Trigger events As a prerequisite for initiating bankruptcy proceed- ings, the debtor company must be insolvent. The debtor company may be considered insolvent if the debtor company has declared itself insolvent and there is no reason to doubt the correctness of such declaration. A debtor company will also be considered insolvent where: • the debtor company has ceased payments; • enforcement proceedings have been pending against the debtor company for the last six months and it has become evident that the debtor is unable to satisfy the claim; or
• the debtor company has been delivered a payment notice coupled with a threat to initiate bankruptcy proceedings if the claim is not satisfied, but the debtor has not satisfied the claim during the course of one week from the notice. Furthermore, the creditor must, in addition to
the above insolvency grounds, have a clear and undisputed claim against the debtor as set out in the Bankruptcy Act. If a creditor files the petition for bankruptcy,
the court must give the debtor company an oppor- tunity to be heard and the debtor may object to the petition for bankruptcy. The petition of the credi- tor to initiate bankruptcy proceedings may be rejected if the creditor’s claim is small and the commencement of bankruptcy proceedings is therefore deemed inappropriate.
Moratorium With effect from the date that the company is declared bankrupt by the court, the general rule is that creditors cannot commence or continue legal action against the company to recover a debt. This only applies to debts of the company incurred before the commencement of the bankruptcy proceedings, however. Accordingly, creditors are free to commence legal action to recover payment of debts incurred by the bankruptcy estate. Notwithstanding the above general rule, creditors
administration is a two-step process
“ ”
Company
who have security over the bankrupt company’s assets may enforce the security subject to restric- tions as discussed below.
Duration The timeframe for the completion of the bank- ruptcy proceedings and the distribution of the net proceeds depends mostly on practicalities such as how quickly the assets of the bankrupt company may be realised. Generally this may take years, especially if the bankruptcy estate becomes involved in lawsuits.
Company administration Initiation Company administration proceedings are initiated by a court order on the basis of a petition for com- pany administration filed by the company itself (its board of directors) or a creditor. Similar to bank- ruptcy, the board of directors of the debtor compa- ny has an obligation to petition for company administration where the continued operations of the company would cause or worsen the company’s insolvent state or where the filing would otherwise best serve the interests of the company and its creditors. Failure to do so may result in personal liability and possibly criminal sanctions. If the order of company administration is
granted by the court, the court will appoint one or more external administrators (often a practising lawyer) to assume the control and management of the company in administration together with the company’s existing board/management.
Trigger events Administration proceedings may be initiated if the company is unable to pay its debts as they fall due or there is an immediate threat of the company becoming unable to pay its debts and this inability will not be temporary. If, however, the petition is filed by a creditor, the proceedings may only be ini- tiated if it is necessary to protect a material eco-
About the author Lauri Peltola is an experienced banking and finance/capital markets partner of Waselius & Wist. He has been involved in a number of large refinancing/restructuring transactions as well as in formal insolvency recoveries acting for senior and second lien lenders. Before joining Waselius & Wist in 2002, he worked as head of the London branch of another Finnish firm. He is a member of the International Bar Association and the author of many articles in leading professional publications in the field of finance law.
Contact information
Lauri Peltola Waselius & Wist
Eteläesplanadi 24 00130 Helsinki Finland T:+358 9 668 9520 F: +358 9 668 95 222 E:
lauri.peltola@
ww.fi W:
www.ww.fi
030
IFLR|RESTRUCTURING & INSOLVENCY
www.iflr.com
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