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Insolvency & Restructuring
The Eastern Finland Court of Appeal recently ruled on a bankruptcy estate's liability for a mutual real estate company's maintenance charges. This decision further defines the scope of bankruptcy estates' liabilities and is a logical continuation of Supreme Court precedent in this area. As payments of bankruptcy estates' administrative expenses are privileged compared with claims against debtors, the definition of 'administrative expenses' should be interpreted cautiously.
In January 2015 two Supreme Court precedents indicated that assets subject to floating charges should be valued at their feasible liquidation value; however, under these precedents, the valuation terms were somewhat ambiguous and certain liquidation costs remained undetermined. The court's latest precedent addresses the equal treatment of creditors in both restructuring and bankruptcy proceedings and clearly improves the predictability of floating charges as securities in the former.
Generally, Finnish insolvency legislation has been stable and proven effective over the past decade. However, owing to technological advancements and recent bankruptcies involving businesses affecting the environment, there is a growing need to fine-tune bankruptcy proceedings and environmental liabilities in bankruptcies. After two years of research, an expert group established by the Ministry of Justice has published a report on these issues.
The tax issues of a bankruptcy estate and the creditors differ depending on whether the bankruptcy estate continues the previous business of the debtor company. The effects of a debtor's bankruptcy on the creditor's taxation may be particularly significant where the creditor is a lessor to the debtor. Pursuant to legislation, a bankruptcy estate is, in principle, entitled to choose whether to conduct activity liable to value added tax provided that it does not continue the debtor's business.
A court-approved restructuring programme can be amended only if the preconditions of the Restructuring of Enterprises Act are met. Generally, the contents of an approved programme may be amended with the acceptance of all the creditors whose rights would be violated by an amendment. However, the precondition of the debtors' acceptance is problematic when the amount of a restructuring debt is determined to be substantially more than that originally entered into the restructuring programme.
The Supreme Court recently set a precedent regarding the liabilities of a bankruptcy estate in a case that concerned maintenance charges of a limited liability golf company. The legal question subject to the precedent was whether the maintenance charge receivables of the golf company in connection with the golf company's shares were liabilities of the bankruptcy estate.
Retention of title can be based on either a separate condition in a sales agreement or a specific agreement referred to in the Hire-Purchase Act. A retention of title clause may be used to ensure the seller's rights in circumstances where the seller has no other form of security against the buyer's insolvency. However, it should be drafted carefully to ensure that it remains effective in the event of the buyer's bankruptcy.
The Supreme Court recently issued two precedent rulings on how the value of assets that are subject to a floating charge should be determined in restructuring proceedings, holding that the assets were to be valued at their liquidation value. The rulings are expected to have an impact on the stance of financial institutions towards floating charges and their valuation.
The taxation of a bankruptcy estate may affect the liquidation results and expenses arising from the bankruptcy proceedings. Taking tax planning into account may significantly increase a creditor's disbursements in bankruptcy. The Bankruptcy Act includes no special provisions regarding taxation.
A recent amendment to the Bankruptcy Act regulates the duty of the bankruptcy administrator to report offences committed by the bankruptcy debtor. When filing a report on a debtor's suspected offence, the administrator must assess the effect that the suspected offence has on claims in bankruptcy and on the scrutiny of the bankruptcy estate.
According to the Bankruptcy Act, in order to be entitled to a disbursement, a creditor must lodge a claim by sending a written statement to the estate administrator. After the debtor's assets have been inventoried, the estate administrator will set a due date for the lodgement of creditors' claims. In addition, the EU Insolvency Regulation has established certain rules for cross-border bankruptcy cases in the European Union.
Overseas companies often use branch offices to expand into new markets due to their relative simplicity and cost efficiency. The role of branch offices in potential insolvency situations is a significant issue for the creditors of such companies. In the event of Finnish bankruptcy proceedings involving a branch office of a foreign company, the Bankruptcy Act regulates the opening of proceedings.
According to the Supreme Court, a debtor's obligation to cooperate and disclose information is remarkably wide in its scope. Therefore, it is necessary that this obligation is specified in detail when a threat of enforcement measures is imposed. Fulfilment of the obligation should be possible with reasonable efforts.
