Finnish insolvency legislation operates under two main statutory frameworks designed to address financial distress: Bankruptcy, regulated by the Finnish Bankruptcy Act (120/2004, as amended) and corporate restructuring, regulated by the Finnish Restructuring of Enterprises Act (47/1993, as amended). These mechanisms serve different objectives.
Bankruptcy facilitates the orderly winding down of insolvent entities, distributing
proceeds from asset liquidation according to the Finnish Act on the Ranking of Claims (1578/1992, as amended). Bankruptcy is initiated by a creditor or the debtor through a court application for a bankruptcy. A District court declares the bankruptcy and appoints a bankruptcy administrator to manage the estate. Bankruptcy results in the liquidation of the debtors assets and typically ends the business operations of the debtor.
Corporate restructuring aims to stabilize and revitalize businesses, offering a framework for debt renegotiation and operational restructuring to avoid liquidation and to restore the financial stability of the company. Restructuring facilitates the rehabilitation of financially distressed but viable businesses. It focuses on restrucruring debts and operations to allow continued business activity. Like bankruptcy, restructuring of enterprises is initiated by the debtor or a creditor through a court application. If the required conditions are met, the District Court appoints the restructuring administrator who oversees the preparation of a
restructuring programme, including dept arrangements and operational changes.
Creditors vote on the restructuring programme, which must be approved by the court.
Finland´s insolvency system is characterized by relatively limited court involvement. Courts primarily oversee procedural fairness, appoint administrators and confirm restructuring plans or bankruptcy distributions, while administrators handle day-to-day estate management.
In Finland, out-of-court financial restructurings or workouts can be accomplished, but their effectiveness depends on the voluntary agreement of all creditors unless a formal statutory process is invoked.
In Finnish insolvency proceedings, the distribution of assets follows a statutory hierarchy of claims that balances the interests of secured and unsecured creditors. The Finnish ranking of claims act (1578/1992, as amended) establishes the hierarchy for distributing proceeds from liquidated assets. It also serves as a benchmark for evaluating the adequacy of restructuring programs in the context of business rehabilitation.
The main principle is the equal rights of the creditors. However, the Ranking of Claims act sets a basic order of priority as follows:
Secured creditors typically retain the right to enforce their security independently, even during insolvency, subject to statutory restrictions. Floating charges, while valuable, are subordinated to certain preferential claims, reducing their absolute priority compared to mortgages or pledges.
Finnish insolvency law requires the orderly and transparent distribution of assets, ensuring compliance with the statutory priority framework.
Bankruptcy:
Creditors are required to file their claims with the court-appointed administrator during bankruptcy proceedings. This process ensures that all creditors’ claims are reviewed, verified, and included in the estate’s distribution. The lodgement of claims must include evidence of the debt and its underlying agreement. Claims that are not filed on time may be excluded from the distribution plan.
Once bankruptcy is declared, an automatic stay applies to unsecured creditors, preventing individual enforcement actions. This stay ensures that all creditors participate collectively in the bankruptcy process and that assets are distributed equitably. However, secured creditors are typically not subject to this stay for actions concerning their collateral.
Secured creditors holding pledges are entitled to enforce their claims against the pledged collateral independently of the general bankruptcy process, provided that the pledge is valid and perfected prior to the commencement of bankruptcy. However, secured creditors must notify the bankruptcy administrator in advance of their intention to sell the collateral and they must provide details regarding the method, time, and place of the sale. The sale of the pledged asset must also consider the interests of the bankruptcy estate. Any surplus proceeds after the secured claim has been satisfied are returned to the estate.
The bankruptcy estate has the authority to prohibit the enforcement of a pledge for up to two months to clarify the legal status of the secured claim or protect the estate’s interests. This prohibition must be communicated to the creditor in writing and is only allowed once.
A secured creditor’s actions to realize collateral can also be suspended or adjusted by court order if they conflict with the rights of the bankruptcy estate.
