Sweden needs a policy that stimulates economic growth. Year 1996 the Business Reorganization Act (1996:764) came into force. The goal with this law was to savebusiness, make it profitable and avoid unnecessary bankruptcies. Shortly afterwards itturned out that the law had no positive effect. A very few numbers of companies appliedfor reconstruction and the number of applications for bankruptcies continued to increase.In 2004, in order to stabilize the situation and bring about neutrality between twoproceedings, company reorganization and bankruptcy, the government proposed thereform of priority rules. The new proposition replaced the business mortgage. Accordingthe new priority rules the floating charge was limited from 100 per cent to 55 per cent.But the effect of the new reform was negative. This caused intense debates amongpoliticians and economists. The negative effects of the reform weighted more than the positive ones and in 2007 it was proposed to increase the percentage share from 55 percent to 75 percent.

On January 2009 this will be changed to 100 per cent again.Something went wrong. Why do so many companies choose to go into bankruptcy insteadof business reorganizing? Why didn’t the new priority rules work properly?

The focus of this study is to analyze the reasons why the law of business reorganization has so weak effect, why the reform of priority rules has failed.