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Insolvency & Restructuring
In January 2015 two Supreme Court precedents indicated that assets subject to floating charges should be valued at their feasible liquidation value; however, under these precedents, the valuation terms were somewhat ambiguous and certain liquidation costs remained undetermined. The court's latest precedent addresses the equal treatment of creditors in both restructuring and bankruptcy proceedings and clearly improves the predictability of floating charges as securities in the former.
Generally, Finnish insolvency legislation has been stable and proven effective over the past decade. However, owing to technological advancements and recent bankruptcies involving businesses affecting the environment, there is a growing need to fine-tune bankruptcy proceedings and environmental liabilities in bankruptcies. After two years of research, an expert group established by the Ministry of Justice has published a report on these issues.
The tax issues of a bankruptcy estate and the creditors differ depending on whether the bankruptcy estate continues the previous business of the debtor company. The effects of a debtor's bankruptcy on the creditor's taxation may be particularly significant where the creditor is a lessor to the debtor. Pursuant to legislation, a bankruptcy estate is, in principle, entitled to choose whether to conduct activity liable to value added tax provided that it does not continue the debtor's business.
A court-approved restructuring programme can be amended only if the preconditions of the Restructuring of Enterprises Act are met. Generally, the contents of an approved programme may be amended with the acceptance of all the creditors whose rights would be violated by an amendment. However, the precondition of the debtors' acceptance is problematic when the amount of a restructuring debt is determined to be substantially more than that originally entered into the restructuring programme.
The Supreme Court recently set a precedent regarding the liabilities of a bankruptcy estate in a case that concerned maintenance charges of a limited liability golf company. The legal question subject to the precedent was whether the maintenance charge receivables of the golf company in connection with the golf company's shares were liabilities of the bankruptcy estate.
Retention of title can be based on either a separate condition in a sales agreement or a specific agreement referred to in the Hire-Purchase Act. A retention of title clause may be used to ensure the seller's rights in circumstances where the seller has no other form of security against the buyer's insolvency. However, it should be drafted carefully to ensure that it remains effective in the event of the buyer's bankruptcy.
The Supreme Court recently issued two precedent rulings on how the value of assets that are subject to a floating charge should be determined in restructuring proceedings, holding that the assets were to be valued at their liquidation value. The rulings are expected to have an impact on the stance of financial institutions towards floating charges and their valuation.
The taxation of a bankruptcy estate may affect the liquidation results and expenses arising from the bankruptcy proceedings. Taking tax planning into account may significantly increase a creditor's disbursements in bankruptcy. The Bankruptcy Act includes no special provisions regarding taxation.
A recent amendment to the Bankruptcy Act regulates the duty of the bankruptcy administrator to report offences committed by the bankruptcy debtor. When filing a report on a debtor's suspected offence, the administrator must assess the effect that the suspected offence has on claims in bankruptcy and on the scrutiny of the bankruptcy estate.
According to the Bankruptcy Act, in order to be entitled to a disbursement, a creditor must lodge a claim by sending a written statement to the estate administrator. After the debtor's assets have been inventoried, the estate administrator will set a due date for the lodgement of creditors' claims. In addition, the EU Insolvency Regulation has established certain rules for cross-border bankruptcy cases in the European Union.
Overseas companies often use branch offices to expand into new markets due to their relative simplicity and cost efficiency. The role of branch offices in potential insolvency situations is a significant issue for the creditors of such companies. In the event of Finnish bankruptcy proceedings involving a branch office of a foreign company, the Bankruptcy Act regulates the opening of proceedings.
According to the Supreme Court, a debtor's obligation to cooperate and disclose information is remarkably wide in its scope. Therefore, it is necessary that this obligation is specified in detail when a threat of enforcement measures is imposed. Fulfilment of the obligation should be possible with reasonable efforts.
Under the Bankruptcy Act, the bankruptcy estate must liquidate the assets of the estate in the manner most advantageous to the estate. The bankruptcy estate has the right to sell the collateral belonging to the estate only with the secured creditor's consent or, in the case of disagreement regarding the liquidation, if a court grants its permission.
Section 6 of the Act on the Recovery of Assets to a Bankruptcy Estate sets out the rules regarding the setting aside of gifts or gift-like transactions. This provision can have a significant impact on transactions that take place within a corporate group, or that are otherwise affiliated with a corporate group.
