Lending and taking security in Finland: overview

A Q&A guide to finance in Finland. The Q&A gives a high level overview of the lending market, forms of security over assets, special purpose vehicles in secured lending, quasi-security, negative pledge clauses, guarantees, and loan agreements. It covers creation and registration requirements for security interests; problem assets over which security is difficult to grant; risk areas for lenders; structuring the priority of debt; debt trading and transfer mechanisms; agent and trust concepts; enforcement of security interests and borrower insolvency; cross-border issues on loans; taxes; and proposals for reform.

To compare answers across multiple jurisdictions, visit the Lending and taking security in country Q&A tool.

This article is part of the multi-jurisdictional guide to finance. For a full list of contents visit www.practicallaw.com/finance-mjg.

Antti Niemi, Janne Tuulos and Johanna Nurkkala, Peltonen LMR Attorneys Ltd.
Contents

Overview of the lending market

1. What have been the main trends and important developments in the lending market in your jurisdiction in the last 12 months?

Financial institutions continued to adjust their balance sheets to meet the new capital adequacy requirements in 2012 and, as a result, traditional balance sheet lending by the banks has shrunk considerably. However, this phenomenon has increased the attractiveness of bond funding, especially for larger companies and provided diversity to the structure of Finnish corporate funding.

As a large amount of banks' long-term market funding is due to mature over the next few years, it is anticipated that bond-based funding will continue to replace traditional bank funding.

 

Forms of security over assets

Real estate

2. What is considered real estate in your jurisdiction? What are the most common forms of security granted over it? How are they created and perfected (that is, made valid and enforceable)?

Real estate

Real estate or real property (kiinteistö) includes:

  • Land and water areas.

  • Components (ainesosa) of the property, such as land mass, trees and permanent buildings serving the purposes of the property.

  • Accessories (tarpeisto) to the property, such as building materials acquired for the purposes of a building belonging to the property.

Common forms of security

The only security interest that can be granted over real property is a pledge (panttioikeus) of real property. A pledge of real property is implemented by pledging one or more deeds of pledge (panttikirja) that are secured by a real property mortgage (kiinteistökiinnitys).

The nominal principal amount of the mortgage is the maximum amount that the creditor can recover on the basis of the priority ranking conveyed by the mortgage. The holder of a real property mortgage cannot recover more than the actual debt secured by the mortgage.

Once a deed of pledge used with a particular lender has been released by that lender (because the debt has been discharged or otherwise) the same deed of pledge can be repledged to another lender if required.

Formalities

Establishing a pledge of real property includes two steps:

  • Applying for and obtaining a mortgage on the real property. This must be registered in the Register of Land Ownership and Mortgages and represented by a standardised deed of pledge, which is issued by the registration authority after registration. Either the borrower or a representative authorised by the borrower (such as a lender) can apply for registration of a mortgage, for which a deed of pledge is issued from the registration authority.

  • The security interest is perfected by entering into a pledge agreement and delivering the deed of pledge to the lender. There is no formal requirement for a pledge agreement to be in writing, although in practice a written agreement setting out the details of the pledge and the rights of the parties is required by the parties.

 

Tangible movable property

3. What is considered tangible movable property in your jurisdiction? What are the most common forms of security granted over it? How are they created and perfected?

Tangible movable property

The concept of movable property (irtain omaisuus) covers any property other than real property. Such movable property includes, for example:

  • Machinery.

  • Trading stock (inventory).

  • Aircraft and ships.

Common forms of security

Tangible assets can be subject to a pledge or a floating charge (yrityskiinnitys).

Pledges of tangible assets are rarely used in commercial banking transactions. This is because the transfer of possession required for creating a pledge is difficult for both the lender and the borrower. However, in relation to vehicles (buses, trucks, trailers and certain special vehicles), ships and aircraft, the transfer of possession is not required as mortgages can be registered for these assets.

A floating charge (sometimes also referred to as a business mortgage) covers movable property of a business, to the extent that it cannot be otherwise mortgaged. For example:

  • Buildings that are not characterised as real property.

