Due to the global Covid-19 pandemic, many undertakings are suffering from unexpected financial difficulties and, according to a recent survey, one third of Finnish companies worry of becoming insolvent. New insolvency legislation has not yet been enacted since the Covid-19 pandemic spread to Finland, but the Finnish government and authorities have expressed their concern regarding the potential wave of bankruptcies in the suite of the Covid-19 crisis. Below we list some of the efforts made by Finnish authorities to date in response to the feared wave of insolvencies.
Restructuring of companies
The Finnish Advisory Board for Bankruptcy Affairs (the “Advisory Board”) has been particularly concerned about companies which were undergoing restructuring proceedings already before the Covid-19 crisis and which companies now risk that the restructuring proceedings will be interrupted due to additional financial difficulties caused by the pandemic. According to the Finnish Restructuring of Enterprises Act, the restructuring proceedings shall be interrupted should, inter alia, the debtor become insolvent and it is probable that the restructuring programme will not remedy the insolvency, or if it is likely that the debtor will not be able to repay debts arising after the commencement of the proceedings.
The Advisory Board gave instructions on 25 March 2020 to administrators of restructuring proceedings on how to evaluate the grounds for interruption under the Finnish Restructuring of Enterprises Act in these unusual circumstances. The Advisory Board emphasized that it is important that the general objectives of insolvency legislation are taken into consideration while using the discretionary grounds for interruption. Delays in payments during the restructuring proceedings in these highly exceptional circumstances should not automatically indicate that the company would not be able to perform under normal circumstances. Further, the Advisory Board recommended that the administrators discuss the current situation with creditors to find solutions, for instance, by extending the review period determining the debtor’s ability to fulfil its payment obligations during the restructuring proceedings. The administrator should also review the development of the financial situation of the company to especially evaluate how much of its performance is influenced by, and the chances of it being able to recover from, the difficulties caused by the pandemic.
As for bankruptcy proceedings, the Ministry of Justice announced on 28 March 2020 that it has commenced preparing interim amendments to the Finnish Bankruptcy Act. With the amendments, the Ministry of Justice aims at limiting the creditors’ right to petition for bankruptcy. Under the current Finnish Bankruptcy Act, a debtor is considered bankrupt if it has not repaid its debt in a week from receiving a demand for payment including a threat of the creditor filing for bankruptcy. With the proposed amendment, this susceptibility to bankruptcy would be temporarily removed from the Finnish Bankruptcy Act and, consequently, debtors would no longer be subject to threatened bankruptcy based on a creditor’s payment claim given with a weeks’ notice. The proposed amendment would also entail that a debtor’s potential insolvency would not be determined by one unpaid debt to a creditor. The aim of the amendment would be to temporarily suspend the use of a payment demand as grounds for bankruptcy and to determine the potential insolvency of a company by a broader review of the company’s financial difficulties so that companies would have a better chance of surviving the temporary financial hardships caused by the Covid-19 crisis.