The opening of a secondary proceeding changes the lex concursus with regard to the assets which are within the scope of territorial secondary proceedings. This update introduces the key issues relating to the provisions in applicable Finnish legislation which regulate the priority of claims and the setting aside of transactions, which should be considered when a request for the opening of a secondary proceeding in Finland seems appropriate.
A Finnish debtor declared bankrupt in Finland may have foreign creditors and business partners. It is not uncommon that a transaction between an insolvent Finnish debtor and a foreign counterpart may give rise to a claim for recovery of assets. In such cases, the forum for handling the recovery claim will have a significant impact on both the bankruptcy estate as the claimant and the foreign counterpart as the defendant.
The Bankruptcy Act regulates enforcement measures against debtors that have been declared bankrupt. The enforcement measures may be brought into effect on the bankruptcy administrator's own initiative if the debtor fails to carry out its duty to cooperate or provide information. This update examines debtor obligations and the enforcement measures which may be taken against debtors that fail to fulfil these obligations.
As a general rule, the right to exercise authority in a bankruptcy estate belongs to the creditors. It is the duty of an administrator of a bankruptcy estate to arrange, among other things, the management of the bankruptcy estate and to oversee the management and maintenance of the assets of the bankruptcy estate. The Bankruptcy Act regulates the authority of the creditors and the administrator.
The Bankruptcy Act includes a general provision on the effects of bankruptcy on contractual relationships and gives the bankruptcy estate a right of subrogation regarding the debtor's contractual relationships. This update looks at the effect of this general provision on the bankrupt's contractual relationships, and the scope of and preconditions for application of the provision.
At the beginning of a bankruptcy, the estate administrator draws up an inventory of the debtor's assets and liabilities. In most bankruptcies a complete and accurate estate inventory can be compiled only with the help of the debtor. The Supreme Court recently rendered a decision which seems to alter its position on the possibility of applying the right not to incriminate oneself in connection with the attestation of an estate inventory.
The Supreme Court recently set a precedent in a case in which a company limited by shares had given a pledge to another company for its current and future debts before merging with a third company. The question for the court was whether the general pledge included debts incurred after the merger.
One of the most important tasks the administrator of a bankruptcy estate must perform is the liquidation of the property. The administrator should liquidate the property without delay and try to achieve the best possible financial result. Problems may arise if the property to be liquidated has been pledged, since the interests of the bankruptcy estate and the pledgee often deviate from one another.
A recent Supreme Court decision emphasizes the importance of ascertaining whether a breach of contract arises before or after the commencement of a contractor's restructuring proceedings and whether the resulting debt is to be considered a restructuring debt. This categorization is central to the question of whether the resulting compensation should take priority in the contractor's bankruptcy.
A third-party pledge provider is liable to return a pledge to a creditor or straight to the bankruptcy estate in a situation where a debtor’s payment of debt can be recovered to a bankruptcy estate and a third party has provided a pledge on this debt. The objective of this legal remedy is to restore the debtor’s situation to how it was before the legal act.
The liquidation of a bankruptcy estate is one of a bankruptcy administrator's most important tasks. The administrator should liquidate the property without delay and try to achieve the best possible result after covering the liquidation costs and other expenses. However, liquidation may present problems when the property to be liquidated has been pledged as collateral.
The Finnish legislation concerning insolvency proceedings has recently undergone extensive revision. The new Bankruptcy Act entered into force on September 1 2004 and the first major amendment to the Reorganization of Enterprises Act entered into force on June 1 2007. One of the main objectives of the reform was to synchronize the two insolvency proceedings.
The number of internationally related bankruptcies has increased in recent years. Occasionally, a foreign trader who has business operations in Finland experiences financial difficulty and Finnish creditors may want to start bankruptcy proceedings in Finland. This update describes the essentials of Finnish courts' international jurisdiction in a matter pertaining to an order of bankruptcy.
The public receivership procedure, introduced by the Bankruptcy Act 2004, allows the court to decide, upon a proposal by the bankruptcy ombudsman, that a bankruptcy is to continue under public receivership instead of lapsing. Therefore, it is possible to call to account debtors that may have committed business crimes.