  • Equipment, machinery and other comparable fixed assets.

  • Trade marks, patents, utility models and other comparable intellectual property rights.

  • Lease rights and other specific rights.

  • Raw materials.

  • Inventories.

Once a floating charge has been created, it is forbidden to pledge property secured by the charge in any other way. Any such pledge is not binding on the floating charge holder, except for securities (in physical or book-entry form) and receivables.

A floating charge is not a security interest entitling the lender to foreclose on the charged assets solely on the basis of default on the loan. Instead, the charge conveys a priority ranking to the lender, which applies when the charged assets are sold in a bankruptcy or on the basis of a court judgment.

The priority ranking of a lender with claims secured by a floating charge extends only to 50% of the value of property subject to the charge. All unsecured creditors (including the floating charge lender's debt not covered by its priority ranking) share the remaining 50% equally in proportion to the debts owed to each of them.

The nominal principal amount of the floating charge promissory note, together with interest and collection costs specified in the note, is the maximum amount that the lender holding a floating charge can recover as a secured lender in a foreclosure sale of the property. However, the floating charge lender cannot recover more than 50% of the actual debt secured by the mortgage.

Formalities

Pledge

A pledge is generally perfected by entering into a pledge agreement and delivering possession of the pledged asset, typically a piece of tangible movable property, to the lender. A second ranking pledge of property already in the possession of the first ranking lender is perfected by notice of pledge to the first lender, which has first priority over the property.

For certain vehicles, aircraft and ships, a pledge is perfected through a registration of a mortgage in the relevant register held by the Finnish Transport Safety Agency.

Floating charge

A floating charge is established by two steps:

  • Applying for and registering a floating charge promissory note for a definite amount in the Register of Floating Charges maintained by the National Board of Patents and Registration (NBPR). Floating charge promissory notes must be issued on a standardised form provided by the NBPR and can be submitted for registration at the NBPR by the borrower or a representative authorised by the borrower (such as the lender).

  • When a floating charge promissory note has been registered and released to the borrower, the charge is perfected by entering into a pledge agreement and by delivering the promissory note to the lender.

Once a floating charge promissory note used with a particular lender has been released by that lender (because the debt has been discharged or otherwise), the same promissory note can be repledged to another lender, if required.

 

Financial instruments

4. What are the most common types of financial instrument over which security is granted in your jurisdiction? What are the most common forms of security granted over those instruments? How are they created and perfected?

Financial instruments

The most common types of financial instruments are:

  • Securities (for example, certificated shares and shares held in book entry form).

  • Other receivables (see Question 5).

  • Bank accounts (see Question 6).

Common forms of security

Financial instruments can be subject to a pledge under Finnish law. A pledge of movable property is most often used in commercial banking transactions when the assets to be pledged consist of debt (bearer) instruments (such as bonds) or shares of private companies that do not belong to the national book-entry register (arvo-osuusjärjestelmä).

In addition, a floating charge (see Question 3) would cover securities (both in physical or book-entry form), which have not been otherwise pledged.

Formalities

If the assets to be pledged consist of debt instruments, the security interest is usually implemented by delivering the debt instrument representing the pledged assets to the lender. Certain other perfection measures, such as notice to the company that issued the pledged security, may also be advisable.

A security interest in shares is typically perfected as follows:

  • Unless issued in book entry form, shares are pledged by providing a written notification of the pledge to the company that issued the shares (resulting in the pledge being registered in the company share register) and, if share certificates have been issued, by delivering the share certificates to the lender, typically with a blank endorsement by the borrower/owner of the shares. The lender should also ensure that the pledge is recorded in the company share register to provide notice to any party examining the records of the company, especially if no share certificates exist.

  • Pledge of securities (such as shares, bonds and other corresponding instruments) represented by book entries in the national book-entry system maintained by the Finnish Central Securities Depository must be registered in the securities' book-entry account, and in practice can only be effected by a pledge of the entire book-entry account.

 

Claims and receivables

5. What are the most common types of claims and receivables over which security is granted in your jurisdiction? What are the most common forms of security granted over claims and receivables? How are they created and perfected?

