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Insolvency procedures

Procedures
What are the main insolvency procedures applicable to companies in your jurisdiction?

Bankruptcy

  • Business restructuring
  • Voluntary arrangement

Bankruptcy – In a bankruptcy an administrator is appointed by the court to assist the creditors to realise the assets of the company and distribute the proceeds to themselves.

Business restructuring – In a business restructuring an administrator is appointed by the court to prepare a restructuring plan that requires the approval of the creditors. The restructuring plan can:

  • extend the term of debts
  • reduce the rate of interest on debts
  • compromise unsecured debts

A restructuring plan that is unanimously approved by the company’s creditors is not subject to these restrictions and can compromise secured debts.

Voluntary arrangement – An alternative to a court sanctioned business restructuring is for the company and its creditors to agree a contractual restructuring out of court, although such a voluntary arrangement will only bind those creditors who are party to it.

Moratorium
Can a company obtain a moratorium whilst it prepares a restructuring plan?

Yes. On commencing a business restructuring a moratorium on debt repayments and creditor enforcement automatically arises. In certain circumstances a company can apply to the court for a moratorium in anticipation of commencing a business restructuring proceeding.

Directors
To what extent do the directors of the company remain in control of its affairs during any of the above procedures?

Business restructuring - the directors remain in control subject to the supervision of the administrator and, if one is formed, the creditors’ committee. Certain acts, such as the disposition of property, require the administrator’s consent.

Bankruptcy - the directors’ powers cease and the estate is controlled by the creditors as assisted by the administrator.

Timeline to commence liquidation
How quickly can a creditor generally commence the liquidation of an insolvent company, assuming an undisputed claim and no opposition from the company?

Five to six weeks.

Overseas proceedings
Do your courts recognise insolvency proceedings commenced in the courts of another jurisdiction?

Yes - insolvency proceedings commenced in the courts of other EU members states will be automatically recognised under the EC insolvency regulation.

Under the Nordic bankruptcy convention insolvency proceedings commenced in Denmark, Iceland, Norway and Sweden are automatically recognised in Finland. 

International law principles apply to the recognition of insolvencies commenced before the courts of countries outside the EU or the Nordic bankruptcy convention.

Position of creditors

Forms of security
What are the main forms of security over movable and immovable property?

Security is taken over:

  • company assets by a floating charge
  • real estate by a mortgage
  • goods delivered but not yet paid for by a contractual retention of title
  • movable property by a pledge
  • receivables by a pledge

Preferential status
Which classes of creditor are given preferential status? Are any classes subordinated?

Secured debts have specific preferential status and rank ahead of all other debts.

The following classes of debt have general preferential status and rank ahead of ordinary unsecured debts:

  • the fees and expenses of the insolvency
  • claims arising from the continuation of the company’s business after the commencement of insolvency

Treatment of foreign creditors
Are foreign creditors treated equally to domestic creditors?

Yes.

Termination of contract by reason of insolvency
Are contract terms permitting termination of the contract by reason of insolvency valid?

Restructuring proceedings - a counterparty cannot terminate a contracts by reason of insolvency, however the company has a right to terminate certain lease contracts.

Bankruptcy – a counterparty can request the bankrupt estate declare whether it commits to the contract. If within a reasonable time the estate commits to the contract and posts acceptable security for its performance, the contract cannot be terminated by reason of insolvency.

Retention of title
Are retention of title clauses effective?

Yes, but not if the company has the right to:

  • assign the assets to a third party
  • attach the assets to other assets
  • dispose of the assets as if it were the owner

Setting aside transactions

Transaction avoidance provisions
What are the main transaction avoidance provisions, and who can challenge transactions?

The creditors or the administrator can challenge the following transactions if they took place in the five years prior to the commencement of insolvency and the company was insolvent at the time of the transaction or became insolvent as a result of entering into the transaction:

  • preferences
  • transactions defrauding creditors
  • increasing the company’s debt to the detriment of other creditors

There are also specific avoidance provisions relating to transactions including:

  • gifts
  • disproportionate fees
  • payment of debts before the due date
  • granting security

Position of directors

Risks for directors
What are the risks facing the directors of an insolvent company?

Directors can be held civilly liable to pay damages to the company where they deliberately or negligently cause loss to the company, its shareholders or creditors. Proceedings can be brought by creditors or shareholders.

Directors can become personally liable to pay the losses of the company, its shareholders and creditors if, on the company’s capital becoming negative, they fail to report that fact to the company registrar.

A director can be held criminally liable for:

  • dishonesty - causing the company’s insolvency or increases its indebtedness by:
    • destroying property
    • making a gift or surrendering property without good cause
    • transferring property abroad to put it beyond the reach of creditors
    • increasing the company’s liabilities without valid grounds
  • preferring a creditor – procuring that the company, at a time when it is unable to pay its debts:
    • repays a debt before its due date
    • gives security for pre existing debts
    • makes a payment other than by cash or cash equivalent