The bankruptcy estate may sell pledged assets with the approval of the court which may be granted if the estate receives an offer exceeding the asset’s expected auction value, and the secured creditor cannot demonstrate that a better price could be achieved otherwise. In such cases, the court ensures the creditor is heard before granting permission.
Floating charge holders do not have the same direct enforcement rights as pledge
creditors. Their claims are satisfied through the general administration of the bankruptcy estate.
Restructuring
Once restructuring proceedings begin, an automatic stay is imposed on creditor actions related to restructuring debts. This includes suspension of enforcement actions, such as foreclosure or repossession of collateral, unless specifically permitted by the court, prohibition on initiating or continuing collection measures, including legal proceedings for payment and prohibition on applying penalties or interest due to the debtor’s payment defaults.
Creditors cannot enforce their rights to secured assets during the stay unless the court grants an exception. Exception may be granted if secured asset is not necessary for the success of the restructuring plan or for the basic needs the debtor or their family members; or the debtor has failed to comply with obligations arising form the Finnish Restructuring of Enterprises Act such as meeting statutory insurance or guarantee obligations. The non compliance must be more than minor in significance.
Even during a restructuring, secured creditors retain their liens and rights to collateral. Although their enforcement actions are temporarily stayed, the security interest remains valid, and the proceeds from the collateral are exclusively allocated to the secured creditor once enforcement is allowed.
Recovery and clawback
Recovery and clawback provisions aim to ensure the equitable treatment of creditors and to maximize the value of the debtor’s estate. These mechanisms allow the insolvency administrator to reverse certain transactions made by the debtor before the insolvency proceedings began. The recovery and clawback mechanisms are designed to prevent preferential treatment of certain creditors at the expense of others, reverse fraudulent or improper transactions that reduce the value of the estate and to protect the collective interest of all creditors by restoring improperly transferred assets to the estate.
The law specifies time limits within which transactions can be clawed back. As a general rule transactions within five years before the commencement of insolvency proceedings may be subject to recovery. Transactions with fraudulent intent can be recovered if they occurred up to ten years before the initiation of proceedings. Transactions with related parties often have extended timeframes, as these are presumed to carry a higher risk of impropriety.
The insolvency administrator is responsible for identifying and challenging transactions that qualify for recovery. The administrator files a claim with the court to invalidate the transaction and return the assets to the estate. If recovery is successful, the recipient of the transaction must return the property or its equivalent value to the bankruptcy estate.
Corporate restructuring proceedings in Finland have two distinct pathways: early-stage restructuring proceedings and standard restructuring proceedings. A company experiencing financial difficulties may apply for early-stage restructuring if the debtor is not yet insolvent but is threatened by insolvency. Standard restructuring proceedings, on the other hand, are available when the company is already insolvent but not so deeply insolvent that the situation cannot be corrected through restructuring.
Corporate restructuring proceedings are initiated by an application to the district court. Only the debtor may apply for early-stage restructuring, while applications for standard restructuring proceedings may be submitted by the debtor or by one or more creditors jointly. Standard restructuring is possible if the debtor is insolvent but viable for restructuring or if at least two creditors, whose claims collectively represent at least one fifth of the debtor’s debts, file or support the application jointly with the debtor. The application must demonstrate the company’s viability for restructuring and include detailed information on the company’s financial situation, assets, liabilities, reasons for financial difficulties, future plans, and methods for covering restructuring costs. Without creditor support, an auditor’s statement must also be included.
Restructuring proceedings may not begin if:
In addition, standard restructuring may not begin if there is justified reason to believe the application´s primary purpose is to block creditor recovery or violate creditor or debtor rights, there is justified reason to believe a restructuring plan cannot be created or approved, or the debtor´s representative is involved in or suspected of criminal activity.
Upon initiating restructuring proceedings, the court typically appoints an administrator, whose primary responsibility is to draft a restructuring programme. The restructuring plan provides a comprehensive solution for rehabilitating the debtor’s business. Key
elements include payment schedules and debt reductions.