Claims and receivables

Claims and receivables include, for example, debts or rights under contracts.

Common forms of security

Claims and receivables can be subject to a pledge under Finnish law. In addition, a floating charge (see Question 3) would also cover claims and receivables that have not been otherwise pledged.

Formalities

A pledge of a receivable is perfected by an irrevocable notice from the borrower to the account debtor, notifying the debtor of the pledge and instructing him to make payments either:

  • Directly to the lender or a bank account of the lender.

  • To a bank account of the borrower that has been pledged to the lender.

 

Cash deposits

6. What are the most common forms of security over cash deposits? How are they created and perfected?

Common forms of security

Cash deposits, usually bank account funds, can be subject to a pledge under Finnish law. In addition, a floating charge (see Question 3) would also cover bank accounts.

Formalities

A bank account pledge is perfected by notifying the bank where the account is held and obtaining written confirmation from the bank that it acknowledges the pledge and will not, without the lender's consent, exercise its rights of set-off to collect debts owed by the pledgor to the bank from the funds in the account.

 

Intellectual property

7. What are the most common types of intellectual property over which security is granted in your jurisdiction? What are the most common forms of security granted over intellectual property? How are they created and perfected?

Intellectual property

Under Finnish law, the most common types of intellectual property are:

  • Trade marks.

  • Patents.

  • Utility models.

  • Designs.

Common forms of security

The security interest that can be granted over intellectual property is a pledge of intellectual property. In addition, a floating charge (see Question 3) would cover any intellectual property rights.

Formalities

A valid and perfected security interest is created by public notification, that is, by the registration of the pledge in the relevant register maintained by the NBPR (unless the assets are covered by a floating charge, in which case the perfection procedures for a floating charge are sufficient). For the purposes of such registration, a written pledge agreement or undertaking is also required.

 

Problem assets

8. Are there types of assets over which security cannot be granted or can only be granted with difficulty? Which assets are difficult or problematic when security is granted over them?

Future assets

Future assets can be subject to a floating charge. Assets cease to be subject to a floating charge if they are sold or otherwise disposed of in the ordinary course of business or in connection with the normal replacement of assets, unless the business, including charged assets itself (or a substantial part of it) is sold. If so, the charge remains in force and the original lender retains priority over floating charge lenders of the buyer for six months (unless this right is waived by the original lender).

Future funds in bank accounts or book-entry securities accounts can be pledged.

The traditional view has been that future (unearned) receivables cannot be pledged under the so-called "earnings principle". However, the Supreme Court has ruled that future receivables can, at least in some circumstances, be pledged if they can be sufficiently identified at the time of the pledge (KKO 2002:113).

Other types of assets or securities cannot be pledged until they have been acquired. However, such assets can be used as security by using a covenant to pledge or mortgage them in the future (although these arrangements can become subject to recovery rules, as voidable preferences, if the borrower becomes insolvent).

Fungible assets

Fungible assets (such as stocks, inventory and accounts receivable) can be made subject to a floating charge.

Other assets

Finnish law does not recognise a security assignment of contractual rights as such. Contractual rights cannot be pledged, except to the extent they constitute receivables. Therefore, contractual rights to damages or indemnification payments can be pledged, as well as any receivables based on invoices issued under a contract.

 

Release of security over assets

9. How are common forms of security released? Are any formalities required?

The terms and conditions for the release of a security are usually agreed in the relevant security agreement. Assets that are subject to a pledge and in the possession of the lender, such as movable property, share certificates or real property deeds of pledge, are released when returned to the borrower. In connection with a release of an intellectual property pledge, the pledge registered with the relevant register maintained by the NBPR can be removed on request.

 

Special purpose vehicles (SPVs) in secured lending

10. Is it common in your jurisdiction to take security over the shares of an SPV set up to hold certain of the borrower's assets, rather than to take direct security over those assets?

