On 5 June 2019, the Swedish Supreme Court declared that certain payments made by a bankrupt company could not be avoided pursuant to the transaction avoidance rule in Ch. 4 Sec 10 first sup-paragraph of the Bankruptcy.
Ch. 4 Sec 10 of the Bankruptcy Act provide as follows (underlining added):
Payment of a debt that was made up to three months before the day of grace [note: normally the day the petition for bankruptcy was filed] and which was made with something other than customary means of payment, prematurely or in an amount hat has considerably caused the deterioration of the financial position of the debtor, is avoided unless it can nevertheless be considered ordinary having regard to the circumstances. […]
The core issue in the dispute is the meaning of the pre-requisite that a payment of a “debt” has been made.
MS was active both as a sole trader under the name “Östermalms Teknisk Bilservice” and as representative of a company limited by shares with the almost identical name “Östermalms Teknisk Bilservice AB” (herein after referred to as the “Company”).
MS in his role as sole trader had a leasing agreement with the landlords H & K (hereinafter referred to as the “Landlords”). MS in his role as representative of the Company made five payments to the Landlords amounting to a total of SEK100,000 shortly before the Company was declared bankrupt.
The bankruptcy estate of the Company commenced a transaction avoidance case against the Landlords based on Ch. 4 Sec. 10 of the Bankruptcy Act. The Landlords made several objections against the claim.
The District Court and the Court of Appeal rejected the Bankruptcy Estate’s claim for avoidance of the payment because according to the court “debt” means the bankrupt debtor’s own debt, but in this case the Company had not pay its own debt since it was MS as sole trader who was party to the lease contract with the Landlords and who had a debt to the Landlords.
The Supreme Court also concluded that Chapter 4 Sec. 10 is not applicable when the debtor has paid another party’s debt.
The Supreme Court referred to the discussion in the legal literature regarding the applicability of Ch. Sec 10 of the Bankruptcy Act and agreed that the rule should be interpreted strictly and in accordance with the Supreme Court case NJA 1985 s. 117 where the Supreme Court stated that a security for another party’s debt cannot be avoided pursuant to the transaction avoidance rule in Ch. 4 Sec. 12 of the Bankruptcy Act.
As author of one of the two books on transaction avoidance the Supreme Court referred to I can only agree with the Supreme Court clarification of the scope of the applicability of the transaction avoidance rule in Ch. 4 Sec. 10 of the Bankruptcy Act. As the Supreme Court pointed out this does not mean that payments of another party’s debt are always protected against transaction avoidance actions. Such payments can, if all pre-requisites are met, be avoided pursuant to Ch. 4 Sec 5 and Ch. Sec. 6 of the Bankruptcy Act.
4 Ch. 5 § first sub-section of the Bankruptcy Act provides as follows:
A legal act, whereby a particular creditor has in an unfair manner been favoured in preference to others or whereby the property of the debtor has been concealed from the creditors or his debts have been increased is avoided if the debtor was or by the procedure, solely or in combinations with another factor , became insolvent and the other person knew or ought to have known of the insolvency of the debtor and the circumstances making the legal act improper.
4 Ch. 6 § of the Bankruptcy Act provides as follows:
A gift is avoided if it has been competed up to sex months before the day of grace. A gift completed up to six months before then but up to one year or, when it has been made to someone who is close relative of the debtor, up to three years before the day of grace, is avoided unless it can be shown that the debtor after the gift retained property that could be the subject of execution and which clearly met his debt.
 Hans Renman, Återvinning enligt 4 kap. konkurslagen, 2 ed. 2013, s. 170 f. The other book is Återvinning i konkurs, 4 ed. 2013 by Gertrud Lennander, professor and former justice the Swedish Supreme Court.