Under the Bankruptcy Act, the bankruptcy estate must liquidate the assets of the estate in the manner most advantageous to the estate. The bankruptcy estate has the right to sell the collateral belonging to the estate only with the secured creditor's consent or, in the case of disagreement regarding the liquidation, if a court grants its permission.
Section 6 of the Act on the Recovery of Assets to a Bankruptcy Estate sets out the rules regarding the setting aside of gifts or gift-like transactions. This provision can have a significant impact on transactions that take place within a corporate group, or that are otherwise affiliated with a corporate group.
The opening of a secondary proceeding changes the lex concursus with regard to the assets which are within the scope of territorial secondary proceedings. This update introduces the key issues relating to the provisions in applicable Finnish legislation which regulate the priority of claims and the setting aside of transactions, which should be considered when a request for the opening of a secondary proceeding in Finland seems appropriate.
A Finnish debtor declared bankrupt in Finland may have foreign creditors and business partners. It is not uncommon that a transaction between an insolvent Finnish debtor and a foreign counterpart may give rise to a claim for recovery of assets. In such cases, the forum for handling the recovery claim will have a significant impact on both the bankruptcy estate as the claimant and the foreign counterpart as the defendant.
The Bankruptcy Act regulates enforcement measures against debtors that have been declared bankrupt. The enforcement measures may be brought into effect on the bankruptcy administrator's own initiative if the debtor fails to carry out its duty to cooperate or provide information. This update examines debtor obligations and the enforcement measures which may be taken against debtors that fail to fulfil these obligations.
As a general rule, the right to exercise authority in a bankruptcy estate belongs to the creditors. It is the duty of an administrator of a bankruptcy estate to arrange, among other things, the management of the bankruptcy estate and to oversee the management and maintenance of the assets of the bankruptcy estate. The Bankruptcy Act regulates the authority of the creditors and the administrator.
The Bankruptcy Act includes a general provision on the effects of bankruptcy on contractual relationships and gives the bankruptcy estate a right of subrogation regarding the debtor's contractual relationships. This update looks at the effect of this general provision on the bankrupt's contractual relationships, and the scope of and preconditions for application of the provision.
At the beginning of a bankruptcy, the estate administrator draws up an inventory of the debtor's assets and liabilities. In most bankruptcies a complete and accurate estate inventory can be compiled only with the help of the debtor. The Supreme Court recently rendered a decision which seems to alter its position on the possibility of applying the right not to incriminate oneself in connection with the attestation of an estate inventory.
The Supreme Court recently set a precedent in a case in which a company limited by shares had given a pledge to another company for its current and future debts before merging with a third company. The question for the court was whether the general pledge included debts incurred after the merger.
One of the most important tasks the administrator of a bankruptcy estate must perform is the liquidation of the property. The administrator should liquidate the property without delay and try to achieve the best possible financial result. Problems may arise if the property to be liquidated has been pledged, since the interests of the bankruptcy estate and the pledgee often deviate from one another.
A recent Supreme Court decision emphasizes the importance of ascertaining whether a breach of contract arises before or after the commencement of a contractor's restructuring proceedings and whether the resulting debt is to be considered a restructuring debt. This categorization is central to the question of whether the resulting compensation should take priority in the contractor's bankruptcy.
A third-party pledge provider is liable to return a pledge to a creditor or straight to the bankruptcy estate in a situation where a debtor’s payment of debt can be recovered to a bankruptcy estate and a third party has provided a pledge on this debt. The objective of this legal remedy is to restore the debtor’s situation to how it was before the legal act.
The liquidation of a bankruptcy estate is one of a bankruptcy administrator's most important tasks. The administrator should liquidate the property without delay and try to achieve the best possible result after covering the liquidation costs and other expenses. However, liquidation may present problems when the property to be liquidated has been pledged as collateral.
The Finnish legislation concerning insolvency proceedings has recently undergone extensive revision. The new Bankruptcy Act entered into force on September 1 2004 and the first major amendment to the Reorganization of Enterprises Act entered into force on June 1 2007. One of the main objectives of the reform was to synchronize the two insolvency proceedings.
The number of internationally related bankruptcies has increased in recent years. Occasionally, a foreign trader who has business operations in Finland experiences financial difficulty and Finnish creditors may want to start bankruptcy proceedings in Finland. This update describes the essentials of Finnish courts' international jurisdiction in a matter pertaining to an order of bankruptcy.