Lenders typically obtain security both in the assets and shares of an SPV. This "belt and braces" approach is commonly used in cases where the assets of the SPV consist of real property, shares, receivables or other tangible property that is enforceable without considerable cost or effort. In real estate transactions especially, it is usual that the investor establishes an SPV to acquire the shares in the real estate company, which owns the underlying real property. This provides tax efficiency and enables the investor to place the acquisition loans and rental income in the same entity. However, Finnish law limitations on financial assistance (see Question 13) may restrict the use of assets of the subsidiary as security if the SPV is used as a vehicle to acquire the shares in the subsidiary.

 

Quasi-security

11. What types of quasi-security structures are common in your jurisdiction? Is there a risk of such structures being recharacterised as a security interest?

Sale and leaseback

Sale and leaseback is a contractual arrangement under which one party sells property to a buyer and the buyer immediately leases the property back to the seller. In addition, the buyer may have a repurchase right of the leased property.

As the buyer is registered as owner with the Register of Land Ownership and Mortgages there is usually no risk of the transaction being recharacterised as a security interest. However, according to the Finnish Land Code (maakaari, 1995/540), a redemption or repurchase right relating to a sale of a real property is not binding, which should be taken into account when structuring a sale and leaseback transaction.

Sale and leaseback may also be used for movable property, such as machines. If the transaction is deemed to be made for the purposes of creating a security interest and if the assets remain in the seller's possession, the buyer does not get protection against the seller's creditors.

Factoring

In factoring, trade accounts receivables are sold on a non-recourse basis to a factoring company, which assumes responsibility for collections either on a recourse or a non-recourse basis. The debtor must be notified of the transfer of the receivables and that factored receivables must be paid either directly to the factoring company or to a bank account that has been pledged to the factoring company.

Hire purchase

Hire purchase is typically a long-term (conditional sale) contract under which the purchaser/lessee hires the goods for a monthly rent/lease payment. Ownership of the property is usually transferred to the purchaser/lessee at the end of the term automatically or with a lump sum payment agreed in advance. Such contracts are governed by the Act on Conditional Sales (laki osamaksukaupasta, 1966/91).

Retention of title

Under the concept of retention of title, the delivered goods remain the property of the vendor until full payment has been received from the purchaser. This is typically provided for under the terms of the relevant purchase agreement. To be valid in the insolvency proceedings of the purchaser, the retention of title right must be established before the possession of the property is transferred to the purchaser and the purchaser is not allowed to consume, resell or otherwise dispose of the object subject to the retention of title.

Other structures

In a right of set-off the receivables to be set-off against each other must:

  • Be of the same kind.

  • Directly correspond to one another.

  • Be due and payable.

Additional restrictions apply to the ability of a creditor to offset its debt against debts owed to it by a debtor under bankruptcy.

 

Guarantees

12. Are guarantees commonly used in your jurisdiction? How are they created?

Guarantees are a common form of security in Finland. The main types of guarantees recognised in Finland are:

  • A surety (omavelkainen takaus) under which the guarantor is liable for the principal debt in the same way as an obligor personally liable for such debt.

  • A secondary guarantee (toissijainen takaus) under which the guarantor is liable for the principal debt only if the debtor fails to repay.

  • A deficiency guarantee (täytetakaus) where the guarantor is liable for the principal debt only in so far as it cannot be recovered from the security of the principal debt.

  • On demand guarantees, which are independent payment undertakings and separate from the underlying transaction. On demand guarantees are not subject to Finnish statutory law and therefore the relationships of the parties involved is construed and interpreted in accordance with the general principles of contract law.

Typically, a guarantee is issued in written form, either as a unilateral undertaking by the guarantor or in the form of an agreement between the beneficiary and the guarantor. The guarantee may also be incorporated into a credit agreement.

 

Risk areas for lenders

13. Do any laws affect the validity of a loan, security or guarantee (or the terms on which they are made or agreed)?

Financial assistance

Under the Finnish Companies Act (osakeyhtiölaki, 624/2006), a limited liability company (osakeyhtiö) is strictly prohibited from granting any loan, security or guarantee for obligations of another entity in order for that entity to acquire shares in either the company or its parent company.

