The Bankruptcy Act has been amended by a statute which came into force on 1 July 2019. The amendments aim to simplify and accelerate bankruptcy proceedings. This article focuses on amendments that affect the position of creditors located outside Finland, such as those concerning the lodgement of claims, dates of creditors' meetings and the bankruptcy and restructuring proceedings case management system.
The Eastern Finland Court of Appeal recently ruled on a bankruptcy estate's liability for a mutual real estate company's maintenance charges. This decision further defines the scope of bankruptcy estates' liabilities and is a logical continuation of Supreme Court precedent in this area. As payments of bankruptcy estates' administrative expenses are privileged compared with claims against debtors, the definition of 'administrative expenses' should be interpreted cautiously.
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.