A look at corporate, personal and, where relevant, partnership insolvency proceedings in Finland, with a brief description to explain key features, as part of our Dictionary of Insolvency Terms in EU Member States. In particular, we highlight who controls the procedure and whether it is likely to be accompanied by a moratorium to prevent enforcement.
Restructuring of enterprise
- A court-supervised restructuring procedure for companies and partnerships. A petition for restructuring can be filed by:
- the company/partnership itself;
- a creditor or group of creditors (except any creditors whose claims are disputed or unclear); or
- a party likely to experience financial loss because of the company/partnership's insolvency.
- A court appointed administrator drafts a restructuring plan that is approved if a majority of creditors (by value and number) vote in favour of it. Creditors are divided into groups (depending on their security) for voting purposes.
- A secured creditor's claim cannot be compromised without its consent. However, a creditor is secured only as far as the value of secured assets is sufficient to cover the creditor's claim after deduction of liquidation costs and priority claims. Any resulting unsecured element of its claim can be compromised without consent.
- Restructuring proceedings can be opened if one of the following is satisfied:
- imminent insolvency;
- the debtor is insolvent, but the insolvency may be remedied through restructuring; or
- at least two creditors whose total claims represent at least one-fifth of the debtor’s known debts support the debtor’s application.
- A moratorium, i.e. a stay of enforcement proceedings (including secured creditor enforcement), commences when the decision is made by the court to open the proceedings and ends once the plan has been approved.
- Although the existing management remain in control of the company/partnership and retain authority to dispose of its property and manage day-to-day activities during the restructuring process, there are immediate restrictions on the debtor’s right of disposition (some actions and procedures require the consent of the administrator) and restrictions on a creditor's rights of set off.
- A restructuring plan cannot propose terms by which the amount of unpaid secured debt is reduced unless the plan is approved by the relevant secured creditor. There are also restrictions on reducing the interest on secured debt. However, the administrator evaluates in the restructuring plan which debts are secured and which are unsecured. If a secured creditor disputes the valuation, they may withhold their consent to the restructuring plan but even without secured creditor consent, the restructuring plan can be approved if other conditions are met.
- A terminal procedure for companies, partnerships and natural persons that can be commenced by the debtor, its directors or creditors.
- Following a declaration that the debtor is insolvent, the court appoints an administrator of the bankruptcy estate who takes over control of the debtor's assets/business.
- Secured creditors may liquidate secured assets and recover amounts due to them from the proceeds of sale, subject to exceptions in the Bankruptcy Act; for example, a secured creditor may be prevented from exercising their rights for up to two months, in order to clarify their rights or to secure the interests of the bankrupt's estate. The secured creditor must notify the estate administrator in advance of the time, method and place of the proposed sale.
- An automatic moratorium arises once the debtor is declared bankrupt by the court.
- A terminal procedure for companies, partnerships and natural persons.
- This requires a creditor's application for enforcement proceedings.
- Execution is performed by an execution officer, who will seize and sell the debtor's assets in order to meet the claims of creditors.
Adjustment of the debts of a private individual
- A restructuring procedure for natural persons commenced by the debtor (or jointly by co debtors/spouses).
- A court may appoint a receiver to realise the debtor's assets.
- The procedure provides for an arrangement of debts, usually including a composition with creditors, that is approved by the court.
- When a schedule of payments is attached to the application, the court will first give creditors an opportunity to provide written statements regarding the proposal. The court will approve a payment schedule (usually three years) for arranged debts. Finnish legislation provides a statutory standstill period for debts included in the debt arrangement.
- The arrangement of debts cannot compromise the claims of secured creditors and a secured creditor may apply for permission of the court to bring execution proceedings.
- At the end of the period prescribed by the schedule of payments, the debtor is released from his/her arranged debts. However, this happens only if the schedule of payments has been complied with and all payments have been made in accordance with it.
Secured creditor enforcement procedures
There are no specific enforcement procedures that are only available to secured creditors.
Anticipated changes in the next two years
There is ongoing work to revise the Bankruptcy Act in Finland and minor procedural changes to bankruptcy proceedings are anticipated.
The EU Directive on Restructuring and Insolvency1 requires Member States to incorporate minimum common standards into their national restructuring and insolvency laws by 17 July 2021. The intention of the Directive is to reduce barriers to the free flow of capital stemming from differences in Member States' restructuring and insolvency frameworks, and to enhance the rescue culture in the EU.
Notable features required to be included in Member States' national laws include:
- An effective preventive restructuring framework to enable debtors experiencing financial difficulties to restructure at an early stage, with a view to preventing insolvency and ensuring their viability.
- A stay of up to four months extendable to up to 12 months to support negotiations of a restructuring proposal, which should prevent individual enforcement action and include rules preventing the withholding of performance, termination, acceleration or modification of essential contracts.
- An ability to cram down dissenting classes of creditors.
- Adequate protection for financing needed to allow the business to survive or to preserve the value of the business pending a restructuring, and for new financing necessary to implement a restructuring plan.
- Provision for honest, insolvent entrepreneurs to have access to a procedure that can lead to a full discharge of their debts (subject to limited exceptions) within three years.
Contact: Nina Aganimov
1 Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132.