Corporate benefit

Under the general principles of the Companies Act, the board of directors and other fiduciaries of a limited liability company must always act in the best interests of the company. In addition, no measures can be taken to provide an unjustified benefit to a shareholder or another person, or to the detriment of the interests of the company or other shareholders. Unless otherwise stated in its articles of association, the purpose of a company is to generate profits for its shareholders.

These principles apply when the company issues a guarantee or security for the debts of another company belonging to the same group. Therefore, the board of directors approving the guarantee or other security must be satisfied that the company will derive adequate commercial benefit from the arrangement. When a company grants a guarantee or security for the debts of a group company, corporate benefit is often found in the form of, for example:

  • The availability of intra-group financing.

  • Marketing and management services.

  • Rights to use trade marks belonging to other group companies.

The grant of a guarantee or security by a parent company to guarantee the debts of its subsidiary rarely raises the issue of corporate benefit. However, the corporate benefit rules typically come into question when the security is given upstream (that is, by a subsidiary for the benefit of its parent) or cross-stream (that is, for the benefit of a sister company).

Loans to directors

The Companies Act does not prohibit a company from making or guaranteeing loans to its directors. However, loans to directors may be restricted under the general principles of the Companies Act relating to corporate benefit if the grant of the loan or guarantee is not in the best interests of the company.

Usury

Charging an excessive or abusive interest rate on a loan is considered as usury. Finnish statutory law does not specify the maximum interest rate at which loans can be made. Instead, usury is evaluated based on the rates of interest applied by the banks under government supervision. Usury has been criminalised under the Finnish Criminal Code (rikoslaki, 1889/39).

Others

The assets of a company can only be distributed to shareholders as provided for in the Companies Act, which normally only allows distributions from the accumulated profits and distributable equity. Any other transaction that reduces the assets of a company or increases the amount of its liabilities without commercial grounds is considered an illegal distribution of assets. In addition, the assets of a company cannot be distributed if it is known, or it should be known, that the company is insolvent or that distribution of assets will result in insolvency.

 
14. Can a lender be liable under environmental laws for the actions of a borrower, security provider or guarantor?

Liability under environmental laws is most likely to arise in connection with polluting activities carried out on real property (covered by a real estate mortgage) or by using buildings, equipment or machinery (covered by a floating charge). Creditors are only liable under environmental laws if they take possession of the real property and polluting activities take place during this possession. However, as foreclosure sales are dealt with by execution authorities, creditors are unlikely to take possession and become liable.

 

Structuring the priority of debts

15. What methods of subordination are there?

Contractual subordination

Subordination is typically provided for by contract, usually in the credit agreement, a separate inter-creditor agreement or corresponding document. Subordination can also be separately agreed for certain debts or receivables of certain creditors, for example by an inter-creditor agreement between the relevant creditors and the debtor.

Structural subordination

Structural subordination is possible and common in Finland. It can it be achieved by, for example, lending at different levels of a group structure.

Inter-creditor arrangements

Inter-creditor arrangements are common in Finland. Freedom of contract enables the use of different types of subordination arrangements. For example, it can be agreed that a certain loan is subordinated to all other non-subordinated debt and would therefore have lowest ranking priority if insolvency occurs. Alternatively, it can be agreed that a certain debt is subordinated only to another defined debt and is therefore not subordinated to other receivables, such as general trade receivables, from the debtor.

 

Debt trading and transfer mechanisms

16. Is debt traded in your jurisdiction and what transfer mechanisms are used? How do buyers ensure that they obtain the benefit of the security and guarantees associated with the transferred debt?

Secured debt governed by Finnish law can be transferred and, therefore, can also be traded. The main rule is that, as an ancillary obligation, the security and guarantee associated with the debt can be transferred together with the debt, which is typically expressly permitted under the financing documents.

A notification of the transfer of the debt (and related security or guarantee) must be issued to the debtor either by the assignee or the assignor. The perfection requirements, depending on the type of security interest, also apply. Usually, this requires an actual or constructive deposit of the pledged asset (or deeds of pledge for a real property mortgage or floating charge promissory notes) to the assignee as security for the debt, which is often a condition precedent for a transfer of debt. In practice, a separate confirmation may also be requested from a borrower and/or a guarantor or a provider of the security.

