Do you have payment difficulties? Changes to liquidation legislation and debt recovery from 1 May

The Bankruptcy Act (120/2004) is being temporarily amended to limit liquidation upon application by a company’s creditors. A business owner in debt cannot be considered insolvent on the basis of failing to pay his or her creditors a clear, due sum within a week of receiving a payment demand from a creditor.

The amendment has been in force since 1 May and will be in force until 31 October 2020.

Tiina Toivonen, legal affairs manager at Suomen Yrittäjät, says, “Many businesses are in temporary payment difficulties because of coronavirus. This change in legislation means we can avoid unnecessary liquidations.”

Liquidation applications possible if problems not due to coronavirus

However, the change in the law does not mean that a company’s creditors cannot apply to liquidate it in the next six months:

“If the creditor can show that it is not a case of temporary insolvency, and, rather, that the company has not paid its bills before coronavirus, then it can apply for liquidation of the company,” Toivonen says.

She notes that several large public creditors, such as the Tax Administration and the financial sector, have already said they will not apply for the liquidation of companies which are suffering difficulties due to coronavirus.

“Here, we’re mostly talking about smaller private creditors, such as goods suppliers – what will they do?” Toivonen asks.

The share of companies applying to liquidate themselves is normally between 30 and 40 per cent.

Relief and extra time for companies in debt recovery

An entrepreneur or company may receive relief on payments of debts recovered at source because of temporary payment difficulties. They can also make payment plans for debts of this kind.

Because of coronavirus, debt recovery legislation has been temporarily changed to allow for direct relief when someone faces payment difficulties because of the pandemic. The changes came into force on 1 May 2020 and they are in force until 31 October 2020.

“It’s important to remember that relief is not automatic, not even during the coronavirus pandemic. A debtor has to ask bailiffs for it and make a claim based on the coronavirus situation,” Toivonen stresses.

If you are a business owner and draw salary from your company, the bailiff may grant you additional time to pay. This period is normally up to three months long but is now, thanks to the temporary amendment to the law, six months.

“If the creditor agrees, a six-month extension can normally be granted, but now, thanks to the temporary amendment to the law, 12 months can,” Toivonen says.

Possibility for reducing share of income subject to debt recovery

Due to your impaired solvency, you may be entitled to a smaller deduction at source to pay your debts. As a general rule, five-sixths of a natural person’s regular business income is protected from debt recovery. This proportion can be increased further if the debtor’s financial solvency is at risk.

“Now, from the start of May, the amendment to the law means you can apply for such a change specifically because of reduced payment ability caused by coronavirus. You cannot receive payment holidays or delayed payment dates for business income,” Toivonen says.

If you have income from a company or other organization, you can also reduce the proportion of your income subject to debt recovery at source, if that allows you to continue running your business. During the coronavirus pandemic, it is also easier than before to get relief on income received by an organization.

Toivonen has a reminder for business owners about payment default entries during the coronavirus situation: “If a payment default entry is entered on your credit score because of coronavirus, you can ask Asiakastieto to include a note about coronavirus problems being the cause,” Toivonen says.

Asiakastieto itself announced this a couple of weeks ago.

There are also plans to improve the situation of entrepreneurs in payment difficulties by capping companies’ debt recovery fees. The Ministry of Justice is preparing a cap on debt recovery fees.

Extension for financial statements

Amendments are going to be made to a range of legislation because of the coronavirus pandemic, including the Limited Liability Company Act, the Housing Companies Act, the Cooperatives Act, the Associations Act and other corporate legislation.

Financial statements must normally be submitted within four months of the end of the financial year. Now a partial extension is being made to this. Financial statements and reports for the financial year ending between 30 November 2019 and 29 February 2020 must be filed by 30 June 2020.

Suomen Yrittäjät specialist and lawyer Atte Rytkönen says, “The exception only applies to financial statements with a deadline during the state of emergency caused by the epidemic.”

Relief and extensions are on the cards for meetings.

“The AGMs of limited liability companies, cooperatives, associations and other meetings defined by law can be held any time before the end of September 2020, even if the law, articles of association or rules say they have to happen earlier,” Rytkönen says.

The board of directors of a listed company can decide to hold a fully remote AGM in which all shareholders can participate through prior votes or other remote means, either personally or by proxies.

However, the board of the organization must still compose financial statements by the end of June 2020.

Rytkönen says that all of these changes are designed to ensure organizations’ boards have enough time and means to organize their spring meetings in line with their needs, resources and health protection requirements.

Jari Lammassaari

jari.lammassaari(at)yrittajat.fi