Finland

A new Bankruptcy Law came into force on 1 September 2004.
The objectives of the new law include:

• A clear and predictable bankruptcy law.
• Flexibility so that the needs of different debtors can be taken into account.
• Efficient, productive and transparent bankruptcy proceedings.
• Protection for working capital and security.
• Consideration of a debtor's reasonable rights.
• Developing supervisory actions on debtors and on bankruptcy administration.

The new bankruptcy law includes a new proceeding for cases where there are no assets. The proceeding called "public receivership" requires a proposal by the Bankruptcy Ombudsman to the court. This procedure can be initiated provided that the court considers it to be justified either: (i) due to the insufficient means of the bankruptcy estate; (ii) due to the need for the debtor or the estate to be scrutinised or (iii) due to other particular reasons.

Key Legislation

• Bankruptcy Law 2004
• Companies Act 1978
• Restructuring of Enterprises Act 1993
• Act on Adjustment of the Debts of a Private Individual 1993
• Act on the Recovery of the Bankrupt Estate 1991
• Act on the Priority of Claims 1992

Insolvency Procedures

The main provisions of Finnish insolvency law are found in the Bankruptcy Law. Any natural or legal person is subject to the law. Bankruptcy is a form of insolvency proceedings covering all the liabilities of the debtor, where the assets of the debtor are used in payment of the claims in bankruptcy. Proceedings may be initiated either by an application by the debtor (voluntary bankruptcy) or by the creditors (involuntary bankruptcy). In order to achieve the objective of the bankruptcy, the assets of the debtor become subject to the authority of the creditors. An estate administrator appointed by the court sees to the management and liquidation of the assets of the debtor and to the other administration of the bankruptcy estate.

In cases when a court order on a transfer to "public receivership" has been made, the appointment of the estate administrator and the authority of the creditors in bankruptcy ceases. The administration of a bankruptcy estate under public receivership is the duty of a person appointed by the Bankruptcy Ombudsman and meeting the qualifications of an estate administrator (public receiver), to whose possession the assets of the estate shall be surrendered. The official administrator can be a private sector lawyer or a member of the Bankruptcy Ombudsman's staff. Public receivership proceedings are financed by the state.

In consequence of bankruptcy proceedings a legal person is usually dissolved but a natural person stays liable for debts that are not repaid in full in the bankruptcy.

The Restructuring of Enterprises Act deals with the rehabilitation of viable enterprises and
the rescheduling of debts.

Under the Act on Adjustment of the Debts of a Private Individual, individual debtors must commit to a payment schedule for several years.

The Act on the Recovery of the Bancrupt Estate and the Act on the Priority of Claims apply to all insolvency situations

Roles

Role played by Government

Finnish law relating to the supervision of bankrupt estates is almost entirely codified in the Act on the Supervision of the Administration of Bankrupt Estates that came into force on the 1st of March 1995. The office of the Bankruptcy Ombudsman was founded then.

Prior to this there was no official supervision over bankruptcy proceedings and administrators, who mostly are private sector lawyers. Supervision by creditors or supervision by the Finnish Bar Association over the conduct of its members was regarded as insufficient.

The Bankruptcy Ombudsman is an independent authority although it is located in the Ministry of Justice. The Ombudsman must act impartially.

One of the main duties of the Ombudsman is to develop the good practice of administering the bankruptcy estates. The Ombudsman does this with the assistance of the Advisory Board for Bankruptcy Affairs. The Board issues written guidance on the good practice of administering bankrupts' estates.

The Ombudsman also supervises the administering of the bankruptcy estates. Practitioners acting as administrators or trustees have a duty to co-operate with the Ombudsman and provide information to the Ombudsman.

The Ombudsman can inform the administrator or trustee or the creditors about discovered cases of negligence or abuse. This is sometimes enough to encourage the practitioner to correct the fault.

The Ombudsman can also apply to the Court for an order that:

• Imposes a fine on an administrator or trustee who has neglected his or her duties;
• Dismisses an administrator or trustee if he or she has neglected his or her duties
  or for other weighty reasons.
• Reduces the administrator's or trustee's fee if he or she has essentially neglected
  his or her duties or if the fee is clearly above a reasonable level.

The Ombudsman also has a right to supervise decisions made by creditors and take follow-up action if the decisions are against the law or the proper practice of administering estates.

However, the Ombudsman cannot substitute a decision for the decision of a practitioner or the creditors - only the Court can do this.

The Ombudsman can take action to audit the accounts and activities of the debtor. The audition is performed by private sector accountants and the costs are covered by public funds if the estate has no assets.

As mentioned earlier, the Ombudsman may apply for transfer to public receivership.The costs of bankruptcy proceedings arising from public receivership are paid from state funds in so far as the funds of the bankruptcy estate are insufficient. The Bankruptcy Ombudsman decides on the compensation.

Role played by private sector practitioners

In Finland the practitioners acting as administrators or trustees are mainly private sector lawyers and usually also members of the Finnish Bar Association. Practitioners administer bankrupt estates subject to supervision by the Bankruptcy Ombudsman and the Court.

The criteria that must be met to become a administrator are set out in the Bankruptcy Law: A person may be appointed as an estate administrator, if he or she consents to the appointment, has the ability, skills and experience required for the duty, and is also otherwise suitable for the duty. The administrator shall not have a relationship with the debtor or the creditor that would compromise his or her independence of the debtor or his or her impartiality towards the creditors, or of his or her ability to perform the task in an
appropriate manner.

Role played by the Court

Even with the establishment of the position of Bankruptcy Ombudsman, the Court retained its general oversight role in relation to bankrupts' estates. This role includes appointing administrators and trustees, ordering them to remedy acts or omissions in cases of negligence, removing them from a particular case and adjusting the fee that can be charged by the administrator or trustee.

At a Glance

Does the insolvency system in Finland allow for:

1.	Different procedures for the insolvency of individuals and the insolvency of companies?
2.	Creditors to accept an arrangement outside of formal bankruptcy/liquidation proceedings?
3.	Priority payment for employee creditors?
4.	Priority payment for taxation debts?
5.	Automatic disqualification of directors of failed companies from managing other companies?
6.	Recognition of insolvency proceedings being conducted in another jurisdiction?
7.	A government agency to undertake insolvency administration work?
8.	Some form of licensing of private sector practitioners?
9.	A review of the remuneration claimed by an insolvency practitioner by either a court or other government regulator?
10.	A mandatory scale of fees applicable to insolvency practitioner remuneration?
11.	Surveillance of the work of private sector practitioners by a government regulator?
12.	Collation of insolvency statistics by a government regulator?