For syndicated loans, a security agent is usually appointed to act for and on behalf of all lenders. No further actions (other than notices in the loan documents) are usually required to transfer the benefit of the security if the composition of the bank syndicate changes.

 

Agent and trust concepts

17. Is the agent concept (such as a facility agent under a syndicated loan) recognised in your jurisdiction?

The agent concept is recognised under the laws of Finland, and a facility agent is regularly used in syndicated loan transactions.

 
18. Is the trust concept recognised in your jurisdiction?

There is no concept of a trust under Finnish law. However, as a matter of civil law, a trust created under the laws of another jurisdiction can be recognised in Finland (because the concept does not violate Finnish public policy) by reference to the other jurisdiction's law. The rights of a security trustee can also be enforced in Finnish courts by giving the trustee the powers and responsibilities it has in the jurisdiction in which the trust was created.

 

Enforcement of security interests and borrower insolvency

19. What are the circumstances in which a lender can enforce its loan, guarantee or security interest? What requirements must the lender comply with?

Security can be enforced if the secured unpaid debt has become due and payable. The principal finance documents, such as the loan agreement, usually provide that the debt becomes, or may become, due and payable if the lender exercises its rights to accelerate the loan as a result of a payment default or any other event of default defined in the agreement (such as a material breach of terms by the debtor), subject to possible notice or grace periods.

 

Methods of enforcement

20. How are the main types of security interest usually enforced? What requirements must a lender comply with?

Pledge of movable property

There are certain formalities for enforcing pledges of movable property, such as giving one month's notice before starting the sale of a pledged asset. However, these formalities can be, and usually are, excluded by contract. It is often agreed that the pledge can be enforced at the creditor's discretion by selling the secured asset in a manner deemed suitable by the creditor, provided that the debtor's interests are taken into account (for example, seeking a fair value for the asset).

Pledge of real property

Typically, foreclosure sales of real property take place by a public auction completed by the execution authorities. A pledge of real property does not provide the lender with the immediate right to sell the secured assets if non-payment or insolvency occurs. The lender must either obtain a valid title (that is, a court judgment) for execution by the execution authorities from a court or arbitral tribunal or submit a claim when the debtor's assets are realised by the bankruptcy administration.

Floating charge

A floating charge does not provide the creditor with the immediate right to sell the secured assets if non-payment or insolvency occurs. The creditor must either obtain a valid title for execution by the execution authorities or submit a claim when the debtor's assets are realised by the bankruptcy administration.

 

Rescue, reorganisation and insolvency

21. Are company rescue or reorganisation procedures (outside of insolvency proceedings) available in your jurisdiction? How do they affect a lender's rights to enforce its loan, guarantee or security?

Court-administered restructuring under the Act on Restructuring of Companies (laki yrityksen saneerauksesta, 47/1993) protects the debtor from both secured and unsecured creditors. If restructuring proceedings are initiated:

  • The commitments already concluded by the debtor are not affected unless otherwise provided by law.

  • The debtor cannot pay a debt subject restructuring or provide collateral security for such debt.

  • No measures can be directed at the debtor to collect on a debt subject to restructuring or to ensure the payment of such debt.

  • Property cannot be executed for debt subject to restructuring.

  • Set-off of debts is prohibited.

Restructuring does not affect the validity of the security granted. However, enforcement or legal actions can only be taken with court permission and a secured debt can only be repaid at the discretion of the court-appointed supervisor. In addition, as part of the restructuring programme, a security interest can be replaced with another corresponding security and the payment and amortisation schedules of secured debt can be adjusted.

The court-appointed supervisor draws up and submits a proposed restructuring programme to the court. The programme proposal outlines all measures concerning the continuation, alteration or termination of the company's operations. The creditors are divided into groups according to the priority and nature of their claims, and vote on the proposal.

The court must approve a restructuring programme that meets the applicable legal requirements, if:

  • A majority of the creditors and a majority of claimants in one creditor group vote for approval.