Creditors review the proposed programme, express their views, and vote on it. The programme must be approved by all of the known creditors or by a majority in each group of creditors. The majority will be deemed to exist if more than half of the creditors participating in the vote in each group of creditors vote for approval and the total claims of the creditors in favour of approval in each group of creditors is more than half of the total claims of the creditors participating in the vote per group.
When assessing whether the majority requirement is met, creditors or creditor groups whose claims, according to the proposed plan, will be fully satisfied within one month of the plan’s confirmation or whose legal position remains unchanged, or changes only in such a way that a pre-proceeding payment default is corrected and the original terms of the debt are maintained, are not taken into account. Subordinated creditors are also excluded from consideration if, under the plan, creditors with superior claims do not receive full satisfaction or their legal position is otherwise adversely affected.
Even if the majority requirement is not met in one or more creditor groups, the restructuring plan may be confirmed if at least one creditor groups has voted in favour of the plan and the claims of all creditors who voted in favour represent at least one fifth of the total known claims. In addition, no creditor can receive a benefit under the plan that exceeds the amount of their claim and if creditors were to receive payments under the plan exceeding the minimum level required by law for their creditor group, the benefits must be distributed fairly among the creditor groups. Creditors holding claims subordinate to those in a dissenting creditor group consisting of unsecured creditors must not receive any payment under the plan.
The District Court must confirm the programme if the conditions for its confirmation are met and no grounds for denial of the confirmation exists. Once the restructuring programme has been approved, the restrictions on the debtor’s powers are lifted and the administrator’s authority expires.
A restructuring programme generally expires when it has been fully concluded, as in when all the restructuring liabilities have been paid to the extent agreed in the programme and other agreed actions have been accomplished.
In practice, the duration of a restructuring process from the decision to commence proceedings to the confirmation of the programme is, on average, approximately 10 months. The restructuring programme itself typically lasts between 5 to 10 years, but in some cases, this may be exceeded or proceedings may conclude rapidly.
Bankruptcy commences by a District court order placing the debtor into bankruptcy. As a prerequisite, bankruptcy requires the debtor to be insolvent. Insolvency is defined in the Bankruptcy Act as the debtor’s non-temporary inability to pay their debts as they fall due. The debtor is considered insolvent if they declare themselves insolvent and there are no specific reasons to disregard the debtor’s declaration.
The debtor is presumed insolvent if:
The debtor has ceased making payments,
or
within the six months prior to the bankruptcy application, enforcement proceedings have demonstrated that the debtor does not have sufficient assets to fully satisfy the claim
or
the debtor fails to pay a clear and due claim of the creditor within one week of receiving the creditor’s payment demand.
Bankruptcy application may be filed by either the debtor or the creditor. Creditor is
entitled to request the debtor to be declared bankrupt if their claim is based on:
A debtor cannot be declared bankrupt at the request of a creditor if:
After the debtor is declared bankrupt, the debtor loses control over the assets included in the bankruptcy estate. The assets and the management of the bankruptcy estate are entrusted to the administrator, who is appointed by the court.
Creditors hold the ultimate authority in bankruptcy matters and make decisions on issues not reserved by law for the administrator to decide or manage. In practice, this power is largely transferred to the bankruptcy administrator.
The administrator represents the bankruptcy estate and is responsible for tasks such as managing and selling the debtor’s assets, overseeing the day-to-day administration of the estate, drawing up the estate inventory and debtor description, determining whether it is possible to reverse transactions and recover assets, receiving documents lodging claims, and drafting a proposed distribution list. Additionally, the administrator may act on urgent matters within the creditors’ authority if postponing the decision would harm the estate.
Creditors exercise their authority primarily in creditor meetings. A creditor’s voting power is determined by the current amount of their bankruptcy claim. Subordinated claims do not confer voting rights if it is evident that no distribution will be made for such claims in the bankruptcy. Conditional, disputed, or otherwise uncertain claims are valued at their probable amount. However, a conditional recourse claim grants voting rights unless the creditor exercises voting rights based on the same underlying claim.