The Reorganization of Enterprises Act, which came into force in 1993, was prepared quickly for the needs of the 1990s Finnish economy and several issues concerning the reorganization proceedings were left to be determined by the courts. Amendments to the act, building on the experience gained over the past 14 years, are due to come into force on June 1 2007.
Reform of the legislation dealing with execution proceedings has been ongoing for 10 years and is taking place in four stages. The third phase of the reform entered into force on January 1 2007 with the coming into force of the amendment to the Execution Act, which increases flexibility in regard to execution proceedings.
In 2006 a claim was filed pertaining to a traffic accident in which the claimant had fallen off a moped and suffered a severe brain injury. The insurer rejected the claim in 2007. In 2011 the claimant discovered that the brain injury had caused permanent incapacity and a new insurance claim was filed, which the insurer rejected. The Supreme Court recently had to consider whether the exacerbation of damage starts a new period for a claim if it has already become time barred.
The new Motor Liability Insurance Act recently entered into force. The previous act dated from 1959 and required complete reform and modernisation to respond to existing and future needs. The new act is structured to follow the typical chronology of the underwriting and claims handling process and aims to promote competition by giving the insurance industry the opportunity to develop new products. This appears to be succeeding, as insurers have already launched new products.
The validity of legal expenses insurance can be problematic when ending business activities. A pharmacist terminated his legal expenses insurance after he retired and ended his business activities. Some time later he received a workers' compensation claim from a former employee. The pharmacist believed that the insurance would cover the matter, but the insurer rejected the claim because the event had occurred after the validity of the insurance.
Finland has a collective guarantee system for occupational pension insurance, statutory accident insurance and patient insurance. Specific insurance legislation and supervision of insurers have been found to guarantee that insurers do not become insolvent and, if they do, that the policyholders and insureds still get their benefits.
Shipping & Transport
The Eastern Finland Appeal Court recently assessed whether a statutory maritime lien over cargo also covers the costs associated with a general average that accrued as a result of confirming that general average and exercising the lien for a general average contribution. In deciding that these kinds of associated costs and expenses are not recoverable and secured by a maritime lien, the court made the exercise of a lien more difficult and less attractive to shipowners.
The main aims of the Transport Code are to create a growth environment for digitalisation and promote transport business by deregulation. Due to the code's broad scope, its preparation has been divided into three stages. Provisions relating to the code's third stage were recently opened for comment by the Ministry of Transport and Communications. The majority of comments received before the June deadline highlighted data protection issues.
The Transport Code (formally the Act on Transport Services) is one of the government's key initiatives. The code's main purpose is to create a growth environment for business digitalisation and promote transport business by deregulation. The code will reform the regulation of all transport modes, so that the regulation itself will not become an obstacle to digitalisation, automation and new innovations.
Fairway dues have been a much-discussed issue in Finland for years. The controversy began in 2000 when the Finnish authorities began suspecting that ships which regularly entered and departed Finnish waters did not fully comply with the technical requirements for vessels of the relevant ice class. The authorities subsequently began collecting fairway dues retroactively. This led shipping companies and their agents to file hundreds of appeals in the administrative courts.
Correct temperature is vital to maintaining the feasibility and effectiveness of pharmaceuticals throughout their lifecycle, including during carriage. Although various guidelines have been issued and express provisions have been included in transport agreements to maintain the cold chain, damage often occurs. The Helsinki Appeal Court recently considered whether the level of a carrier's liability should be agreed in advance and whether failure to maintain an agreed temperature should constitute gross negligence.
The Supreme Court recently issued a much-awaited decision and upheld a Court of Appeal decision involving Uber passenger rides. The Supreme Court ruled that to provide an Uber service a driver must have a taxi licence. It found a driver who had driven Uber passengers without such a licence guilty and imposed a €2,100 fine.
The Supreme Court recently found that the Maritime Code should have been applied in a personal injury case and that the Espoo District Court (as a general court) did not have subject-matter jurisdiction over the claim. The Supreme Court found that when determining which court has subject-matter jurisdiction, it is necessary to first investigate whether the provisions of the Maritime Code become applicable.
