Debt Collection in Finland

• Domestic companies payment behavior is excellent with payments taking place on average within 25 days and the EU framework provides reliable mechanisms when it comes to late payments.

• Legal action over undisputed debt is usually resolved in a timely manner (between 3 and 6 months), however, when the debtor's funds become difficult to locate or the debt is contested it can additional time.

• While insolvency legislation seeks to save financially challenged companies in order to maximize payout opportunities, most restructuring procedures stretch (or fail) over the years, leaving shareholders with no or very little returns, while liquidation procedures leave unsecured creditors with very poor chances of recovery.

1. Summary

1.1. General financial information

1.1.1. Financial statements are subject to filing with limited liability companies, transparent joint stock corporations and limited partnership companies in Finland. Nevertheless, limited partnership partnerships will only be subject to certification if certain conditions, such as company size, are met. Furthermore, financial information on domestic businesses can be accessed from the exchange registry of the Finnish Patent and Registration agency, as well as through a variety of specialist credit information firms.

1.2. Key legal structures

1.2.1. Corporate debt obligation is defined by legal structures, listed as follows:

• Many Finnish corporations are private dealers and limited liability companies. Very small enterprises often take the form of a Sole Proprietorship (toiminimi, T: mi), a business entity established by assets contributed and owned by a person acting in their own name who can therefore be held liable for all of their debt.

• Partnerships (avoin yhtiö, Ay) are established by at least two partners, who are jointly and severally liable for the entity's obligations. Responsibility limits may be enforced by Limited Partnerships (kommandiittiyhtiö, Ky) which require one or more jointly responsible managing partners for the activities and debts of the business while the responsibility of the silent partners is limited to their participation.
• Shareholders in a limited liability company (osakeyhtiö, Oy) are held liable only with their contribution to the company's debts, but a minimum capital fund of EUR 2 500 must be in place. Larger undertakings would prefer to be set up through Public Limited Companies (julkinen osakeyhtiö, Oyj) or Joint Stock Companies where a minimum capital of EUR 80,000 is required.

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1.3. Regulatory framework

1.3.1. Finland has a Civil Law system in regulatory environment and its courts are fairly efficient. District courts (käräjäoikeus) make a first-instance decision, but they may be assisted by specialist courts such as the Insurance Court, the Labor Court or the Helsinki Market Court (Markkinaoikeus), which have jurisdiction over fraudulent business behaviour, dominant position abuse, as well as disputes over intellectual property and preliminary injunctions since September 2013.

1.3.2. Finnish and Swedish are the official languages of the world, and are therefore used in all legal proceedings. The courts do not set binding precedents but the Supreme Court rulings tend to be guidelines followed by the lower courts.

2. Receiving payments

2.1. DSO - Days Sales Outstanding

2.1.1. The billing system is outstanding in Finland, with purchases taking place within a period of 25 daily. For 2016 the DSO was 53 days.

2.2. Late interests

2.2.1. The debtor may be charged interest on late payment in Finland. Nevertheless, in November 2012 (Act on the Payment Terms of Commercial Agreements-laki kaupallisten sopimusten maksuehdoista), the Recast Directive 2011/7/EU which stipulates that payments must be made in the EU within 60 days was transposed into Finnish law. Finland's regulations are more strict than the EU requirements: in principle, business-to-business contracts must be made within 30 calendar days, although the conditions may be expanded by arrangement to 60 days as long as the deal stays reasonable.

2.2.2. Interest rates may be set by arrangement but otherwise the law provides a minimum interest calculated based on the reference rate of the Bank of Finland (Suomen Pankki) (established twice a year in January and July), raised by at least 7 percentage points. Value has been implemented routinely for a long time in practice, as payments stayed unpaid.

2.3. Costs of debt collection

2.3.1. Debt collection costs In fact, an update to the Finnish Debt Collection Act entitles borrowers to obtain a fixed EUR 40 fee for their collection costs, while the debtor may be paying fair collection costs as well. In practice, those costs are usually paid for.

2.4. Protecting ownership

2.4.1. Title maintenance (RoT) laws aimed at retaining control of the vendor of products until the relevant invoice has been paid in full are common in many countries. However, in Finland these would be restrictively applied to cover the purchase price of fixed assets but would not cover tradable goods.

2.5. Payments

2.5.1. The most common methods of payment are often used in a complementary manner and can be listed as follows: bank transfers are among the most popular means of payment, as they are fast, secured and supported by an increasingly developed international and domestic banking network. Transfers can be insured for export transactions through an Export Credit Insurance Policy which helps minimize the risk of sudden or unexpected insolvency of customers.

2.5.2. A Bill of Exchange could be seen as a lack of confidence. By fact, checks act as certificates for debt identification rather than as a means of payment. Generally, bank incentives are mostly ignored, as they are expensive.

3. Collecting payments

3.1. Amicable action

3.1.1. Although the Finnish judiciary system is trustworthy, it is prudent to find originally nice mediation options as an option to formal action. Therefore, it is important to be mindful of the solvency condition of the debtor: once insolvency proceedings have been launched, the execution of a loan (see below) is indeed unlikely.

3.1.2. Legal dunning will begin with a letter of demand (registration is not required in Finland) informing the debtor of his obligation to pay the principal together with late payment interest (as decided in contract or as a reference) within seven days. If the debtor fails to respond, another letter that attempts to record the debt in a public registry is often extremely efficient, because appearing in the register typically impacts the credit rating of the company.

3.2. Legal proceedings

3.2.1. Ordinary proceedings. If the debt is certain and unquestioned, fast-track litigation will first require a streamlined payment order (suppea haastehakemus) focused on any valid invoice, contract or debt identification title. To lodge an appeal, the claimant is approached (electronically) and granted two weeks. If the claimant is unresponsive, the court then make a verdict by necessity.

3.2.2. In addition, a European Payment Order mechanism which encourages the recovery of undisputed debts (under Regulation EC No 1896/2006) may be activated when the debtor business has assets in other EU Member States. In this situation, the applicant may require the District Court of Helsinki to issue an order to compensate, which will then be enforceable in all countries of the European Union (except Denmark) without exequatur.

3.2.3. Typically, ordinary legal action should begin if nice selection failed. A written request for summons must be sent to the District Court register, which then issues a Writ of Summons on the claimant. The defendant is then granted nearly two weeks to file an appeal, but failure to respond will appear to result in a default judgment on the claimant's favour. Therefore, the court must analyze evidence and arguments from the parties before making a ruling. Courts usually award relief in the form of injunctions, compensatory damages or declaratory judgments but punitive punishment is not allowed.

3.2.4. Required documents: Power of Attorney papers (signed by the creditor) and backups of the invoices.

3.2.5. Time limits. Legal proceedings in civil cases must be held within three years (in 2004 the previous ten-year period was reduced). Time limits must be strictly adhered to since they are considered by the courts as a matter of substantive law, but the statutory limitation period can be interrupted by reminding the debtor (in writing) of the debt's existence. After 15 years, definitive judgements are enforceable.

3.2.6. Precautionary measures can help preserve the rights of the borrower until a full, enforceable decision is made. In addition, the courts can require ex parte temporary relief (without the participation of both parties) to stop irreparable damage (attachment, injunction to do something or prevent doing something, security of freedoms, etc.), and to procure or preserve proof.

3.2.7. It is usually necessary to demonstrate an emergency situation that warrants awarding these sanctions, and the courts will tend to require the applicant to provide expense security to protect the respondent against reckless behavior.

3.2.8. Appeal lodging. The decisions of the first instance may be challenged so that the group has advised its intention to appeal within seven days of the court issuing the verdict. Instead, objections must be filed within 30 days of issuance. Decisions made in the second instance may be appealed to the Supreme Court, which must sanction these litigation (the case will usually have a precedent-related effect, a possible procedural mistake, etc.).

3.2.9. Award enforcement. A verdict shall be enforceable for 15 years as long as it becomes definitive (i.e. when all the courts of appeal have been over). If the losing party fails to comply with the injunction, the complainant may have it imposed by a bailiff who will seek to negotiate an instalment deal with the defendant or implement it by seizure of assets.

3.2.10. Duration of  insolvency process. In Finland, uncontested disputes will usually be settled within three to six months but it could take over a year if the allegations are pending legal proceedings.

3.2.11. The costs of the procedure. As a general rule, the successful party can insist that the court keep the losing party responsible both for the payment of court fees and for any of its legal costs. In Finland, court fees are very modest: up to EUR 200, based on the loan estate. In Finland, contingent fees entitling legal professionals to receive a percentage of the final award are illegal.

3.3. Alternatives to legal action

3.3.1. Alternative Dispute Resolution Procedures (ADR). While domestic courts are effective at providing prompt rulings, alternative dispute resolution procedures are commonly used in Finland to settle business conflicts. In the last few years, the use of consultation has increased, and negotiation is often depended on. Settlement settlements established by negotiations are binding as contracts and may be accepted as enforceable by the judiciary unless the parties ignore.

3.3.2. Arbitration awards shall be deemed binding final and enforceable judgments on the parties. These help maintain confidentiality in proceedings and can not be appealed (except in specific circumstances, i.e. lack of jurisdiction, fraud etc.).

3.3.3. Foreign forums. it is not usual in Finland to use a global platform to get a verdict in debt-related conflicts. Nevertheless, the nation is a signatory to the Rome I Regulation on the law applicable to contractual obligations, which specifies that the parties to a contract can, by mutual agreement, select the law applicable to their contract and select the court which will have jurisdiction over disputes. Finland is also a signatory to the Hague Convention of 15 June 1955 on the legislation relating to international sales of merchandise, which stipulates equally that contracts be regulated by the rule preferred by the participants, by the general spirit of the arrangement and by the circumstances of the case.

3.3.4. The parties may therefore decide to settle their legal conflicts under foreign law or before a foreign court, but it is important that the arrangement be distinguished by an external relation (e.g. one party has chosen domicile in another country or the place of execution is placed abroad) and that a jurisdiction provision be drawn up specifically for this purpose.

3.3.5. Award enforcement. International awards (rendered, for example, against international debtors holding properties in Finland) are reasonably enforceable in Finland although different circumstances that apply. On the one hand, decisions made in an EU country would benefit from the particularly advantageous conditions for enforcement. Apart from EU payment orders normally enforceable directly in domestic courts, the two main methods of enforcing an EU judgment in Finland are the use of a European Enforcement Order (EEO, as provided for in Regulation EC No 805/2004) where the claim is unchallenged or the registration of the judgment under the provisions of the Brussels I Regulation (44/2001).

3.3.6. If the judgment qualifies as an uncontested claim, it can be directly enforced (i.e. without registration) through the use of an EEO provided the debtor has identified assets in the country. Similarly, a European Small Claims Procedure (as provided for in Regulation EC 861/2007) aimed at eliminating intermediate steps can be relied on while enforcing decisions of up to EUR 2000.

3.3.7. The process for filing an EU decision with domestic courts is relatively simple, if the argument is contested. In order for the judgment to be registered, the judgment holder must apply to the court concerned and provide the court with, among other documents, an authenticated copy of the judgment, a certified translation and, if interest is claimed, a statement confirming the amount and interest rate at the application date and in the future. Once the judgment has been published, it can be applied as if it were given by domestic courts (such an exequatur process is no longer required from January 2015, according to Recast Regulation EC 1215/2012).

3.3.8. On the other hand, decisions made in foreign countries outside the EU would be acknowledged and applied on a mutual basis, providing that the issuing country is a party to a bilateral or multilateral arrangement with Finland drafted for this reason. Finland is a signatory to the 1958 New York Convention on the Recognition and Compliance of International Arbitral Awards and its national courts should therefore accept and uphold awards given by international arbitration proceedings.

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4. Managing insolvent debtors

4.1. Insolvency in Finland

4.1.1. If they fall due, a debtor in Finland is deemed insolvent if they are indefinitely unable to pay off their debts. Finland requires two forms of insolvency proceedings: reorganization of an undertaking (under the 1993 Business Restructuring Act) and dissolution (under the 2004 Dissolution Act). Both can be launched by the claimant or by the creditors alike through an appeal to the court of first instance.

4.1.2. In fact, the recovery rate in insolvency cases is very small and it is doubtful that a reward above 10 percent of the receivables will be distributed to the shareholders when a business is declared bankrupt. Dividends may be paid in instalments in a corporate restructuring process, where the aim is to save the business, typically within a period of time that could extend up to ten years. Nonetheless, in fact, most restoration methods collapse, leaving little or very few returns to the creditors.

4.2. Insolvency procedures

4.2.1. Out-of-Court proceedings. There are no specific rules in Finland on out - of-court settlements but they are widely used in law. According to the voting rules applicable to bankruptcy or reorganization, bankruptcy and reorganization laws must be taken into account and the agreement can not be validated without the unanimous approval of the creditors. The court will normally approve the out - of-court settlements.

4.2.2. Debt restructuring. The debt reorganization procedures are restructured (Yrityssaneeraus) as follows. The court appoints a trustee to assume control of the company upon the debtor's order. A freeze is put in place to protect the debtor's funds from compliance actions (temporary suspension of payments along with a prohibition on implementation and collection). The Board of Directors maintains the decision-making power but the receiver has the right to control the issuing of new loans, manage property changes, etc. If the debtor fails to comply with the settlement deal, it would call a liquidation process.

4.2.3. Winding proceedings. Bankruptcy proceedings (konkurssi) in other nations are similar to liquidation proceedings. The debtor is declared bankrupt upon acceptance by the court of a winding-up petition. A receiver is named (creditors are also allowed to make suggestions on the selection of the receiver) which sets a time limit for creditors to put forward their claims. It then sets out a proposed distribution scheme, while creditors oversee the sale of the estate and the distribution of the proceeds from the sales.

4.2.4. Priority rules. In Finnish insolvency proceedings there are no general priority rules where only the costs of the proceedings are prioritised. However, by obtaining and registering mortgage or pawn rights, creditors could get priority over certain asset items. A business mortgage can also be registered to the assets of the company and thus obtain a privileged position in the procedure. Tax and employee claims have absolutely no priority, as opposed to other countries.

4.2.5. Cancelation of suspicious transactions. Receivers in reorganization and liquidation proceedings are both entitled to review and request the cancelation of any suspicious transactions carried out by the debtor during a suspicious period of between three months and five years prior to the commencement of the insolvency proceedings. Therefore, contracts benefiting one borrower over the other, or reducing the value of the assets (etc.) will usually be invalid.

4.2.6. Duration of  insolvency process. Insolvency cases normally take 1 year in Finland.

4.2.7. Required documents. Power of Attorney records (signed by the creditor) and backups of the invoices.