Article: The Lost Car

The City of Stockholm’s handling of illegally parked vehicles, abandoned vehicles, and removal of vehicles

During the summer of 2021 alone, the City of Stockholm removed over 300 illegally parked and abandoned vehicles. Illegally parked vehicles refer to bicycles, mopeds, cars, trucks, and other types of vehicles that unlawfully occupy public space or otherwise violate traffic and parking regulations. These are covered by the provisions of the Act (1982:129) on the Removal of Vehicles in Certain Cases. The Act grants, in brief, the state and municipalities the right to remove illegally parked vehicles and vehicle wrecks under certain conditions. If the vehicles are not subsequently collected or are deemed to be wrecks, ownership transfers to the state or municipality.

One of all the illegally parked vehicles removed by the City of Stockholm was a Volkswagen Touran. The vehicle was owned by a company that was declared bankrupt at the end of July 2021. Shortly before the bankruptcy, the City of Stockholm removed the vehicle pursuant to the aforementioned Act. Information that this had occurred was sent by registered mail to the company. Since the City of Stockholm never received information that the company, which was registered as the owner of the illegally parked vehicle, had been declared bankrupt, the bankruptcy estate was never notified. One month after the company was declared bankrupt, ownership of the vehicle transferred to the City of Stockholm. The vehicle was subsequently sold by the City of Stockholm for approximately SEK 60,000. After deduction for the cost of removal, storage, and sale, a surplus of approximately SEK 55,000 remained, which went to the City of Stockholm.

The question that arises is on what grounds the public authority could in this manner withhold the vehicle’s surplus value from both the owner and the bankruptcy estate, and whether the measure is compatible with insolvency law regulations.

More on the Regulation

Unlike when the public authority seizes a vehicle for enforcement of vehicle-related debts, a seizure under the aforementioned Act differs in that ownership of the vehicle, regardless of whether the rightful owner has a debt to the public authority or not, may transfer to the state or the municipality that seized the vehicle.

This may occur, for example, if the owner of an abandoned or illegally parked vehicle, after having been served with information that the vehicle has been removed, does not collect the vehicle within one month (if service has been effected by public notice on the authority’s or municipality’s notice board, three months apply). If the vehicle is deemed to be a wreck, ownership transfers directly upon removal of the vehicle.

The Act does not specify how a surplus after sale should be handled, and since according to Section 10 of the Act it is not possible to appeal a decision made pursuant to the Act, there is no case law on how the Act should be applied. This has led to the Act being applied differently by different municipalities. That uncertainties in application exist is noted in the government bill for the legislative amendment that enters into force on January 1, 2023.

“If the vehicle is sold, the legal position is moreover unclear regarding whether and, if so, how accounting for received funds should be made. […] It is also not specified how any surplus remaining after deduction should be handled. Furthermore, it is not clear who is meant by the owner. With regard to other grounds for removal [such as the Act now in question], there are no provisions at all on how any surplus after a vehicle sale should be accounted for. In these respects, it is unclear whether accounting should nevertheless be made. According to the memorandum, in the absence of express regulation, a practice has developed in the application of the law [by the state and municipalities] whereby any surplus is credited to the enforcing authority.“[1]

Did the City of Stockholm Have a Proprietary Right to the Car?

In addition to the aforementioned Act’s potential incompatibility with the constitutionally protected right to property, a number of questions arise from an insolvency law perspective: did the City of Stockholm have a proprietary claim at the time of the bankruptcy, could the City of Stockholm assert a claim in the bankruptcy, and is the legal procedure in question equivalent to enforcement in violation of the provisions of the Bankruptcy Act?