Following police investigations against Uber drivers in Helsinki, the district court fined an Uber driver for illegal taxi driving and ordered the driver to forfeit his earnings as criminal gain. The Helsinki Appeal Court passed a judgment and now an important precedent is pending before the Supreme Court. It is unlikely that the Supreme Court will disagree with the lower courts; nevertheless, the outcome will determine whether and how Uber can continue to operate in Finland.
In a recent case, the Supreme Administrative Court considered whether empty containers owned by those other than shipowners or charterers should be regarded as cargo in the meaning of Section 11 of the Fairway Dues Act, because 'cargo' is not defined in the act. In addition, the court considered the effect of the customs instructions in this matter.
The Transport Code is one of the government's chief initiatives. Its main purpose is to create a growth environment for business digitalisation and to promote transport business by deregulation. The code will reform the regulation of all transport modes, so that the regulation itself will not become an obstacle to digitalisation, automation and new innovations. Due to the code's broad scope, its preparation has been divided into three phases. The first phase focuses mainly on road transport.
According to the Fairway Dues Act, the amount of fairway dues will be reduced if a ship is not fully loaded according to the particular loading capacity utilisation rate, which is calculated by comparing the combined total of cargo imported into and exported out of Finland. The Supreme Administrative Court recently ruled that a ship with no cargo onboard is entitled to the loading capacity reduction.
Following pressure from the European Commission to implement EU cabotage rules fully, Parliament is dealing with a bill amending the Act on Commercial Transport of Goods on the Road. There was some parliamentary opposition to the bill, but in the second reading the controversial bill was approved. However, the commission has decided to refer Finland to the European Court of Justice for failing to apply the cabotage rules properly.
Finland implemented early the cabotage regulations set out in the EU legislative package on road transport. However, the Finnish cabotage restrictions were stricter than those of the regulation, and the European Commission asked Finland to amend its legislation to comply with EU law. The Finnish government has now proposed a bill amending the Act on Commercial Transport of Goods on the Road.
Traffic to the Russian ports on the Baltic Sea has increased greatly over the last few years; as a result, Russia's icebreaking capacity can no longer meet demand in severe winter conditions. In 2011 Russia proposed a treaty with Finland to promote cooperation in icebreaking assistance in the Baltic Sea, which finally came into force this year. Finnish icebreakers may now operate in Russian territorial waters and vice versa.
For several years the Transport Workers' Union (AKT) has claimed that the lashing and unlashing of bars on container ships in Finnish ports should be performed by its own stevedores. Most recently, AKT started directly boycotting selected shipping companies, insisting that they contract out their lashing work to port operators. The case came before the Labour Court, which found that AKT had violated the industrial peace.
The Fairway Dues Act has recently been amended. The act's scope of application has been updated to release icebreakers that provide services to the Finnish Transport Agency in Finnish territorial waters from the obligation to pay fairway dues. The act also includes a new section about the effect of the lack of ice-class certificates or outdated ice-class certificates.
In a recent case, a shipper stowed, loaded and sealed a container, but when it was opened at the final destination, it was observed that one-third of the declared goods had disappeared. Closed-circuit television footage was unable to show whether the container had been sealed at the loading port's gate. The appeal court found that the pilferage had taken place during the carrier's liability period.
In a recent case, two trawlers were moving against the recommended general direction and had not reported to the traffic centre. An approaching merchant vessel changed its course to avoid a collision but hit one of the trawlers. The prosecutor brought charges against the trawler masters. The Helsinki Maritime Court found that the trawlers had no duty to report to the traffic centre. The request to report was a recommendation only.
A recent case before the Supreme Administrative Court concerned whether a port had to pay value added tax on the supply of services and water when they were not charged directly from the shipping company. As the services and water were not used by the agent and the vessels were in commercial international traffic, the court found that extending the sales exemption did not conflict with the correct application of the law.
The Helsinki Appeal Court recently rendered a judgment regarding when a seafarer's employment contract can be made for a fixed term. Pursuant to the Seafarers' Employment Contracts Act, an employment contract is valid indefinitely unless it has been made for a specific fixed term for a justified reason. Contracts made for a fixed term on the employer's initiative without a justified reason will be considered valid indefinitely.
