Insolvency Law at Finland
In Finland, insolvency law is governed by a combination of national statutes and EU regulations. The primary national legislation governing insolvency proceedings is the Insolvency Act (Konkursilaki), which governs both personal and corporate insolvency matters. Finland is also subject to European Union regulations, particularly the EU Insolvency Regulation (1346/2000), which helps coordinate cross-border insolvency proceedings among EU member states.
Key Features of Insolvency Law in Finland:
Types of Insolvency Proceedings:
Bankruptcy (Konkursimenettely): Bankruptcy is the process through which a company or individual that cannot pay its debts has their assets liquidated to repay creditors. This is the primary insolvency procedure for businesses.
Restructuring (Yrityssaneeraus): A debt restructuring process that allows a company to continue operations while restructuring its debts. It is available for both companies and individuals, provided certain conditions are met.
Debt Relief for Individuals (Velkajärjestely): This is the process for individuals who are unable to meet their financial obligations. It involves restructuring the individual’s debts to provide relief and a plan for paying off debts over time.
Bankruptcy (Konkursimenettely):
Filing for Bankruptcy: Bankruptcy proceedings can be initiated either by the debtor or by creditors. The debtor must be insolvent, meaning they are unable to meet their financial obligations when due.
Court Involvement: A bankruptcy petition is submitted to the district court, which will determine whether to initiate bankruptcy proceedings. If granted, the court appoints a trustee (pesänhoitaja) to oversee the process.
Role of the Trustee: The trustee manages the bankruptcy estate, liquidates the debtor's assets, and distributes proceeds to creditors. The trustee also investigates the debtor's financial activities to ensure there has been no fraudulent behavior.
Restructuring of Debt (Yrityssaneeraus):
Eligibility: Restructuring is available for businesses facing financial difficulties but with a viable future. A company must be able to show that it can be restored to financial health through a restructuring plan.
Procedure: A company can apply for restructuring through the district court. Once approved, the court appoints a restructuring officer to help the company develop a debt repayment plan and negotiate with creditors.
Debt Restructuring Plan: The restructuring plan must be approved by creditors and then confirmed by the court. The plan may include reduced debt amounts, extended payment terms, or a combination of both.
Moratorium: Once the restructuring process begins, a moratorium (temporary suspension of debt payments) is often granted, protecting the company from creditor actions (e.g., lawsuits or asset seizures) while the restructuring plan is being negotiated.
Debt Relief for Individuals (Velkajärjestely):
Eligibility: Debt relief is available for individuals who cannot repay their debts. This process allows the individual to restructure their debt into more manageable terms.
Court-Approved Payment Plan: The debtor submits a debt relief application to the district court, which will review the individual's financial situation and approve a payment plan. The court may allow a portion of the debts to be written off, with the remainder to be paid over a set period.
Duration: Typically, debt relief lasts for three to five years, after which any remaining unpaid debt may be discharged.
Creditor Rights:
Priority of Claims: Creditors are categorized according to the priority of their claims in bankruptcy. Secured creditors, such as banks with collateral, have the highest priority. Other creditors, such as employees and unsecured creditors, are paid afterward.
Creditors' Meeting: A meeting of creditors is often held to discuss the debtor's financial status and the proposed restructuring or liquidation plans.
Role of the Trustee in Bankruptcy:
The trustee's role is to liquidate the debtor's assets, gather funds, and distribute them to creditors according to the established priorities.
The trustee also investigates whether the debtor engaged in fraudulent or dishonest activities that led to the insolvency. If fraud is found, the debtor may face criminal charges.
Fraudulent Bankruptcy:
Fraudulent Behavior: If the debtor is found to have committed fraud, hidden assets, or engaged in other illegal activities during the insolvency process, they can face criminal prosecution. Fraudulent bankruptcy can result in imprisonment or fines.
Cross-Border Insolvency:
Finland is a member of the European Union, and cross-border insolvency proceedings are regulated under the EU Insolvency Regulation (1346/2000). This regulation provides rules for handling insolvency cases involving multiple EU member states and helps ensure that creditors are treated fairly across borders.
Key Steps in the Insolvency Process in Finland:
Initiation: The debtor or creditors may file for bankruptcy. For restructuring, the debtor files an application with the court.
Appointment of Trustee or Restructuring Officer: If the court accepts the application, a trustee is appointed for bankruptcy, or a restructuring officer is appointed for debt restructuring.
Asset Liquidation or Restructuring: In bankruptcy, the trustee liquidates the assets to repay creditors. In restructuring, the debtor negotiates with creditors to reach a repayment plan.
Creditors' Claims: Creditors submit their claims to the trustee or restructuring officer. Secured creditors are typically paid first.
Distribution of Assets: The trustee distributes the available assets among the creditors according to the priority established by Finnish law.
Final Discharge or Closure: Once the assets are distributed or the debt repayment plan is completed, the insolvency proceedings are closed. In restructuring, the company or individual emerges from insolvency with a restructured debt situation.
Recent Developments:
Modernization of Laws: Finland has periodically updated its insolvency laws to align with EU regulations and make the process more efficient for businesses and individuals facing financial difficulties.
COVID-19 Measures: In response to the economic impact of the COVID-19 pandemic, Finland introduced temporary amendments to insolvency laws, including temporary extensions to the time limits for filing bankruptcy or restructuring applications and more lenient conditions for initiating debt restructuring procedures.
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