The Swedish capital deficiency rules in ch. 25 sec. 13-20a CA (ABL) constitute an important part of the company law. Their purpose is to ensure that creditors have the possibility to receive payment for their claims if the company encounters a liquidity crisis. The rules require the board of directors to take a specific course of action when the equity capital falls to 12 499 SEK or less. The board must first prepare a control balance sheet and have it review by the company’s auditor. If the control balance sheet shows that the company’s equity capital is not covered by at least half, the board needs to call a first general meeting where the shareholders must consider whether the company should be liquidated. If the shareholders decide to attempt to resolve the capital deficiency, the company enters into an eight-month period during which the shareholders have an opportunity to plan and take appropriate restructuring measures. Before the eight-month period expires, the board must prepare a second control balance sheet, obtain opinions from the auditor, and call for a second general meeting. At the second general meeting, the question of liquidation must be tried again. 

The function of the capital deficiency rules as creditor protection has been subject to large criticism from both theorists and practitioners for many years. The regulatory framework is primarily criticized for not creating the right conditions for detecting and remedying existing capital deficiencies at an early stage. The economic efficiency is also questioned. Despite this, the legislator has not made any amendments in the law. One may wonder why? This essay analyzes and evaluated the capital deficiency rules in ch. 25 sec. 13-20a CA 

The study shows that the capital deficiency rules in ch. 25 sec. 13-20a CA, as suspected, do not provide satisfactory protection. Instead, they appear misleading. The main reason for this is that the share capital requirement in ch. 1 sec. 5 CA is very low and does not consider individual companies’ capital needs or operational risks. The rules in ch. 25 sec. 13-20a CA are linked to the share capital requirement and do not lead to its intended effects as the company often already is insolvent when they enter. Thus, it results in unnecessary costs to fulfill the law’s requirements that otherwise could have been used to adequate measures. An example of a better legislation is wrong trading according to sec. 214 IA 1986 which is based on insolvency. The rule stipulates a standard that directors must uphold when the company approaches or reaches insolvency, thereby creating incentives for directors to manage capital deficiency situations in time. The rule provides a strong protection for all creditors and promotes economic efficiency. The legislator should therefore consider implementing such a system.