The public receivership procedure, introduced by the Bankruptcy Act 2004, allows the court to decide, upon a proposal by the bankruptcy ombudsman, that a bankruptcy is to continue under public receivership instead of lapsing. Therefore, it is possible to call to account debtors that may have committed business crimes.
The Reorganization of Enterprises Act, which came into force in 1993, was prepared quickly for the needs of the 1990s Finnish economy and several issues concerning the reorganization proceedings were left to be determined by the courts. Amendments to the act, building on the experience gained over the past 14 years, are due to come into force on June 1 2007.
Reform of the legislation dealing with execution proceedings has been ongoing for 10 years and is taking place in four stages. The third phase of the reform entered into force on January 1 2007 with the coming into force of the amendment to the Execution Act, which increases flexibility in regard to execution proceedings.
In 2006 a claim was filed pertaining to a traffic accident in which the claimant had fallen off a moped and suffered a severe brain injury. The insurer rejected the claim in 2007. In 2011 the claimant discovered that the brain injury had caused permanent incapacity and a new insurance claim was filed, which the insurer rejected. The Supreme Court recently had to consider whether the exacerbation of damage starts a new period for a claim if it has already become time barred.
Finland has a collective guarantee system for occupational pension insurance, statutory accident insurance and patient insurance. Specific insurance legislation and supervision of insurers have been found to guarantee that insurers do not become insolvent and, if they do, that the policyholders and insureds still get their benefits.
Shipping & Transport
The Eastern Finland Appeal Court recently assessed whether a statutory maritime lien over cargo also covers the costs associated with a general average that accrued as a result of confirming that general average and exercising the lien for a general average contribution. In deciding that these kinds of associated costs and expenses are not recoverable and secured by a maritime lien, the court made the exercise of a lien more difficult and less attractive to shipowners.
The main aims of the Transport Code are to create a growth environment for digitalisation and promote transport business by deregulation. Due to the code's broad scope, its preparation has been divided into three stages. Provisions relating to the code's third stage were recently opened for comment by the Ministry of Transport and Communications. The majority of comments received before the June deadline highlighted data protection issues.
The Transport Code (formally the Act on Transport Services) is one of the government's key initiatives. The code's main purpose is to create a growth environment for business digitalisation and promote transport business by deregulation. The code will reform the regulation of all transport modes, so that the regulation itself will not become an obstacle to digitalisation, automation and new innovations.
Fairway dues have been a much-discussed issue in Finland for years. The controversy began in 2000 when the Finnish authorities began suspecting that ships which regularly entered and departed Finnish waters did not fully comply with the technical requirements for vessels of the relevant ice class. The authorities subsequently began collecting fairway dues retroactively. This led shipping companies and their agents to file hundreds of appeals in the administrative courts.
Correct temperature is vital to maintaining the feasibility and effectiveness of pharmaceuticals throughout their lifecycle, including during carriage. Although various guidelines have been issued and express provisions have been included in transport agreements to maintain the cold chain, damage often occurs. The Helsinki Appeal Court recently considered whether the level of a carrier's liability should be agreed in advance and whether failure to maintain an agreed temperature should constitute gross negligence.
The Supreme Court recently issued a much-awaited decision and upheld a Court of Appeal decision involving Uber passenger rides. The Supreme Court ruled that to provide an Uber service a driver must have a taxi licence. It found a driver who had driven Uber passengers without such a licence guilty and imposed a €2,100 fine.
The Supreme Court recently found that the Maritime Code should have been applied in a personal injury case and that the Espoo District Court (as a general court) did not have subject-matter jurisdiction over the claim. The Supreme Court found that when determining which court has subject-matter jurisdiction, it is necessary to first investigate whether the provisions of the Maritime Code become applicable.
Following police investigations against Uber drivers in Helsinki, the district court fined an Uber driver for illegal taxi driving and ordered the driver to forfeit his earnings as criminal gain. The Helsinki Appeal Court passed a judgment and now an important precedent is pending before the Supreme Court. It is unlikely that the Supreme Court will disagree with the lower courts; nevertheless, the outcome will determine whether and how Uber can continue to operate in Finland.