Chapter 3, Section 3 of the Bankruptcy Act provides that all property that belonged to the debtor at the time of bankruptcy and that can be subject to enforcement is included in the bankruptcy estate. Movable property, with certain exceptions, is presumed to be owned by the person who has it in possession.[2] From the commentary to Chapter 4, Section 17 of the Enforcement Code, it follows that, with regard to vehicles, enforcement cannot be based solely on the debtor being registered as the owner of the vehicle, and that if a vehicle is in the debtor’s possession, the presumption is not rebutted solely by the circumstance that someone else is in possession of the vehicle. Being a registered owner provides essentially the same proprietary protection as if someone has the vehicle in their possession. [3]

In Property Rights Regarding Movable Property, Håstad notes that the rules in the Enforcement Code are intended to safeguard the need for speed and simplicity in enforcement, and that the same need does not exist for a bankruptcy estate since the matter need not be handled by an enforcement officer in the field but can be resolved through proceedings concerning ownership. Furthermore, the Bankruptcy Act has no presumption rules for the event that the factual circumstances are unclear, similar to those found in Chapter 4, Section 18 of the Enforcement Code.[4]

Since the vehicle in question was parked at a special storage facility intended for vehicles seized pursuant to the aforementioned Act, this circumstance suggests that the company was the owner of the car and that the City of Stockholm consequently lacked proprietary protection to it. The storage facility as such is, after all, intended for cars that belong to someone other than the person who has it in their possession.

In summary, the City of Stockholm likely lacked proprietary protection to the vehicle despite the City of Stockholm having possession of it.

If the vehicle had been removed after the bankruptcy and the service had been sent to the bankruptcy estate, the outcome would have been the same as if the vehicle had been owned by a solvent person. What distinguishes the two situations can thus be concentrated to the extent to which the debtor’s actions before the bankruptcy, or the absence thereof, can bind the bankruptcy estate in relation to something that has not yet occurred.

How Should the Procedure Be Categorized?

The transfer of ownership of the vehicle can be categorized as an extinctive acquisition since the transfer of ownership occurred without legal action by the bankruptcy estate or the bankrupt company.

One could therefore view the decision to assume ownership of the vehicle as enforcement for debt. What argues against such a view is that the company had no debt to the City of Stockholm, possibly with the exception of the cost of removal and storage, when ownership transferred.

The procedure could possibly be equated with expropriation. In expropriation, however, the person whose property is expropriated receives compensation for the property, which has not occurred here.

Another view is to compare the assumption of ownership with a penalty injunction. Like a penalty injunction, a party, the company, has been served with information that they must take action, collect the vehicle after paying the costs of seizing it. If this did not occur within the specified time period, the penalty, in this case ownership of the vehicle, would be paid to the enjoining authority, in this case the City of Stockholm.

Chapter 3, Section 7 of the Bankruptcy Act provides that once a decision on bankruptcy has been issued, assets belonging to the bankruptcy estate may not be subject to enforcement for claims against the bankrupt debtor. Enforcement in violation of this provision is without effect. If the City of Stockholm’s assumption of ownership of the vehicle is equivalent to enforcement for debt, it is therefore without effect.

In MÖD 2004:24, the Environmental Court of Appeal annulled a penalty injunction that had been directed against a company in bankruptcy. The court found that since the company was in bankruptcy, it could no longer dispose of the property belonging to the bankruptcy estate. Nor could the bankrupt company undertake such obligations as could be asserted in the bankruptcy. Since the bankrupt company lacked the ability to comply with the penalty injunction, it could not be its recipient.

It should be mentioned in this context that the decision on the penalty injunction had been made by the issuing authority before the company was declared bankrupt. If the City of Stockholm’s procedure is equivalent to a penalty, and the assumption of ownership to its enforcement, such is also without effect since the bankrupt company lacked the ability to comply with it.

If one instead views the procedure from a contractual law perspective, a comparison can be made with an agreement entered into by the debtor before the bankruptcy. Under such circumstances, the bankruptcy estate is not bound by the agreement, but the contracting party may assert the damages claims arising from the breach of contract as a claim in the bankruptcy.[5] The surplus from the sale would in that case have been paid to the bankruptcy estate. In connection with the payment, the City of Stockholm would have been correct to file an unsecured claim in the bankruptcy amounting to the paid surplus.

The City of Stockholm’s Position

To summarize the City of Stockholm’s position, they considered that the decision to seize the vehicle constituted a unilateral legal act and not a civil law transaction, and therefore the matter was not of a contractual law nature. Since the bankruptcy estate stepped into the debtor’s position at the time of bankruptcy, the appropriation of the surplus according to the City of Stockholm was thus to be seen as a kind of right of retention. Nor could the procedure be equated with enforcement.

