Phillip & Partners and Deloitte and Touche, reporting in 2002 for the European Commission, note that Finland has fully adopted 19 of the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank, almost fully adopted 15 principles, partially adopted 5 principles, and has not adopted 2 principles. The Finnish insolvency regime received an overhaul in 1995 with the passage of the Act on the Supervision of the Administration of Bankrupt Estates, which established the office of the independent Bankruptcy Ombudsman, and again in 2004, when a new Bankruptcy Act went into effect. The Act seeks to improve clarity, transparency, and predictability in the insolvency regime, as well as incorporating the necessary flexibility to permit restructuring or other options, as the individual case requires. Insolvency proceedings in Finland are deemed more efficient and less costly than the average of other member states of the Organization for Economic Cooperation and Development (OECD), according to the World Bank's 2008 "Doing Business" guide. According to the World Bank, Finland's average time and cost of bankruptcy proceedings are 0.9 years and 4% of the estate, respectively, which compares quite favorably to the OECD averages of 1.3 years and 7.5%. Return to creditors for Finland at 88.2 cents on the dollar is also above the OECD average of 74.1.

General Overview

According to a report on insolvency issues prepared for the European Commission by Phillip & Partners and Deloitte and Touche (PP&DT) in July of 2002, Finland had fully adopted 19 of the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank, almost fully adopted 15 principles, partially adopted 5 principles, and had not adopted 2 principles. An Appendix to the PP&DT report, specifically dealing with Finland's insolvency regime and published in March of 2002 notes that the Companies Act of 1978 contains specific provisions regarding liquidation, but other laws deal more extensively with bankruptcy and restructuring. This arose out of the recession of the 1990s, when legislation was viewed as being "too harsh" for individuals and small businesses that might better benefit from restructuring. Thus, 1993 saw the enactment of the Restructuring of Enterprises Act, which set forth the procedures by which viable but financially troubled firms might reschedule their debts while remaining active in business, avoiding the need to layoff employees and suffer the loss of customer or client goodwill. It was believed that, in addition to helping troubled firms remain in business, the restructuring approach promised the likelihood of yielding greater recovery possibilities for creditors than might be available by simple liquidation.

The International Association of Insolvency Regulators (IAIR) website maintains a page devoted to the overview of insolvency framework in Finland, and discusses changes in Finnish insolvency law. According to the IAIR website, the core of the legislation is the original 1868 Bankruptcy Act, which has been reinterpreted and amended over the years. The most recent insolvency-related legislation include the Companies Act of 1978; the Act on the Recovery of the Bankrupt Estate of 1991; the Act on the Priority of Claims of 1992; the Restructuring of Enterprises Act and the Act on the Adjustment of the Debts of a Private Individual, both of 1993; and the new Bankruptcy Law of 2004. Also contributing to the overall legislative framework is the Act on the Supervision of the Administration of Bankrupt Estates (1995) and the relevant insolvency legislation of the European Union, of which Finland is a member. The Restructuring of Enterprises Act deals with the rehabilitation of viable enterprises and the rescheduling of debts. The Act on the Recovery of the Bankrupt Estate and the Act on the Priority of Claims apply to all insolvency situations. The Act on the Supervision of the Administration of Bankrupt Estates established the office of the Bankruptcy Ombudsman. The IAIR website asserts that the 2004 legislation aims to add clarity, predictability, and flexibility to the insolvency regime. Taken together, the provisions of the law establish the framework for "efficient, productive, and transparent bankruptcy proceedings" while protecting debtor rights and working capital, ensuring security, and creating procedures for the supervision of debtors and the administration of the bankruptcy process. It also adds a "public receivership" provision, for use in cases where the debtor has no (or no apparent) assets. In such cases, the costs of the proceedings are borne by the state.

According to the Bankruptcy Ombudsman's website, overall supervisory authority of insolvency proceedings is granted to the Bankruptcy Ombudsman, who is officially attached to the Ministry of Justice (MoJ). However, the Ombudsman enjoys independence from the MoJ in the conduct of his office, within the limits of his legislatively conferred rights, roles, and responsibilities. By law, the Ombudsman is expected to display impartiality in his official role. The law confers on the Ombudsman the same rights to information as is accorded to creditors and appointed administrators, including the examination of debtor documents and records, but cannot extend his investigation onto the property of third-parties who may hold debtor assets. The law constrains the Ombudsman to maintain confidentiality except in specific situations enumerated in the Act.

The 2006 IAIR report notes that an Ombudsman's decisions are not binding on the bankruptcy courts or administrative bodies. His primary role is to determine the best way to administer the insolvent estate, with the collaboration of the independent Advisory Board for Bankruptcy Affairs. Much of the Ombudsman's responsibility is advisory: consulting with the court, administrators or trustees, creditors, and other interested parties as to the administration of the bankrupt estate. Additionally, the Ombudsman serves a watchdog function, taking corrective action in cases of negligence or abuse arising out of insolvency proceedings. Actions do not include direct interference with the creditors or bankruptcy administrators, however. They are limited to taking recourse to the courts. The court, not the Ombudsman, appoints administrators and trustees and has the sole authority to order corrective actions when circumstances require them. However, the 2004 Bankruptcy Act does confer upon the Ombudsman the right to request the court to appoint an administrator if the bankrupt cannot support the costs of investigation, and the IAIR report adds that "a member of the Ombudsman's office may act as administrator." The Bankruptcy Act also governs the selection of administrators in insolvency proceedings. Such individuals must possess the appropriate expertise and experience to assume such a role, and may not have ties to either the debtor or creditor that would compromise his or her impartiality, independence, or capacity to perform his official duties.

The IAIR website discloses that Finland is a member of that body, and the 2004 report by C.H. Parment notes that Finland entered into the Nordic Bankruptcy Convention in 1933 (the convention includes Denmark, Finland, Iceland, Norway, and Sweden). Parment's report notes that this convention was intended to facilitate the handling of insolvency proceedings that involved two or more of the neighboring Nordic countries, among which there existed extensive and expanding trade relations. Three essential principles underlay the implementation of the Convention. First, that bankruptcy proceedings initiated in one member country exposes all assets possessed by the debtor in every other Nordic country as well. Second, the guiding legislation for such proceedings is that of the country in which the action is initiated, except for certain exceptional situations stipulated in the Convention. Finally, the appointed bankruptcy administrator has the authority to dispose of the bankrupt's assets in any and all of the member countries in which they may be found.

The 2007 World Bank report titled "Doing Business in Finland" looks at the insolvency regimes of 178 countries and evaluates their bankruptcy procedures across three dimensions: efficiency (measured in time required for completion of the process), cost (measured as a percentage of the debtor's estate), and recovery by creditors (expressed in cents on the dollar), comparing these data to the averages achieved by the member states of the Organization for Economic Cooperation and Development (OECD) and, where relevant, the averages achieved by their region as a whole. Finland's average time and cost of bankruptcy proceedings are 0.9 years and 4% of the estate, which compares quite favorably to the OECD averages of 1.3 years and 7.5% (no additional regional comparison is relevant in the Finnish case). Return to creditors for Finland is also above those for the OECD, averaging 88.2 cents on the dollar compared to the OECD's 74.1.