Is Finland Facing a Bankruptcy Pandemic This Spring?
The COVID-19 pandemic hit Finland’s economy hard last spring. The restrictions and recommendations issued to stem the pandemic led to an unexpected drop in turnover and cashflow in many sectors. The government sought to mitigate the impacts of liquidity problems, among other things, by quickly drafting an amendment to the Bankruptcy Act, which temporarily removed the creditor’s ability to file for bankruptcy of the debtor in the event the debtor has not paid the creditor's clear and due receivable within a week of receiving the creditor's claim for payment under threat of bankruptcy proceedings. The well-intentioned and justified reason for this amendment was to prevent the bankruptcy of companies that became temporarily insolvent due to the pandemic. However, the amendment applied equally to all companies.
When the second wave of the pandemic hit, the validity of the temporary amendment was extended to the end of January 2021. According to Statistics Finland, the number of bankruptcy filings during January–November decreased nearly 17% compared to last year.
We may be facing a record number of bankruptcies in the early spring. Many of the efforts to mitigate the financial impacts of the pandemic have mainly delayed acute cash shortages without actually lightening companies liabilities. It may well be that the cash reserves of companies facing bankruptcy are completely empty and that their debt burden has grown too large.
Courts Facing Logjam
The courts in Finland are already overburdened due to having to deal with a backlog of delayed matters. There may not be enough skilled estate administrators to handle the number of bottled up bankruptcies. This may in turn lead to cases of abuse being left unsolved, which will ultimately be to the detriment of the honest majority of companies and society at large.
Even in the midst of the pandemic, it is important for boards of directors to remain alert and act diligently. It is not permitted to favour certain creditors over others, and a loss of equity must be notified to the Trade Register. Help is available to companies with a healthy business even in this crisis, provided that they have the courage to seek out that help in time.
This article was first published in Finnish in Kauppakamari magazine (4/2020).