Applicability to Swedish Companies
Chapter 15 is well suited for companies primarily reorganising in Sweden but needing relief or enforcement in the US. It offers:
- Recognition of Foreign Proceedings: Creates a legal framework for creditor actions and asset management in the US.
- Relief Measures: Can stay litigation or execution against the debtor’s US assets.
Case Study: Go North Group AB
In September 2024, Go North Group AB sought Chapter 15 recognition of its Swedish reorganisation. A New York bankruptcy court granted emergency relief, staying arbitration initiated by a US creditor. This demonstrates Chapter 15’s utility for managing cross-border disputes.
Comparative Analysis: Chapter 11 vs Chapter 15 vs Swedish Business Reorganisation
| Criteria | Chapter 11 | Chapter 15 | Swedish Business Reorganisation |
| Purpose | Full reorganisation under US jurisdiction | Cross-border coordination | Full reorganisation under Swedish law |
| Control | Debtor-in-possession (management retains control) | Foreign representative oversees | Debtor in control, however certain administrator consents required |
| Jurisdiction | US court (non-binding in Sweden) | Recognises foreign process | Swedish court (non-binding in US unless Chapter 15 used) |
| Recognition Issues | Not recognised in Sweden | Recognised by US court | Not recognised in US unless Chapter 15 is pursued |
Key Observations:
- Swedish automatic stay as part of the Swedish Reorganisation is enforceable within Sweden and can be extended to the US via Chapter 15.
- Chapter 15 is significantly less costly than Chapter 11 and avoids the need for full US court proceedings.
- In Intrum and SAS, parallel Swedish reorganisations were still required, indicating that Chapter 11 may not replace domestic restructuring.
- For companies unable to qualify for Swedish reorganisation (e.g. due to deep insolvency), Chapter 11 may be the only viable restructuring tool—though at high cost and also raising questions about to what extent applying for Chapter 11 is legitimate when the company is insolvent to such an extent that a Swedish Reorganisation is not an option.
Decision-Making Considerations for Swedish Companies
- US Nexus: Companies with significant US operations may benefit from Chapter 11. Limited US exposure may be better addressed through Chapter 15.
- Financial Health: Chapter 11 may be the only option in case of severe distress, but once again it is questionable whether a Swedish company applying for Chapter 11 is legitimate when the company is insolvent within the meaning of the Swedish Bankruptcy Act and where a Swedish Reorganisation is not available.. If the company qualifies for Swedish reorganisation, it offers most of the same protections.
- Creditor Profile: Chapter 11 may appeal to international creditors. The Swedish process is newer and less familiar.
- Costs: Chapter 11 is very expensive and has so far required parallel Swedish processes. Chapter 15 provides most of the same international recognition benefits at a much lower cost.
Potential Director Liability
In cases where a company is not eligible for Swedish reorganisation but spends substantial sums on Chapter 11 (with a limited or artificial US nexus), board members may face scrutiny. Administrators might raise claims if such decisions reduce creditor recovery. There may be a case for increased accountability and stricter scrutiny of whether Chapter 11 filings are genuinely in the best interest of creditors. It will be interesting to see if this will become a topic following recent events.
Conclusion
For Swedish companies facing financial distress with cross-border implications, Chapter 15, in combination with a Swedish Business Reorganisation, offers a compelling, cost-efficient alternative to Chapter 11. While Chapter 11 remains a well-known route, its costs and the need for parallel domestic proceedings raise serious concerns.
The hybrid approach—Swedish reorganisation supported by Chapter 15 recognition in the US—delivers most of the benefits of Chapter 11 at a fraction of the cost. As such, unless a Swedish company has a clear and compelling reason to enter Chapter 11, the combined Swedish-Chapter 15 route should be the default strategic consideration.