A gas producer and carrier entered into two standard form contracts of carriage for gas products. The gas supplier terminated the contracts due to several alleged contractual breaches. The courts found that the gas producer's allegations were unjustified and held that most of the alleged breaches were caused by the fact that the gas producer had not provided the drivers with the necessary training.
A vessel was suspected of leaking oil and the Border Guard imposed an oil discharge fee on the vessel owner. The owner appealed on the grounds that the fee was imposed on the wrong party, since the vessel was operated by the operator at that time. However, the owner had not raised this argument when the fee had been imposed and the Supreme Court dismissed the appeal.
Pursuant to the Maritime Code, maritime safety authorities can request a master on a foreign flagged vessel to give a maritime declaration, but the effect of this request can be challenged. It is unclear if the criminalisation stipulation in case of failure concerns a master on a foreign flagged vessel and if the authorities have the right to detain the vessel in order to encourage the master to give the maritime declaration.
The Helsinki Appeal Court recently overruled a judgment regarding an oil pollution payment. A vessel was suspected of leaking oil and the Border Guard had imposed an oil discharge fee on the vessel owner. The owner appealed on the grounds that the fee had been imposed on the wrong party, since the vessel had been operated by the operator at the time. The court accepted the appeal and annulled the discharge fee.
The Finnish Competition and Consumer Authority recently investigated suspected abuse of the dominant market position of major harbour towage service operators. Based on a competitor's complaint the authority investigated the suspected abuse in harbour towage services in the port of HaminaKotka and other parts of the Finnish coast. The authority found no form of abuse of dominant position in the operators' activities.
The Turku Appeal Court recently confirmed a Turku Maritime Court decision regarding the question of title to wreck and the right of salvage. The decision illustrates the criteria that must be fulfilled for the removal of a wreck to be regarded as salvage and will hopefully serve as a guideline to salvors in the future.
Amendments to the Municipal Act and other reforms are set to change the ownership structures of ports, with the aim of enhancing competition within and between ports. Under the new regime, a municipality must establish a corporation for all of its activities when it acts in competitive markets. Meanwhile, the much-debated fairway dues are also subject to possible revision.
A mail courier company distributed printed advertisements for a retailer based on an assessment of the number of households in different post codes. The retailer claimed that this assessment was incorrect, leading to a shortfall in some areas and a surplus in others. The Helsinki Appeal Court held that the advertisements constituted goods and their delivery constituted transport; the advertisements could not be regarded as mail.
In a recent case a driver was accused of neglecting to control the cargo security of a trailer that he had checked, but that had been sealed with the transport company's seal. The dispute concerned whether the commercial seal overruled the duty to carry out a cargo safety check. The district court found that as a 'seal' is not defined in the Road Traffic Act or its preparatory work, the definition also covers commercial seals.
The Supreme Court recently confirmed that a Convention on Contracts for the International Carriage of Goods by Road (CMR) carrier has a right to release itself from liability for the loading, stowage and securing of goods, and that the sender has no right to take direct action against the CMR sub-carrier. The decision is a reminder that it is important to have a clear and detailed agreement on such matters.
It is sometimes unclear whether a stevedore works for the vessel or the cargo. A longshoreman was injured while working onboard and the case was remitted to a competent maritime court. The court found that since the vessel had not ordered the stevedore's work, the injured longshoreman was not acting in the interest of the vessel.
The government's initiative to tackle the grey economy has focused on the transport sector – especially on the transportation of goods by road. Several amendments to the Act on Commercial Transport of Goods by Road recently came into force, one of which increases the onus on a procurer of haulage services to ensure that the transportation contract is not concluded before it has made certain checks.
The Finnish Port Operators Association has repeatedly turned down the Transport Workers Federation's (AKT) demand that the lashing and unlashing of containers - traditionally undertaken by the vessel's own crew - be carried out by stevedores. In a recent decision the Labour Court found the AKT's threat that stevedores would take over the lashing work from February 4 2013 to be an illegal industrial action. Negotiations to settle the dispute are ongoing.
A Finnish appeal court recently dismissed criminal charges against the master and first mate of a vessel who had been fined for failing to ensure that their ship was seaworthy prior to a voyage from Germany. While the vessel's cargo of explosives had not been transported in accordance with the applicable regulations, the appeal court found that this had caused no risk to life and thus did not constitute a criminal offence.
