COVID-19 Newsroom

Covid-19 and insolvency – update on temporary amendment of insolvency legislation

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.

Bankruptcy

The Finnish Parliament approved on 29 April 2020 the government proposal for the temporary amendment of the Finnish Bankruptcy Act (120/2004, as amended, Fi: konkurssilaki). The newly amended Act limits creditors’ right to petition for bankruptcy on the basis of a debtor’s temporary insolvency.

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 amendment, this susceptibility to bankruptcy will be temporarily removed from the Finnish Bankruptcy Act and, consequently, debtors will no longer be subject to threatened bankruptcy based on a creditor’s payment claim given with a weeks’ notice. A creditor is, however, still able to petition for a debtor’s bankruptcy provided that the creditor is able to prove that the debtor is unable to pay its debts as they fall due. In addition, the amendment does not have any effect on petitions for a debtor’s bankruptcy made by a creditor based on the fact that debtor has not repaid its debt in a week from receiving a demand for payment (including a threat of the creditor filing for bankruptcy) if such demand has been verifiably served on the debtor prior to the entry into force of the amendment. In the event the demand for payment is served on the debtor after the entry into force of the amendment, a creditor may only petition for a debtor’s bankruptcy based on the above susceptibility to bankruptcy criteria if the debtor’s unpaid debt which the petition is based on has fallen due two months prior to the entry into force of the amendment.

As noted above, the amendment is only aimed to be temporary and will be in force until 31 October 2020. The aim of the amendment is 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.

The amendment entered into force on 1 May 2020.

Restructuring of Companies

The Finnish Tax Administration decided on 17 April 2020 that it unpaid tax payments are no longer an obstacle for a company applying for restructuring in accordance with the Finnish Act on Company Restructuring (47/1993, as amended, Fi: yrityssaneerauslaki) provided that the restructuring application has been filed in between 25 March 2020 and 31 August 2020.

In the same decision the Finnish Tax Administration also amended the grounds based on which the restructuring programme may lapse. According to the Finnish Tax Administration’s decision, restructuring programme may only lapse if the debtor fails to make payments in accordance with the payment schedule, new tax debt not connected to the restructuring programme is created by the debtor or the debtor fails to comply with the reporting obligations under Finnish tax law.
Similarly as the amendment concerning bankruptcy legislation, the above reliefs granted by the Finnish Tax Administration are aimed to be temporary and will be in force until 31 August 2020.

For further information, please contact:

Christoffer Waselius

Partner

Ville-Veikko Vänttinen

Associate