Finland Dealing with distress
Lauri Peltola and Timo Lehtimäki of Waselius & Wist explain the insolvency options in Finland
F
innish law recognises two statutory forms of insolvency proceedings: bankruptcy (compulsory liquidation of an insolvent company in order to satisfy its creditors’ claims) and company administration (restructuring/rehabilitation of an insolvent
company in order to enable it to continue its operations as a going concern). Many of the provisions of Finnish bankruptcy and company administration laws are mandatory in order to protect the interests of the creditors. As such, these mandatory provisions on bankruptcy and company administration supersede, in principle, such conflicting contractual provisions that would prejudice the position of the company’s creditors. A voluntary, contractual debt restructuring is also possible under Finnish law, while an
English law-type scheme of arrangement is not available. Voluntary restructurings are typically used in Finland in cases where the debtor company has an appropriate creditor/shareholder structure. Should the (major) creditors agree on a voluntary restructuring of the debts with the debtor and, typically, with its (major) shareholders, the debtor company concludes a private agreement with the (major) creditors whereby, typically, only a part of the debt will be satisfied. Typically, the (major) equity holders put into the debtor company additional equity. Conversion of debt into equity is also often applied. A voluntary restructuring can involve mergers, de-mergers, asset sales, and so on, as agreed with the (major) creditors and the debtor, typically, with the consent of the (major) shareholders. Finnish law does not provide for the possibility of a competitive reorganisation strategy, in other words a restructuring without cooperation by the major shareholders and creditors.
Bankruptcy Initiation The purpose of bankruptcy proceedings is to liquidate the assets of the bankrupt company and use the net proceeds to settle creditors’ claims in the order of priority provided by law and/or the security arrangements entered into by the company. Bankruptcy proceedings are initiated by court order based on filing of a bankruptcy petition by the company itself (its board of directors) or a creditor. It must be noted that in order to avoid personal liability, and possibly, criminal sanctions, the board of directors of the debtor company has an obligation to petition for the company’s bankruptcy where the continued operations of the company would cause or worsen the company’s insolvent state or where the bankruptcy filing would otherwise best serve the interests of the company and its creditors. If a bankruptcy order is granted by the court, the court will appoint one or more
external liquidators (a practising lawyer) to assume the control and management of the company in bankruptcy.
Many Finnish bankruptcy and company
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administration provisions are mandatory
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www.iflr.com IFLR|RESTRUCTURING & INSOLVENCY 029
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