Insights | September 19, 2023

Bankruptcies on the rise in Finland: Quick checklists for creditors and distressed companies

Recently, there has been a notable surge in the number of bankruptcies across various industries in Finland, particularly within the construction industry. This trend has wide-ranging implications for creditors of potentially insolvent companies as well as debtor companies themselves facing financial distress. To minimize risks, losses, and future disputes, it is crucial for the parties to take certain actions when facing bankruptcy proceedings or in a situation of dire distress. In this insights article, we set out some of these key actions.

Checklist for a creditor of an insolvent company

  1. Freeze payments: When informed of the debtor’s insolvency, cease all payments to the debtor pending a further investigation of the situation.
  2. Keep guarantees: If you hold guarantees or collateral from the debtor company, ensure you retain these assets. Also verify that such guarantees and collateral are valid and effective.
  3. Retain documentation: Review agreements entered into with the insolvent company. Maintain comprehensive records of all transactions, contracts, invoices, and communications with the debtor company. This is crucial to ensure claims and third-party property, etc. are dealt with correctly.
  4. Identify incomplete or ongoing matters requiring urgent attention: There may be critical or urgent actions you need to take to prevent potential losses. In construction projects in particular, certain phases of the project may need to be continued and completed to prevent further losses.
  5. Seek legal advice: Contact a legal advisor to advise you in the bankruptcy proceedings and ensure that your rights are protected.

Checklist for the board of a distressed company

  1. Form a full picture of the situation and monitor cash flow and liquidity: Gain a complete understanding of the company’s financial situation. Identify ongoing matters and projects, and their status. Getting the full picture is essential for informed decision-making.
  2. Equal treatment of creditors: In times of distress, the interests of creditors should be observed alongside those of the company’s shareholders. It is crucial to treat creditors equally (and according to their order of priority).
  3. Importance of a paper trail: Maintain comprehensive records of all transactions, contracts, invoices, and communications, and ensure that decision-making is documented appropriately. Complete documentation facilitates potential insolvency proceedings and protects the board.
  4. Avoid rushed decisions: While the situation may be urgent, panicked decisions aimed at producing miracles rarely do any good. Weighing up options realistically is also vital from a liability perspective. Identify relevant stakeholders and their interests.
  5. Check the status of D&O insurance: D&O insurance should be obtained in good times to get optimum terms. Insurance may be key in protecting board members and management from liability should their pre-bankruptcy actions be questioned later on by the estate or creditors.
  6. Seek advice: Contact legal and financial advisors to advise you on the situation. Professional advice can help avoid serious consequences and can provide support in making difficult decisions.

We advise creditors, shareholders and board members in all situations and legal proceedings relating to distressed companies. Roschier has acted in many of the largest and most complex insolvency-related disputes on the market. Typically, our role is to represent shareholders or board members of distressed or bankrupt companies against claims from bankruptcy estates or creditors in civil or criminal proceedings, or to represent creditors in formal insolvency proceedings, or related litigation proceedings (such as claims to recover assets to the bankruptcy estate).

Moreover, we support and advise Finnish and Nordic companies in insolvency-related proceedings abroad involving their customers or suppliers. Generally, we do not act as estate administrators, allowing us to maintain freedom to operate in other roles in insolvency proceedings.

Our experts are happy to discuss any questions or concerns relating to actual or threatening insolvencies or related proceedings.