In 2011 Finland and Sweden entered into a bilateral convention to strengthen the organisation of winter navigation services. The arrangement has enabled icebreakers to operate effectively and economically, to the benefit of both parties. The success of this cooperation hinges on careful planning by the authorities.
The Finnish Seaman's Union (FSU) has long subjected foreign flagged vessels to harassment. If a foreign vessel that applies a collective bargaining agreement which the FSU dislikes calls at a Finnish port, the FSU tends to claim the right to negotiate a new collective bargaining agreement for the vessel. The FSU has almost never sought a mandate from the crew, but claims that it has a right to negotiate.
Despite efforts to encourage competition, Finland has remained one of the few EU countries where the goods transport network was operated by a single railway company. However, the first safety certificates were issued to private companies in 2011 and the Ministry of Transport and Communications recently issued a licence to Ratarahti, making it the first new official operator since the sector was opened to competition.
A shipping company which is subject to tax in Finland can choose between ordinary corporate income tax or tax under the Tonnage Tax Act. However, the shipping industry found the tonnage tax scheme unattractive and inflexible. Therefore, the government recently amended the act. It remains to be seen whether shipping companies will opt for tonnage tax in the future.
The new Water Act is welcome news for the shipping industry, as it clarifies the confusing and uncertain situation whereby, in certain circumstances, two conflicting legal regimes may determine a shipowner's non-contractual liability. The act has corrected this situation by eliminating a shipowner's strict liability. Since the beginning of the year, the legal basis for shipowners' liability has been unambiguous.
The new Maritime Employment Contracts Act recently entered into force. It replaces the 1978 Seamen's Act and is the first step towards the ratification of the International Labour Organisation's 2006 Maritime Labour Convention. Although much of the content of the Seamen's Act is included unchanged in the Maritime Employment Contracts Act, some major improvements regarding employee rights have been made.
Pilots and their services are essential for safe navigation in Finnish fairways. Various cases have raised the issue of whether a pilot acted as a pilot or as a crew member when he or she steered the vessel due to insufficient watch crew on the bridge. To date, the courts have made no distinctions between piloting and when the pilot acts more or less as a crew member, but the state is contesting this view again in a pending case.
The Helsinki District Court recently rendered several judgments in a complicated and prolonged patent and utility model infringement dispute which involved several interesting IP right questions as well as shipping law problems. It remains to be seen whether the parties have the endurance to litigate before the appeal court and in the Supreme Court.
In February 2003 two cargo vessels were involved in a head-on collision. At the time of the collision the sea was frozen and the visibility was poor. In order to resolve the case the maritme courts had to establish the respective movements of the vessels and then decide whether, in such circumstances, vessels should navigate according to the fairway on the relevant chart or according to the ice channel in the relevant field.
The Supreme Court recently held that the requirement to observe good seamanship does not apply to the masters of non-merchant vessels. The maritime safety authorities are concerned that this precedent will result in the creation of two distinct categories of seafarer: one which must obey the Maritime Code and the International Regulation for Preventing Collision at Sea, and one which must obey only the water traffic rules.
Pursuant to Chapter 21, Section 1 of the Maritime Code, matters which are decided in accordance with the code must be tried by a competent maritime court. Furthermore, the act also stipulates that cases arising under the Seamen's Act with reference to the code must be determined before the relevant maritime court. However, certain aspects regarding the proper venue in which to handle maritime disputes remain ambiguous.
In a recent case the Supreme Administrative Court had to decide whether lower court decisions concerning fairway dues which were adjudicated in accordance with the Fairway Dues Act were to be reversed on the basis that they breached EU law. It remains to be seen whether this ruling puts an end to the controversy surrounding fairway dues.
The government has approved a bill which specifies the circumstances in which road hauliers from one EU country can transport goods in another. The bill implements into Finnish law regulations approved by the European Parliament in April 2009. The new rules are likely to come into force in Summer 2009.
The fairway dues collection system was traditionally based on a procedure whereby a foreign shipowner appointed a Finnish agent, and the agent and foreign shipowner were jointly and severally responsible for payment of the fairway dues imposed on the respective vessel. However, to comply with EU law, from January 1 2009 the shipowner alone is liable for paying fairway dues.