Temporary COVID-19 Amendment to the Finnish Bankruptcy Act
The Finnish Government has issued a proposal to amend the Finnish Bankruptcy Act regarding the creditor’s right to file for bankruptcy two weeks ago. Today, 30 April 2020, the President of the Republic of Finland approved the bill and the amendment will take effect on 1 May 2020. The purpose of the amendment is to help companies overcome financial difficulties caused by the COVID-19 situation.
What will change?
The legislation currently in force demands that a company should be insolvent in order to be declared bankrupt. Under the Finnish Bankruptcy Act, a company is presumed insolvent, for example, if it has not paid its clear and overdue debt within a week of receiving the demand for payment. The amendment temporarily removes this presumption. The insolvency of a debtor must be of longer duration in order for the creditor to file for bankruptcy. Due to the amendment, creditors can not use a bankruptcy-threatened demand for payment when recovering claims from companies that have run into difficulties as a result of the coronavirus epidemic and it may hinder effective debt collection, as it is harder for the creditor to make a legitimate threat of bankruptcy towards the debtor.
However, the amendment includes two exceptions: The use of the current ‘seven-day rule’ will still be applicable if:
(i) the debtor has received a payment demand from a creditor prior to the amendment of the Bankruptcy Act entering into force, and
(ii) the debtor has neglected its payment obligations towards the creditor already two months prior to the amendment of the Bankruptcy Act entering into force.
This means that debtors, whose payment difficulties have clearly begun before the corona situation, can still be filed for bankruptcy on the basis of this rule.
This legal provision is, in practice, the most common ground used by creditors for filing for bankruptcy. However, the Finnish Bankruptcy Act also contains other presumptions of the debtor’s insolvency and creditors can file for bankruptcy without invoking any presumption prescribed in law if they can otherwise demonstrate the debtor’s insolvency. It is possible that the debtor’s insolvency and liquidity will be more often assessed in court hearings when the presumption can no longer be used as a basis for bankruptcy.
The amended legislation will stay in force until 31 October 2020.
Planned amendments to the restructuring of enterprises act, which have been reported in the media, are not yet forthcoming.
Borenius’ lawyers are available to assist in addressing any questions you may have regarding the amendment.