1. In General

The Finnish Advisory Board for Bankruptcy Affairs has recommended an accelerated reorganization model to be applied to viable companies that have fallen into financial difficulties. This model aims to confirm the restructuring programme as quickly as possible. The problems the recommendation is trying to solve have arisen in applying the Finnish Restructuring of Enterprises Act. In practice, the companies file their application for reorganization too late, the applications are incomplete, the restructuring process takes, for a variety of reasons, too long, and the reorganization programmes focus largely exclusively on the company's debt arrangement. With good preparation, there are many ways to avoid these problems if combined with the means of voluntary and statutory reorganization.

In Finland, there are three alternative procedures for the company's restructuring process: a voluntary agreement between the company and its creditors, a statutory reorganization effected under the Restructuring of Enterprises Act, and the combination of the two. Voluntary restructuring is generally available only when the company is seeking a solution to financial difficulties before becoming insolvent. The statutory corporate reorganization is aimed for situations where the company is already insolvent, it is no longer able to agree with its creditors on adequate payments and it needs immediate protection against the creditors' recovery actions.

2. Requirements

The starting point in the accelerated reorganization proceeding is that the restructuring programme is confirmed in court according to the Restructuring of Enterprises Act, the debtor and the major creditors work in close cooperation, and that the court proceeding is as quick as possible. The model consists of four main measures aimed to speed the process:

  • The draft restructuring programme is prepared as complete as possible before filing to the court;
  • The debtor's reorganization application is supported by the creditors;
  • A public announcement is not required in order to start the proceeding;
  • The restructuring programme is confirmed promptly by the court.

Each of these measures may be applied separately to speed up the restructuring process, but when used together, the result is the most effective. If a well-prepared draft of restructuring programme is approved in advance by all the creditors and is therefore ready to be used in the reorganization, it is possible to start the reorganization process and confirm the restructuring programme in the court during a single day.

With an accelerated procedure it is possible to minimize the harm caused to the company's image and the injury caused by a state of uncertainty and save the company's resources for the actual business. The purpose of the close cooperation is to make the main creditors to commit themselves to the restructuring more easily, as it takes place under their supervision, and is headed by an external administrator, which is in turn approved by the creditors.

The accelerated procedure is not available for all companies facing financial difficulties. Usually the company must comply with a series of basic conditions required for a successful reorganization:

  • Major creditors have to be contacted as soon as financial difficulties arise;
  • Cooperation between major creditors and the company has to be open and a consensus about the reasons for the payment difficulties, the company's restructuring eligibility, as well as the means of reorganization is required;
  • Cash flow is sufficient to instantly pay new debts, or the company's working capital has been in other way secured, and
  • Financial administration, accounting and reporting systems are in order.

3. Good corporate governance

The basic requirement for an accelerated procedure is that an audit of the company's activities is carried out by an auditor approved by the creditors. Furthermore, the company's financial administration as well as accounting and reporting systems must be in order and the cooperation between the company and its major creditors should be confidential and open.

Good corporate governance practice can affect the company's profitability in many ways, but it can provide concrete benefits when the company is facing financial difficulties. The management does not always recognize the threatened or existing insolvency because the company's accounting and monitoring systems are inadequate. Without appropriate monitoring, the company could face such severe payment difficulties that the situation could no longer be rectified when the problems are discovered. Sometimes the problem lies in that the management is unaware of the best way possible to respond to financial difficulties. Therefore, it is important that the company's auditor, accountant or other advisor informs the company's management about the observed financial difficulties. It can also be the creditor who proposes looking into the financial situation of the company if there are suspicions about imminent insolvency.

The accelerated procedure is useful in situations where, despite of threatening or existing insolvency, the company is capable of reaching an agreement with its major creditors on debt arrangement and restructuring of business operations, even though it is no longer able to meet all its obligations. At its best, the accelerated reorganization process does not just prevent the bankruptcy of the company, but it has a much better likelihood of turning the company profitable than the traditional reorganization process, where the confirmation of the restructuring programme may usually take up to a year.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.