Company reconstruction and the viability test: cost and likely outcome turn on one question a Swedish district court asks before it opens the case: does the business, once relieved of its current debt burden, still generate enough cash to survive. Cost tracks how long that assessment takes to answer, and outcome tracks how quickly a credible payment plan reaches creditors.
Who this concerns
This applies to a board that is not yet insolvent in the strict sense, but that can see the gap between what is owed this quarter and what the business actually collects. It applies to the administrator appointed once the court opens the case, to secured creditors deciding whether a standstill is worth their patience, and to unsecured suppliers deciding whether to keep shipping on credit while a plan is drafted.
It also applies to counterparties on the other side of ongoing contracts, who need to know whether performance continues, whether payment terms hold, and whether the company that owes them money is still the company they contracted with or a shell being wound down under supervision.
Where the debtor group has a parent company, lender, or major supplier outside Sweden, the calculus changes. A foreign secured creditor may hold security governed by a different legal system, which affects how much leverage the Swedish stay actually gives the debtor. A foreign parent deciding whether to fund the reconstruction is weighing Swedish procedural protection against its own group's reporting obligations, and that decision often happens faster, and less transparently, than the domestic creditors realise.
What the law says
Company reconstruction is a formal, court-supervised proceeding under Swedish law as it currently stands. It lets a company continue trading under the oversight of an administrator while it negotiates a composition with its creditors, instead of being wound up. Opening the case is not automatic: the court has to be satisfied that there is reasonable ground to believe the business, or a viable part of it, can be preserved. That threshold is the viability test referenced in the title of this page, and it is applied before any composition proposal is drafted, not after.
The proceeding gives the company a stay against most enforcement action for its duration, gives the administrator a supervisory role over payments and major decisions, and gives creditors a structured vote on whatever composition is eventually proposed. None of that changes what the underlying business is worth. It changes who gets paid what, in what order, and how much time the company has to prove the first paragraph of this page correct.
How it works in practice
The viability test in the opening decision
The court does not ask whether the company can pay everyone in full. It asks whether, stripped of the debt that triggered the filing, the operation produces a margin. A retailer with a sound store network and a bad lease is a different case from a retailer with a sound lease and no customers. The first survives a reconstruction; the second usually does not, regardless of how the paperwork is drafted.
What the administrator checks first
In the opening weeks the administrator builds an independent view of the cash position rather than accepting the board's version. That means bank statements, the aged receivables and payables ledgers, and any security already granted over the assets the plan depends on. A board that arrives with a clean, reconciled picture moves through this stage in a fraction of the time of one that does not.
Building the cash flow case
The composition proposal that creditors eventually vote on is only as credible as the cash flow forecast behind it. Courts and creditors alike discount forecasts that assume immediate recovery of trading volume. The stronger filings show a conservative base case, a clear explanation of what changed operationally, and a funding source for the reconstruction period itself that does not depend on the outcome it is trying to achieve.
Secured creditors and their leverage
A secured creditor with security over the company's core operating assets does not need the composition to vote in its favour; it can often recover through its security regardless of what the unsecured class agrees to. That asymmetry shapes every negotiation in the background. Reconstructions that succeed usually do so because the secured creditor was brought into the plan early, not because it was outvoted.
The composition proposal mechanics
The proposal sets out what each class of creditor is offered against what it is owed, and the classes vote separately. A plan that passes with the unsecured class while ignoring the practical leverage of a secured creditor has cleared one hurdle and left the one that actually decides the outcome untested.
The stay on enforcement and its limits
The stay stops most enforcement steps against the debtor's own assets while the case runs. It does not stop a secured creditor from realising security in every circumstance, it does not extend automatically to group companies that have not themselves filed, and it does not stop a counterparty from terminating a contract under a right that exists independently of the insolvency itself.
Employees, leases and ongoing contracts
Reconstruction does not suspend the company's operational obligations. Wages, rent under continuing leases, and performance under contracts the company chooses to keep all have to be met from current cash, because the stay protects against enforcement of past debt, not against the cost of staying open.
What to check
- Whether the cash position supports trading through the opening weeks before any plan is voted on
- Whether security already granted covers the assets the reconstruction plan depends on
- Whether any contract contains a termination right triggered by the filing itself, separate from payment default
- Whether the group has cross-border exposure that changes who actually controls the assets behind the plan
- Whether the administrator's independent cash flow view matches the board's own numbers before the first creditor meeting
What happens to existing contracts during reconstruction?
Contracts generally continue on their existing terms unless they contain a clause specifically triggered by the filing. The administrator decides, in consultation with the board, which contracts the company keeps performing and which it stops paying for, but a counterparty holding an independent termination right unrelated to payment history can usually still exercise it.
Can a foreign creditor block the composition proposal?
A foreign creditor votes in whichever class its claim falls into, on the same basis as a domestic creditor with an equivalent claim. Its practical leverage depends more on whether it holds security over assets the plan needs than on where it is based, though enforcing security governed by a foreign legal system can complicate how quickly that leverage is exercised inside a Swedish proceeding.
What happens if the company fails the viability test?
If the court is not satisfied there is a reasonable basis to preserve the business, the reconstruction application is refused and the company is left facing whatever the creditors do next, which typically means a bankruptcy filing follows shortly after. There is no intermediate outcome where the case is opened provisionally to see how it goes.
The numbers
There is no fixed fee schedule or statutory duration that applies uniformly to every reconstruction, and this page does not invent one. Cost is driven by three things: the size of the estate the administrator has to review, the number of creditor classes that need separate negotiation, and how contested the composition proposal turns out to be. A single-site business with one secured lender and a short creditor list moves, and costs, very differently from a group with cross-border assets and a dozen unsecured claims of similar size.
Duration follows the same logic. It is set by how long it takes the administrator to build an independent cash flow view, how long the board needs to produce a credible plan, and how much resistance that plan meets at the creditor vote, not by a calendar fixed at filing. Any figure quoted before those three variables are known is a guess dressed up as an estimate.
Where it usually goes wrong
The test fails most often not because the business is unsound but because the board waited until the cash position had already collapsed, leaving no runway to fund the reconstruction period itself. A viable business with no cash to survive the opening weeks looks, to a court, indistinguishable from a business that is not viable at all.
It also goes wrong when the board treats the stay as broader than it is. Enforcement against the company's own assets is paused; enforcement against a guarantor, a parent company, or security held over assets outside the estate is not automatically covered, and creditors who understand that gap move on it quickly.
A third failure pattern is a composition proposal built on the board's own optimistic forecast rather than the administrator's independent one. Creditors who have seen this before discount the board's numbers on sight, and a plan that has to be rebuilt mid-process burns the runway that made reconstruction viable in the first place.
Finally, reconstruction stops working the moment the secured creditor with control over the core assets is left out of the negotiation until the vote is imminent. By that point there is no time left to bring them in, and the plan collapses regardless of how the unsecured class votes.
What to do next
Everything above is the mechanics that apply generally. What does not transfer from one case to another is the specific cash position, the specific security already granted, and the specific leverage each creditor class actually holds, and that only becomes visible once someone has looked at the documents rather than the summary.
Lodline's insolvency and restructuring practice works from that document review outward, and a related question that comes up in almost every reconstruction with cross-border creditors is what can actually be set off against an insolvent counterparty once the case opens, because set-off can change the practical size of a claim before the composition vote is even taken. Where the position needs assessing before the next creditor meeting, that is where an initial review starts.