The commencement of bankruptcy triggers an automatic stay that impacts the debtor’s assets and creditor actions. Upon the start of bankruptcy, the debtor loses the right to manage or dispose of assets that belong to the bankruptcy estate.
Creditors are prohibited from initiating lawsuits to establish or enforce claims against the bankruptcy estate and cannot initiate enforcement proceedings to recover claims from assets belonging to the bankruptcy estate. Ongoing enforcement actions must be halted, and any seized assets or proceeds must be transferred to the bankruptcy estate unless the estate requests that enforcement continues for its benefit. If a lawsuit related to the debtor’s obligations is already ongoing, the bankruptcy estate must be given an opportunity to continue the litigation. If the estate declines, the creditor may request a ruling, or the debtor may continue the case.
Secured creditors may initiate or continue actions to enforce their security, such as selling pledged assets. However, enforcement involving secured assets seized for non-secured claims must follow bankruptcy rules.
The effects of the automatic stay remain in force throughout the bankruptcy process. They cease only if the bankruptcy is annulled, discontinued, or otherwise terminated by court decision.
The bankruptcy administrator must prepare an inventory list (Pesäluettelo) of the debtor´s assets and liabilities and a debtor report (Velallisselvitys) on the debtor and their activities before bankruptcy, within two months of the bankruptcy commencement. Once the inventory list and debtor report are completed and no application has been made to discontinue the bankruptcy, the administrator must, without undue delay, set a deadline for creditors to file their claims.
The lodgement of claims must include details of the claim, such as the principal amount of the claim, basis of the claim, basis of interest, priority of the claim, pledge information and creditor information. Claims that are not filed on time may be excluded from the distribution plan. If a large number of creditors have bankruptcy claims based on the same or similar grounds, and there is no uncertainty about the basis or amount of the claims, the administrator must include these claims in the draft distribution list without requiring them to be filed.
The administrator must prepare a draft distribution list within one month of the filing deadline, or within two months if the bankruptcy estate is extensive. The distribution of funds adheres to the hierarchy established by the Finnish Ranking of Claims Act (1578/1992, as amended).
EU regulation
“Cross-border issues are regulated by Regulation (EU) 2015/848 of the European
Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast). The Finnish Bankruptcy Act has some provisions on cross-border matters such as jurisdiction of the Finnish courts.
Under the EU Regulation, insolvency proceedings commenced in an EU member state must be recognised in all other member states. With regard to jurisdiction, the nexus of main interests of the debtor must be in that particular EU member state. The location of the debtor’s registered office will be presumed to be such nexus if not proven otherwise. The law applied to insolvency proceedings and their effects will be that of the member state within the territory of which such proceedings are commenced.
In a situation where the nexus of the debtor’s main interests is not in an EU member state, Finnish courts have jurisdiction to commence insolvency proceedings if the debtor has business premises or holds assets in Finland and the Finnish Bankruptcy Act confers such jurisdiction to the courts. However, the Finnish courts do not have jurisdiction if the debtor has been declared bankrupt in Iceland, Norway or Denmark and the debtor has been domiciled in such state.
EU Regulation imposes a significant amount of additional legislation with which the
bankruptcy estate and the restructuring administrator, creditors and courts have to comply.
Nordic Bankruptcy Convention 35/1934
Finland is also a member of the Nordic Bankruptcy Convention on insolvency
proceedings. This convention provides a legal framework for the cross-border recognition and enforcement of bankruptcies between Denmark, Sweden, Norway, Iceland and Finland. The main principle of the treaty is that a bankruptcy declared in one Nordic country is recognised in the other Nordic countries and is automatically applied to the debtor property in such other countries. The Convention empowers the courts in the Nordic countries to cooperate in the field of insolvency proceedings.
Anni Alamettälä
Partner, Attorney at Law
Email: anni.alamettala@applex.fi
Call: +358 40 7236 899
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