Insolvency Laws in Russia
and Finland
Topical Legal Questions Concerning Economic
Cooperation Between Russia and Finland
Mika Salonen
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Mika Salonen
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LEGISLATION
RUSSIA:
FINLAND:
• Federal Law No. 127-FZ on
Insolvency (Bankruptcy) of
October 2002
• Law on Corporate Restructuring
of 25 January 1993/47
– Former Law No. 6-FZ of
Insolvency of 8 January 1998
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Mika Salonen
• Bankruptcy Law of 20 February
2004/120
• Former law from Tsar era (9th
November 1868/31)
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COMMENCEMENT OF INSOLVENCY PROCEEDINGS
RUSSIA:
• Threshold for commencement of insolvency proceedings under
Russian Law is:
– at the amount of at least RUB100,000 (~€2500) outstanding
• unpaid for 90 days after it becomes due
• Creditor may only initiate insolvency proceedings against a debtor
on the basis of a court approved claim
• Either debtor itself, creditor or a federal executive body may file an
application to the court to declare a debtor insolvent
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COMMENCEMENT OF INSOLVENCY PROCEEDINGS
FINLAND:
• Creditor or debtor itself may file for bankruptcy
• General requirement for a declaration of bankruptcy is the
insolvency of debtor
• Insolvency means that a debtor is unable to pay his debts
when they fall due
• Unless it is otherwise proven , the debtor shall be deemed
insolvent especially if:
1. the debtor has discontinued payments;
2. determined in enforcement proceedings during the six months
preceding the filing of the petition for bankruptcy that the debtor
cannot repay the claim in full;
3. a debtor has not repaid the clear and due claim of the creditor within a
week of the receipt of a reminder
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RUSSIA – DIFFERENT INSOLVENCY PROCEDURES
• Supervision
– aims to analyse current financial state of debtor and provide an
overview of all existing claims against it
– also aims to preserve the debtor’s property by restricting the actions of
the debtor
– management still has powers even if bankruptcy manager is nominated
– lasts maximum of seven months
• Financial rehabilitation
– during supervision debtor or a third party may propose financial
rehabilitation to the first creditors meeting
– in that case, financial rehabilitation commences with a court ruling
specifying the terms of financial rehabilitation
– may last up to two years, with the aim being to restore the debtor to
solvency and the discharge of debts according to a debt repayment
schedule
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RUSSIA – DIFFERENT INSOLVENCY PROCEDURES
• External administration
– aims to restore debtor to solvency
– may last up to 18 months (subject to a further six months extension)
– commences upon a court ruling based on a decision of creditors meeting
and appointment of an external administrator
• Insolvent liquidation
– most common in smaller cases
– focuses on the realisation and distribution of the debtor’s assets
– lasts for 6 months (with further six-month-extension)
– winding-up of the debtor is carried out
– management’s powers are immediately terminated and vest in the
liquidator
• Composition
– During the procedures always possible to make voluntary arrangement –
in creditors’ meeting and confirmation by court
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RUSSIA – PRIORITY OF CLAIMS - OUTLINE
1. Personal injury and some related claims
2. Employees and copyright fees claims
3. Others
• From secured claims (depending on whether security under a
facility agreement):
– 70-80% to the secured creditor: This cannot amount to a value greater
than the sum of the original principal amount secured and interest
accrued thereon;
– 15-20% to creditors of first and second priority: This distribution only
applies where there are insufficient funds to otherwise discharge these
claims; and
– 5-10% for expenses incurred due to insolvency proceedings (judicial
fees and the like)
• Not fully free right to realize security
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FINLAND - PRIORITY OF CREDITORS - OUTLINE
1. Secured creditors
–
Pledge to real (immovable) or movable property
2. Costs of bankruptcy estate or administration in previous corporate
restructuring (legal fees etc.)
3. Security based on floating charge
–
50% from value of property under floating charge
4. Other creditors
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LIABILITY
RUSSIA:
• Management could become personally liable if insolvent company
continues business
FINLAND:
• No general obligation of debtor to file for insolvency procedures
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Mika Salonen
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FINLAND – DIFFERENT INSOLVENCY PROCEDURES
• Bankruptcy
– powers of the management have fully been transferred to the
administrator (trustee) of the bankruptcy estate
– trustee represent the estate
• estate possesses all assets of the debtor
• debtor ceases to exist as operational entity
– clarification of liabilities, sale of assets, distribution of monies to
creditors
• Corporate restructuring
– moratorium
– administrator should draft a restructuring program – creditors vote
– management of debtor continues with limited powers
– no change of ownership, only restructuring of liabilities and business –
equity conserves value unlike in bankruptcy
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Mika Salonen
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OUTLINE OF BANKRUPTCY - FINLAND
Petition for
bankruptcy
2 months of the
beginning of the
bankruptcy
Estate
inventory
Lodgement of claim
(Estate administrator
sets the date)
Court decision of
adjudication in
bankruptcy
Report on assets
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Mika Salonen
Approximately one
week time limit for
presenting a statement
Legal
Proceedings
Report on debts
(Draft) disbursement
list, to be certified by
the Court
Closing down, final
settlement of
accounts
2 months from the lodgement
date + 3 months from the due
date of the draft disbursement
list
Disbursements to
creditors
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Hearing of debtor
"Questioning of
debtor"
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OUTLINE OF RESTRUCTURING PROCEEDINGS FINLAND
Time when the
petition became
pending
Interim orders
Hearing
Report on assets and liabilities
Draft restructuring programme
Time limit max. 4 months
-----------------------------Preliminary proceedings
Quick approval
Voting on the draft
restructuring
programme
Subsequent hearing,
approval consideration
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Statements
Disputes
Division of creditors
into groups
Rectification
opportunity, voting
reports
Approval of the
programme
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Appeal about the
approval decision
OUTLINE OF BANKRUPTCY - RUSSIA
Insolvency proceedings
-> Debtor has 10 days to make a written reply
Supervision
-> Must be completed within 7 months from
the date when a bankruptcy petition was filed
May lead to a liquidation at any time
Financial restoration
-> May last for up to a maximum two years
External administration
-> May last for up to 18 months
Bankruptcy proceedings (liquidation)
-> Must be completed within 12 months
Composition (settlement)
-> Allowed at any time
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CONCLUSIONS
• Undisputed and due claim of creditor -> bankrupcy
• In Russia insolvency issues is primarily regulated by one law
– this contains both restructuring and liquidation
• Russian system – central role for courts and their competence to
rule
• Finland – bankruptcy means – creditors take over - principle of
autonomy of creditors
• Russia – principal purpose is to restore solvency
• Finland purpose to sell business or assets or under restructuring to
restructure debts and business
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CONCLUSIONS
• In Russia ”difficult” to reach full take over by creditors
• In practise in Finland also court will first decide whether
restructuring rules could be applied
• Attorneys act as trustees or administrators in Finland, in Russia
special professionals to act bankruptcy managers
• Russian system seems to be rather complicated as there are 4-5
different procedures
• Russia: debtor friendly, but personal liability may arise more easily
if debtor company continues business insolvent
• In both countries creditors wish to avoid procedures regulated by
courts and look for voluntary work-out schemes
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CONTACT INFORMATION
MIKA SALONEN
Attorney at law, Partner
Direct
+358 9 6153 3508
Mobile
+358 400 812 648
Email
mika.salonen@borenius.com
Attorneys at law Borenius Ltd
Yrjönkatu 13 A, FI-00120 Helsinki, Finland
Office +358 9 615 333 Fax +358 9 6153 3499
info@borenius.com - www.borenius.com
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