It therefore made no difference whether the debtor was declared bankrupt before or after the transfer of ownership. No proprietary objection, that the vehicle never entered the bankruptcy estate due to it not being in the debtor’s possession at the time of bankruptcy, was ever made.

Nor did the City of Stockholm consider that there was any basis for clawback under Chapter 4, Section 5 of the Bankruptcy Act. Partly because no legal action had been undertaken by the bankrupt debtor, partly because the vehicle removal could not be considered to have been carried out in an improper manner, and partly because they did not know or should have known of the debtor’s insolvency at the time of the decision to remove. Even if the City of Stockholm had known of the bankruptcy, such knowledge would not have prevented them from fulfilling their obligations to handle illegally parked vehicles.

Was the City of Stockholm Correct?

If the City of Stockholm’s actions were to be considered in violation of the regulation in Chapter 3 of the Bankruptcy Act, which the undersigned is of the opinion that they were, the sale proceeds should have been paid by the City of Stockholm while they filed a claim in the bankruptcy corresponding to the vehicle’s value. Possibly with the reservation that the City of Stockholm’s handling costs could be withheld by right of retention.

Only property that is included in the bankruptcy estate’s assets can be held by right of retention. If ownership of the vehicle had transferred to the City of Stockholm, as they claim, then it was not included in the bankruptcy estate’s assets. It is not possible, as the City of Stockholm claimed, to both assert that the surplus belonged to them and that they withheld the surplus by right of retention. The two positions are alternative.

What is remarkable about the procedure is that if the City of Stockholm had seized the vehicle pursuant to the Act (2014:447) on the Right to Seize Vehicles for Claims on Certain Taxes and Fees, the procedure would, with all clarity, have been in violation of the provisions of the Bankruptcy Act. For seizure pursuant to the aforementioned Act, the provisions of the Enforcement Code apply, and therefore the regulation in Chapter 3, Section 7 of the Bankruptcy Act would have made seizure impossible. Furthermore, the surplus from the sale of the vehicle would, with clear support in law, have been paid to its previous owner, regardless of the owner’s potential insolvency.

Conclusion

As mentioned above, an updated version of the Act on the Removal of Vehicles in Certain Cases enters into force on January 1, 2023. The legislative amendment means, in brief, that the surplus from the sale shall be set off against the owner’s total debts to the public authority that have a connection to the vehicle.

Hopefully, the legislative amendment also means that the question of who is meant by “owner” is determined. As the legislative amendment appears, a decision pursuant to the Act cannot be appealed even after the amendment. There is therefore a risk that the meaning of the Act and subsequent application will remain ambiguous. It would therefore have been desirable for the legislator, in connection with the amendment of the Act, to have clarified whether a seizure pursuant to the Act is equivalent to enforcement or not. Unfortunately, this has not occurred.

With regard to the Volkswagen Touran in question, the City of Stockholm chose, after relatively extensive communication from the bankruptcy trustee, to pay the surplus to the bankruptcy estate. The City of Stockholm maintained that they were correct in substance but nevertheless chose to pay the money as a result of “changed procedures.”

In conclusion, it should be emphasized that it cannot be considered particularly legally secure that the decisive factor for whether a surplus of approximately SEK 55,000 is paid or not depends on the state’s or municipality’s “procedures” and the ability and conditions of the person who considers themselves entitled to the surplus to pursue their claim. The bankruptcy estate had the privilege of being represented by a bankruptcy trustee who is also an attorney. A privilege that not everyone has access to.

[1] Prop. 2021/22:239, p. 31

[2] Ibid, 51

[3] Gregow et al., Enforcement Code (December 7, 2019, JUNO), commentary to Chapter 4, Section 17.

[4] Håstad, Torgny, Property Rights Regarding Movable Property, 6th revised ed., Norstedts juridik, Stockholm, 2000, p. 115

[5] See Ramberg, Christina, Shareholder Agreements in Practice, 1st ed., Norstedts juridik, Stockholm, 2011, p. 68 and Håstad, Torgny, Property Rights Regarding Movable Property, 6th revised ed., Norstedts juridik, Stockholm, 2000, p. 445.

Carl Widstrand

Associate Lawyer