When a business faces 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.

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.

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.

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.

Liquidation


A district court may enter a business into liquidation if it is more than temporarily unable to pay its debts when they fall due.

Either the business itself or a creditor may decide to place a business into liquidation, and a court always makes the final decision. The application is made to the district court in the debtor business’s municipality of registration. For a company, this means the district court in the district where the company is primarily administered in Finland.

The main aspects of the liquidation process, both from the debtor’s and creditor’s perspective, are explained below. The procedure involves both parties at once; a clear boundary between both their perspectives cannot thus be drawn in reality.

Your business applies for liquidation itself

If your business applies for liquidation itself, a district court can enter it into liquidation directly. In a limited company, a majority vote of the board is needed, unless the articles of association do not set stricter conditions. In a partnership and limited partnership, one general partner may apply for liquidation. A sole trader may apply for liquidation by his or her own decision.

  1. Your business is entered into liquidation, and it loses the right to decide on the property in its insolvency estate. The district court appoints an administrator of the estate who takes control of your business’s property and begins to investigate its debts. The administrator writes a claim list, an explanation of your business’s operations, and a list of the reasons for liquidation. This generally happens within about two months of entry into liquidation.
  2. Creditors register their claims. If your business’s insolvency estate has enough funds to be distributed to creditors, the estate administrator names a date by which the creditors must register their claims in writing. This is known as “liquidation oversight”. The administrator’s task is to establish any confusion or conflicts in the claims. If necessary, disputes may also be resolved by a court.
  3. The estate administrator writes a distribution proposal for the claims being overseen in “liquidation oversight”. A district court inspects and approves this proposal.
  4. When your business’s liquidation estate has been clarified, the property in it is converted to money and the administrator compiles a final account containing an explanation of the liquidation estate’s administration and the shares distributed to creditors. Liquidation ends when the final account has been approved by a meeting of the creditors.

If there are not enough funds in your business’s estate to pay the costs of liquidation, or if the shares paid to creditors would be very small, a district court may order lapse of liquidation. If a liquidation lapses, the legal effects of the liquidation cease. If your business is a limited company, it is removed from the Trade Register.

As an alternative to lapsing, a court may, on the proposal of the Bankruptcy Ombudsman, order the liquidation to proceed as public receivership if the estate only contains little funds or there is a special need to continue clarification of your business’s operations. A public receiver appointed by the Bankruptcy Ombudsman manages the public receivership.

You apply for another business’s liquidation as creditor

  1. The application must be based on a final court ruling or otherwise be a clear claim. You obtain a written statement from the debtor about whether it objects to your application. The debtor can avoid liquidation by presenting proof that the claim breaches liquidation law, or by paying 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. When the liquidation estate has been investigated and the property in it has been converted to money, the remaining funds are divided between you and your creditors, and the shares are paid immediately after the final settlement.

Cancellation of liquidation

A court may also order cancellation of liquidation. This is on the conditions that:

  • a business itself applies for cancellation of liquidation
  • the business, and the creditor who applied for liquidation, both apply for cancellation
  • the application is made within eight days of the business being entered into liquidation
  • there is a valid reason for the cancellation.

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.

Our advice services are here to help


If your business is threatened by payment difficulties, you should immediately contact debt restructuring specialists. 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
New consultation network for business owners

New consultation network for business owners

We are also involved in setting up a new consultation network for business owners to help with financial difficulties through early intervention. The goal of the project is to combine all Finnish business finance and coping services in a one-stop shop. Read more in our press release: