Finland collection profile

Financial statements in Finland must be registered for limited liability companies, open joint stock companies and limited partnerships companies. However, limited partnership companies are only subject to registration if certain criteria, such as company size, are met. Financial information on domestic companies can be obtained from the Finnish Patent and Registrations Office’s trade register, as well as from specialized credit information companies.

Allianz Trade has online access to registered financial information through chosen providers and allocates each company a grade reflecting its financial health and how it conducts business. Grades represent a core of our knowledge and analyses, and help clients identify and avoid risk. Data is continuously monitored to offer the most up-to-date information to support management decisions.

Liability for business debts is determined by legal structure, described as follows:

• Most businesses in Finland are private traders or 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 one person acting in their own name who may thus be held liable for its whole debt.
• Partnerships (avoin yhtiö, Ay) are formed by at least two partners who are jointly and severally liable for the entity’s obligations. Liability can be limited through Limited Partnerships (kommandiittiyhtiö, Ky), which involve one or more managing partners jointly liable for the company’s operations and debts together while the silent partners’ liability is limited to their contribution.
• Shareholders in a Limited Liability Company (osakeyhtiö, Oy) are liable for company debts only up to their contribution, with a minimum capital requirement of EUR 2,500.
• Larger businesses are usually set up as Public Limited Companies (julkinen osakeyhtiö, Oyj) or Joint Stock Companies, which require a minimum capital of EUR 80,000.

Finland has a Civil Law system and its courts are generally efficient. District Courts (käräjäoikeus) render decision in first instance, but may be assisted by specialist courts such as the Insurance Court, the Labour Court, or the Helsinki Market Court (Markkinaoikeus), which has jurisdiction over fraudulent business practices, abuse of dominant position, intellectual property disputes, and preliminary injunctions since September 2013.

Finnish and Swedish are the country’s official languages and are used in all legal proceedings. Courts do not set binding precedents but the decisions rendered by the Supreme Court tend to constitute guidelines followed by the lower courts.

In addition, an amendment to the Finnish Act on the Collection of Debts entitles creditors to a capped compensation (depending on the debt amount) to cover collection costs.

Retention of Title (RoT) provisions, which preserve the seller’s ownership over goods until the invoice is paid in full, are common in many countries. In Finland, however, these are applied restrictively, covering only the purchase price of fixed assets and not tradable goods.

The most common payment methods are often used in a complementary manner and may be listed as follows:

• Bank transfers are among the most popular payment means as they are fast, secured, and supported by an increasingly developed banking network internationally and domestically. For export transactions, transfers can be guaranteed by an Export Credit Insurance Policy, which helps minimize the risk of sudden or unexpected customer insolvency. Allianz Trade’s worldwide network of risk offices monitors the financial well-being of customers and grants them a specific credit limit up to which clients may trade and claim should something go wrong.
• Standby Letters of Credit (a bank guarantees the debtor’s credit quality and repayment abilities) are also available although they would rather be used in last resort.
• A Bill of Exchange may be considered as a lack of trust.
• Checks essentially serve as debt recognition titles rather than as payment means.

Overall, Bank guarantees remain largely unused as they are expensive.

Although the Finnish judiciary system is trustworthy, it is advisable to first consider amicable settlement opportunities as an alternative to formal proceedings. It is also essential to be aware of the debtor’s solvency status: if insolvency proceedings have been initiated, it indeed becomes impossible to enforce a debt (see below).

Legal dunning should start with a Demand Letter (registration is not required in Finland) reminding the debtor of their obligation to pay the principal and late payment interest (as contractually agreed or at the legal rate) within seven days. If the debtor fails to respond, a second letter threatening to register the debt in a public register is often extremely efficient since appearance in the register usually has an impact on the company’s credit rating.

If the debt is certain and undisputed, fast-track proceedings allow for a simplified Payment Order (suppea haastehakemus) based on any invoice, contract, or debt recognition document. The debtor is contacted electronically and given two weeks to file a defence. If the debtor does not respond, the court issues a default judgment.

If the debtor has assets in other EU Member States, a European Payment Order procedure facilitating the recovery of undisputed debts (under Regulation EC No 1896/2006) may furthermore be triggered. In this case, the demanding party may request The Helsinki District Court to issue an Order to Pay which will then be, enforceable in all European Union countries (except Denmark) without exequatur proceedings.
Ordinary legal action is usually taken when amicable collection fails. A written application for summons must be filed with the registry of the District Court, which then serves the debtor with a Writ of Summons. The debtor is then given approximately two weeks to file a defence; failure to reply usually leads to a default judgment in favor of the claimant. Otherwise, the court examines the parties’ evidence and arguments before rendering a decision.

Courts usually award remedies in the form of injunctions, compensatory damages, or declaratory judgments, but punitive damages are not allowed.

Legal proceedings in civil cases must be initiated within three years since 2004. Time limits must be strictly observed as they are regarded by courts as a substantive law issue, but the period of statutory limitation can be interrupted by reminding the debtor (in writing) of the existence of the debt. Final judgments remain enforceable for 15 years.

Precautionary measures may help preserve the creditor’s interests pending a final and enforceable judgment. Courts may order interim remedies ex parte (without the presence of both parties) to avoid irreparable damage (attachment, injunction to do something or to prevent from doing something, protection of rights, etc.), and to obtain or protect evidence.

It is generally required to demonstrate an emergency situation justifying the granting of such measures, and the courts would tend to require that the claimant provides security on costs in order to protect the respondent from irresponsible action.

First instance judgments may be appealed if the party notifies its intention to appeal within seven days of the court’s decision. Appeals must then be lodged within 30 days of delivery.
Decisions rendered in Second instance may be appealed against before the Supreme Court, which must authorize such proceedings (the case would usually have an impact in terms of precedent, would suffer a potential procedural error, etc.).

A judgment is enforceable for 15 years once it becomes final (i.e., when all appeal venues have been exhausted). If the defeated party fails to abide by the judgment, the claimant can have it enforced by a bailiff, who will try to obtain an instalment agreement with the debtor, or enforce it through asset seizure.

Undisputed claims in Finland are normally resolved within three to six months, but disputed claims may take about a year.

Generally, the successful party may ask the court to hold the defeated party liable for court fees and part of its legal costs. Court fees in Finland are very modest: up to EUR 200, depending on the debt amount.
Contingency fees, where legal professionals are entitled to receive a percentage of the final award, are illegal in Finland.

Although domestic courts are efficient in delivering timely decisions, Alternative Dispute Resolution methods are widely used to resolve business disputes in Finland. Use of Mediation has increased in recent years, and arbitration is frequently relied upon. Settlement agreements reached through mediation are binding as contracts and may be recognized by courts as enforceable if disregarded by the parties.

Arbitration awards are considered as final and enforceable judgments binding on the parties. They help preserve confidentiality in proceedings and cannot be appealed (except in specific conditions, i.e. lack of jurisdiction, fraud, etc.).

Using a foreign forum to obtain a decision in debt-related disputes is not common in Finland. However, Finland is a signatory to the Rome I Regulation on the law applicable to contractual obligations, which stipulates that the parties to a contract may, by mutual agreement, choose the law applicable to their contract, and select the court that will have jurisdiction over disputes. Finland is also a signatory to the Hague Convention of 15 June 1955 on the law applicable to the international sale of goods, which similarly stipulates that contracts shall be governed by the law chosen by the parties, the general spirit of the agreement, and the circumstances of the case.

Therefore, the parties may well agree to solve their business disputes under a foreign law or before a foreign court but it is essential that the agreement be characterized by an international connection (for example, one party has elected domicile in another country, or the place of execution is located abroad), and that a jurisdiction clause is specifically drafted to this purpose.

Foreign awards (e.g. rendered against foreign debtors owning assets in Finland) are fairly enforceable in Finland, but various circumstances may apply.

• Decisions rendered in an EU country benefit from particularly advantageous enforcement conditions. Apart from EU Payment Orders, which are normally enforceable directly in domestic courts, the two main methods for enforcing an EU judgment in Finland are the European Enforcement Order (EEO, as provided under Regulation EC No. 805/2004) when the claim is undisputed, or by registering the judgment under the provisions of the Brussels I Recast Regulation (1215/2012)
• If the judgment qualifies as an uncontested claim, it can be enforced directly (i.e. without registration) using an EEO, provided that the debtor has identified assets in the country. The European Small Claims Procedure (as provided by Regulation EC 861/2007) aiming at eliminating intermediate steps may similarly be relied upon while enforcing decisions up to EUR 5,000.
• For disputed claims, registering an EU judgment with domestic courts is relatively simple. The judgment holder must apply to the relevant court for the judgment to be registered 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 rate of interest at the date of the application and going forward. Once registered, the judgment can be enforced as if issued by a domestic court (since the Recast Regulation EC 1215/2012, exequatur is no longer required from January 2015).
• Judgments from non-EU countries are recognized and enforced on a reciprocity basis, provided the issuing country is party to a bilateral or multilateral agreement with Finland.
• Finland is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, therefore its domestic courts ought to recognize and enforce awards rendered through international arbitration proceedings.

A debtor in Finland is considered insolvent if they are permanently unable to pay their debts as they fall due.
There are two types of insolvency proceedings in Finland: reorganization of an undertaking (under the Restructuring of Enterprises Act of 1993) and bankruptcy (under the Bankruptcy Act 2004). Both can be initiated following a petition to the court of first instance by the debtor or by the creditors alike.

In general, the recovery rate in insolvency procedures is very low and, when a company is declared bankrupt it is unlikely that a dividend exceeding 10% of the receivables is paid to the creditors. In a company reconstruction procedure, where the aim is to save the company, dividends may be paid in instalments, usually within a period of time which might reach up to ten years. In practice, however, most reconstruction procedures fail, leaving the creditors with no, or very few dividends.

There are no specific rules on out-of-court agreements in Finland, but they are commonly used in practice. Bankruptcy and reorganization laws must be considered, and the agreement cannot be validated without unanimous creditor approval, according to the voting rules applicable to bankruptcy or reorganization. Out-of-court agreements are usually confirmed by the court.

Reorganization proceedings (Yrityssaneeraus) proceed as follows: upon request by the debtor, the court appoints a receiver who takes control of the company. A moratorium is established to protect the debtor’s assets from enforcement claims (temporary freezing of payments and prohibition of execution or collection). The Board of Directors retains decision-making power, but the receiver controls the incurrence of new debts, oversees ownership transfers, etc. If the debtor fails to comply with the restructuring agreement, liquidation may follow.

Finland’s implementation of Directive 2019/1023 introduces a two-tier restructuring model:

• An efficient early restructuring track for businesses at risk of insolvency.
• Concurrent improvements to the basic restructuring process (early procedure with lighter formalities and fewer barriers to entry).
• Enhanced corporate governance involvement (board-initiated procedures).
• Greater support for individual debt relief.

These reforms were mandated by July 2022, and are now part of Finnish insolvency law.

Bankruptcy proceedings (konkurssi) are equivalent to liquidation proceedings in other countries. Upon acceptance of a liquidation petition by the court, the debtor is declared bankrupt. A receiver is appointed (creditors are also entitled to make suggestions as to the receiver’s appointment) and establishes a time limitation for the creditors to submit their claims. The receiver then establishes a proposed distribution scheme, while creditors supervise the sale of assets and distribution of proceeds.

There are no general priority rules in Finnish insolvency procedures, except that procedural costs are prioritized. Creditors can obtain priority over certain assets by registering mortgages or pledges. It is also possible to register a business mortgage on company assets to obtain a privileged position. Unlike in other countries, tax and employee claims have no priority

Receivers in reorganization and liquidation proceedings can review and apply for cancellation of suspect transactions made by the debtor during a suspect period ranging from three months to five years before the start of insolvency proceedings. Transactions favouring one creditor over others or reducing the estate’s value can be voided