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Financial difficulties

A business often starts to face financial difficulties gradually. For example, your cash flow can suffer from reduced orders or changes in the competitive environment.

If your business faces payment difficulties, it is worth knowing in advance that there are defined legal procedures precisely for such situations. Your options are company restructuring, liquidation, and a private person’s debt restructuring.

You should seek help sooner rather than later. For example, you can begin restructuring your business when your insolvency is still only a possibility. You do not have to wait until your business is insolvent.

Private person’s debt restructuring

A private person’s debt restructuring is intended as a solution for a private household’s problems, but a business owner can also apply for it for his or her business debts.

You can apply for a private person’s debt restructuring as a business owner if:

  • your business operations are small, you are a sole trader and you do not need business restructuring to balance your finances
  • your business is your main source of income
  • your business has stopped trading.

Advice services are here to help

If your business is threatened by payment difficulties, you should immediately contact debt restructuring specialists.

Talousapu counselling service

Suomen Yrittäjät and its regional associations cooperate with partners such as Business Mentors Finland in the regional realisation of the Entrepreneur’s Financial Aid service. The service is developed in close cooperation with the Ministry of Economic Affairs and Employment and the customer service centre of Working Life and Business Management.

As a member of Suomen Yrittäjät, you can get expert advice and instructions from our consultation service.

Counselling services

Free legal advice and expert assistance as a member service
Weekdays 08.00–18.00

Business restructuring

A business in financial difficulties, whether it is a company or a sole trader, can receive relief for its distress through restructuring.

Business restructuring is intended to bring about debt restructuring (such as when the debt is reduced) and to make viable business operations financially sounder. Either the creditor or the debtor can apply for business restructuring.

Below we present the main aspects of the business restructuring procedure from both the debtor’s and the creditor’s perspective. It is worth noting that the procedure involves both parties at once; it is difficult to draw a clear boundary between both their perspectives.

You apply for restructuring of your own business

For business restructuring to be successful, you must apply for it early enough. Your business does not need to be insolvent for you to apply for the restructuring procedure.

The stages of the restructuring procedure are roughly:

  • restructuring application is sent to a district court
  • restructuring is begun or the application is declined
  • further on in the process, a restructuring programme proposal is written
  • a district court approves the restructuring programme

If your creditors support your restructuring application, or if you are applying for restructuring together with your creditors, you do not need to research whether your business is eligible for restructuring.

If there is any uncertainty about whether your business is eligible for restructuring, you will be asked at the application stage to explain means for making the business profitable.

A district court can approve a restructuring programme in a simplified procedure if that is what the majority of creditors support. In that case, the court can make a quick decision.

When a district court approves a restructuring programme, it pays close attention to whether the business can continue operations and pay its debts in accordance with the programme. You should be ready to demonstrate that the programme is realistic.

When your restructuring programme is approved, you must adhere to it strictly. Note that if someone appeals the district court’s approval of the programme, the programme must still be followed regardless, unless the court of appeals rules otherwise.

If it becomes clear during the restructuring process that your business’s operations cannot be put back on a firm footing, the business may be entered into liquidation.

You apply for restructuring of another business as a creditor

Only debts which were formed before the restructuring application was submitted to a district court are considered “restructuring debts”. In other words: only the debts that existed before a restructuring application was submitted can be considered in debt restructuring. Any new debts that arise after the application is submitted must be paid by the debtor to your company when they fall due.

Also, beginning business restructuring does not generally affect the debtor’s previous contracts and commitments. The start of business restructuring does not prevent you as a creditor from claiming restructuring debts from a guarantor, or the value of the loan security set by a third party.

When business restructuring has begun, the debtor cannot generally repay you restructuring debt or pay you security for it. Nor can you take action against the debtor to recover his or her debt or to secure repayment of it.

Before business restructuring begins, the debtor may apply for a “temporary prohibition” which the district court can impose to prevent debt being recovered from the debtor before the process starts.

If a creditor files for liquidation of a debtor’s business in addition to filing for business restructuring, the decision to start business restructuring is always made before the decision to liquidate. If the business restructuring application is approved and restructuring begins, the debtor can only be entered into liquidation in exceptional circumstances.

If the restructuring application is declined, the business can generally be entered into liquidation, even if the restructuring decision is appealed. However, the court that processed the liquidation application can delay the debtor’s entry into liquidation until the matter of the start of restructuring has been resolved in the court of appeal. If the debtor’s entry to liquidation is not delayed, a court may, on the debtor’s demand, limit realization of property until the decision on restructuring is final.

If the debtor has been entered into liquidation before the matter has been decided in the court of appeal, and the court of appeal then decides that restructuring will begin, the liquidation loses force and restructuring begins.

Bankruptcy

The district court may declare a company bankrupt if it is unable to pay its debts as they fall due, and this inability is not merely temporary.

