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31/01/2012Mika Salonen2
Insolvency Laws in Russia and Finland
Topical Legal Questions Concerning Economic Cooperation Between Russia and Finland
Mika Salonen
31/01/2012Mika Salonen3
LEGISLATION
RUSSIA:
• Federal Law No. 127-FZ on Insolvency (Bankruptcy) of October 2002
– Former Law No. 6-FZ of Insolvency of 8 January 1998
FINLAND:
• Law on Corporate Restructuring of 25 January 1993/47
• Bankruptcy Law of 20 February 2004/120
• Former law from Tsar era (9th November 1868/31)
31/01/2012Mika Salonen4
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
31/01/2012Mika Salonen5
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
31/01/2012Mika Salonen6
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
31/01/2012Mika Salonen7
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
31/01/2012Mika Salonen8
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
31/01/2012Mika Salonen9
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
31/01/2012Mika Salonen10
LIABILITY
RUSSIA:
• Management could become personally liable if insolvent company continues business
FINLAND:
• No general obligation of debtor to file for insolvency procedures
31/01/2012Mika Salonen11
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
31/01/2012Mika Salonen12
OUTLINE OF BANKRUPTCY - FINLAND
Petition for bankruptcy
Hearing of debtor "Questioning of
debtor"Court decision of adjudication in
bankruptcy
Lodgement of claim (Estate administrator
sets the date)
Report on assets
---------------------
Report on debts (Draft) disbursement list, to be certified by
the Court
Legal Proceedings
Estate inventory
Closing down, final settlement of
accounts
Disbursements to creditors
2 months from the lodgement date + 3 months from the due date of the draft disbursement list
2 months of the beginning of the bankruptcy
Approximately one week time limit for presenting a statement
31/01/2012Mika Salonen13
OUTLINE OF RESTRUCTURING PROCEEDINGS - FINLAND
Time when the petition became
pending Hearing
Report on assets and liabilities
Draft restructuring programme Time limit max. 4 months
------------------------------
Preliminary proceedings
Statements Disputes
Division of creditors into groups
Approval of the programme
Subsequent hearing, approval consideration
Voting on the draft restructuring programme
Rectification opportunity, voting
reports
Interim orders
Quick approval
Appeal about the approval decision
31/01/2012Mika Salonen14
OUTLINE OF BANKRUPTCY - RUSSIA
Insolvency proceedings -> Debtor has 10 days to make a written reply
May lead to a liquidation at any time
Supervision -> Must be completed within 7 months from the date when a bankruptcy petition was filed
Bankruptcy proceedings (liquidation)-> Must be completed within 12 months
External administration-> May last for up to 18 months
Financial restoration-> May last for up to a maximum two years
Composition (settlement)-> Allowed at any time
31/01/2012Mika Salonen15
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
31/01/2012Mika Salonen16
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
31/01/2012Mika Salonen17
CONTACT INFORMATION
Attorneys at law Borenius Ltd
Yrjönkatu 13 A, FI-00120 Helsinki, Finland
Office +358 9 615 333 Fax +358 9 6153 3499
[email protected] - www.borenius.com
MIKA SALONEN
Attorney at law, Partner
Direct +358 9 6153 3508
Mobile +358 400 812 648
Email [email protected]
31/01/2012Mika Salonen18