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Corporate reorganisation

The intention of corporate reorganisation proceedings is to rehabilitate viable business operations that are in financial difficulties and have debts, or to secure the preconditions of such operations, and to achieve debt arrangements.

Unlike bankruptcies, where the right to govern the assets is transferred to the management of the bankruptcy estate, the right to govern the company in corporate reorganisation proceedings remains with the debtor. However, during the reorganisation procedures, the debtor must request consent from the official receiver for any decisions that could be significant for the business operations.

Reorganisation can be applied for even if bankruptcy has been filed for, and this is the case in approximately 40 % of the applications. The processing of the bankruptcy application is postponed until it has been decided whether or not the reorganisation will be started. If reorganisation proceedings are initiated, the bankruptcy petition expires. If the reorganisation application is turned down, the bankruptcy process is continued.

The reorganisation proceedings are started by issuing a decision, and freezing the payments of the debtor and issuing an interdiction of debt collection. No measures shall be directed at the debtor in order to collect on a debt that was caused prior to the initiation of the reorganisation proceedings or in order to ensure its payment.

The negative side to reorganisation proceedings processed in a court is the negative publicity it brings. Therefore, the proceedings are probably best suited for companies whose continued operation is important for its customer companies, which often also are creditors. Such companies often have special expertise and know-how.

Reorganisation proceedings are usually suitable for companies with not much property that can be liquidated. If a debtor in reorganisation proceedings wishes to keep his or her apartment, he or she must be able to pay off unsecured debts for the amount corresponding to the debt-free value of the apartment. In practice, the debtor may need to choose between the business operations and the apartment.

Removing a company from the prepayment register may cause difficulties for the reorganisation programme. The Restructuring of Enterprises Act does not have an absolute requirement of re-entering a company in the prepayment register when the reorganisation proceedings start or the creditors are granted reorganisation protection. As the amendment of the Act was prepared in 2007, it was proposed that a company would not be allowed to be removed from the prepayment register when reorganisation proceedings are initiated. However, this recommendation does not remove the problem caused by not re-entering a company in the register.

Attorneys specialised in corporate reorganisations can be sought on the Finnish Bar Association website. The link is in the right-hand column.

The intention, requirements, and obstacles of corporate reorganisation

Intention 

  • To rehabilitate viable business operations that are in financial difficulties.

The requirements for starting the proceedings

  • At least two creditors with at least 1/5 of the debt capital that are not close to the debtor must apply together with the debtor or support the application, or
  • the debtor is in danger of insolvency, or
  • the debtor is insolvent and there are no obstacles for the proceedings.

Obstacles

  • The company is bankrupt or liquidated.
  • The programme is unlikely to be able to correct the insolvency or its recurrence other than temporarily.
  • It is likely that the assets are insufficient to cover the costs of the reorganisation and the debts after the proceedings are started, or the company’s accounting is significantly insufficient.
  • There is justifiable reason to assume that the main objective of the application is to prevent the debt recovery or otherwise injure the rights of the debtor or a creditor.
  • There is justifiable reason to assume that the programme cannot be drafted or confirmed.

 

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