A petition for bankruptcy may be filed either by the company itself or by a creditor, and the decision is always made by a court of law. The bankruptcy petition, together with its enclosures, shall be filed with the competent district court. In the case of a corporate entity, the competent court is that within whose jurisdiction the debtor’s administrative affairs are primarily conducted; this does not necessarily correspond to the company’s registered domicile. In the case of a sole proprietorship, the competent court is the district court of the debtor’s place of domicile.

The main stages of the bankruptcy procedure are outlined below from both the debtor’s and the creditor’s perspectives. As the procedure constitutes an integrated whole, a clear separation between these two viewpoints cannot, in practice, be made.

Your company files for bankruptcy on its own initiative.

If your company files for bankruptcy on its own initiative, the district court may declare it bankrupt without further proceedings. In a limited liability company, a majority decision of the board of directors is required, or, if the company is in liquidation, a decision by the liquidators. It is important to note that the shareholders of a limited liability company—that is, the general meeting—do not have the authority to decide on placing the company’s assets into bankruptcy. In a general partnership or a limited partnership, even a single general partner may file for bankruptcy. A sole proprietor may file for bankruptcy based on their own decision. The bankruptcy petition must be submitted in writing and must include at least the information specified in the Bankruptcy Act.

How bankruptcy proceeds if you file it yourself:

  1. Your company is declared bankrupt and loses the right to manage the assets included in the bankruptcy estate. The district court appoints an estate administrator, who takes control of your company’s assets and begins the process of settling debts. The administrator prepares an inventory of the estate and a written report on your company’s business activities and the reasons for the bankruptcy. This generally takes place within approximately two months from the commencement of the bankruptcy..
  2. Creditors file their claims. If your company’s bankruptcy estate has sufficient assets to allow for distributions to creditors, the estate administrator will set a deadline by which creditors must file their claims in what is known as bankruptcy supervision. The administrator is responsible for investigating any uncertainties or disputes concerning the claims. If necessary, such disputes may also be resolved by the court.
  3. The estate administrator prepares a draft distribution list based on the filed claims, which is then reviewed and confirmed by the district court.
  4. Once your company’s bankruptcy estate has been settled, the assets included in the estate are converted into cash, and the estate administrator prepares the final account, which includes a report on the administration of the estate and the distribution of dividends to creditors. The bankruptcy is concluded when the final account is approved by the creditors’ meeting.

Lapsing of bankruptcy or public liquidation due to lack of assets

If the assets of your company’s bankruptcy estate are insufficient to cover the costs of the proceedings or if the distributions to creditors would be minimal, the district court may order the bankruptcy to lapse. When a bankruptcy lapses, its legal effects cease. If your company is a limited liability company, it will then be removed from the Trade Register.

As an alternative to lapsing, the court may, upon the proposal of the Bankruptcy Ombudsman, order the continuation of the bankruptcy as a public liquidation if the estate holds only minimal assets or there is a specific reason to further investigate the company’s affairs. A public liquidator appointed by the Bankruptcy Ombudsman will be responsible for managing the public liquidation.

Filing for another company’s bankruptcy as a creditor

If your company petitions for another company to be declared bankrupt, here are the key considerations:

  1. The petition must be based on an enforceable judgment or an otherwise undisputed claim. The debtor company will be requested to submit a written statement indicating whether it contests the petition. The debtor may avoid bankruptcy by providing evidence that the claim is contrary to the Bankruptcy Act or by settling the debt.
  2. As a creditor, you must oversee your claim and notify the administrator about it by the set deadline. Otherwise, you will lose your right to a share. However, on certain conditions you can continue oversight after the fact in “post-oversight”.
  3. As a party to the process, you can dispute other creditors’ claims or privileges in the distribution proposal for the claims within a month of the proposal being made. When disputing, you must be specific and justify your claim. Disputed claims can be confirmed when a district court approves the distribution list, or they can be moved to separate processing. You can appeal the decision separately.
  4. The largest matters are discussed in creditors’ meetings, where the estate administrator brings bigger matters for you and other creditors to discuss. In meetings, the creditors vote by simple majority in proportion to their claims. In practice, this means the largest creditors decide on matters in the estate. It is good to be aware that clarifying the property matters of the estate may take several years in the largest cases. This may involve going to court.
  5. Once the bankruptcy estate has been settled and the assets liquidated, the remaining funds are distributed among you and the other creditors, and the final payments are made without delay following the approval of the final account.

Cancellation of bankruptcy

The court may also order the cancellation of bankruptcy. This requires that:

  • the company declared bankrupt on its own application requests the cancellation,
  • the company and the creditor who filed the bankruptcy petition jointly request the cancellation,
  • the request is submitted within eight days from the date the company was declared bankrupt, and
  • there is a valid reason for the cancellation.