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.
How liquidation proceeds if you apply for it yourself:
- 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.
- 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.
- The estate administrator writes a distribution proposal for the claims being overseen in “liquidation oversight”. A district court inspects and approves this proposal.
- 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.
Lapse of liquidation or public receivership due to lack of funds
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
If your business applies for liquidation of another business, here are the most important factors.
- 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.
- 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”.
- 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.
- 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.
- 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.