  • The programme is supported by creditors with a combined value of over one-fifth of the restructuring debt.

If all the creditor groups vote for approval, there are only minimal other requirements that the programme need satisfy.

The shareholders of the company do not take part in the vote, but the programme may include measures that require the shareholders' consent under the Companies Act.

 
22. How does the start of insolvency procedures affect a lender's rights to enforce its loan, guarantee or security?

Bankruptcy or other insolvency does not affect the validity of security interests. However, the insolvency proceedings prevent the creditors from enforcing loans given to or guarantees granted by the company subject to the insolvency proceedings.

A secured creditor can enforce a security interest after giving notice of the claims against the debtor and its intent to enforce the security to the bankruptcy estate. However, the bankruptcy estate can postpone the enforcement by up to two months to assess the validity of the creditor's claims or to preserve its own interests. In certain cases, the bankruptcy estate can sell the security assets itself, although the secured creditor would still be entitled to the proceeds of sale.

 
23. What transactions involving loans, guarantees, or security interests can be made void if the borrower, guarantor or security provider becomes insolvent?

Under the Act on Recovery to the Bankruptcy Estate (laki takaisinsaannista konkurssipesään, 758/1992), a transaction can become voidable if both:

  • The transaction, by itself or together with other transactions, inappropriately favours one lender over other creditors, transfers assets available to satisfy other debts or adversely increases the amount of debt owed to other creditors.

  • The debtor was insolvent at the time of the transaction or the transaction contributed to insolvency within five years (or at any time, if the other party is part of the debtor's inner circle), and the other party to the transaction was, or should have been, aware of the actual or potential insolvency.

In addition, a payment made less than three months before the insolvency proceedings were initiated may be declared void if such payment either:

  • Was made with unusual means or before the due date.

  • Involves an amount that is considerable taking into account the financial position of the borrower (unless considered to be in the ordinary course of business under the relevant circumstances).

A security granted by a business less than three months before insolvency proceedings are initiated can become voidable if the security interest was not agreed, or the security was not perfected without undue delay, at the start of the debt relationship.

 
24. In what order are creditors paid on the borrower's insolvency?

In bankruptcy proceedings or when recovering debt by an enforcement order, a debtor's debts are paid in the following order of priority until all available funds have been used:

  • Debts secured by mortgages or pledges, or owed to a lien holder. These debts are paid from the proceeds of sale of the asset subject to the mortgage, pledge or lien. Proceeds of sale are not shared with the other creditors of the insolvent debtor or with the bankruptcy estate.

  • Certain debts incurred by the business during debt restructuring under the Act on Restructuring of Companies if the debtor was placed in bankruptcy before the termination of the restructuring programme or within three months of its termination.

  • Debts secured by floating charges. However, only 50% of the value of assets subject to the floating charge and only up to the nominal amount of the floating charge promissory notes (plus interest and collection costs) can be claimed under this priority ranking. The remainder of debt secured by a floating charge is treated as unsecured debt.

  • Unsecured debt, in proportion to the debt owed to each creditor.

  • Certain subordinated creditors defined in the Creditors' Priority Act (laki velkojien maksunsaantijärjestyksestä, 1578/1992), such as loans and mass debt instruments issued by the debtor that are subordinated to the other creditors.

The priority rankings between deeds of pledge reflecting registered mortgages over the same real property are registered in the Register of Land Ownership and Mortgages. The starting point is that priority follows the order of registration. However, the priority order can be changed if requested by the owner of the real property and, if any deeds of pledge are outstanding, with the consent of each holder of deeds of pledges. The same applies to floating charge promissory notes.

Unless otherwise agreed between holders of pledges over movable property, the creditor with the earlier perfected pledge has priority over any subsequent pledge. Certain limitations can be agreed on in connection with a pledge.

If the formalities for perfection are not complied with, a security interest is not created and such lenders rank the same as other unsecured creditors in priority.

 

Cross-border issues on loans

25. Are there restrictions on the making of loans by foreign lenders or granting security (over all forms of property) or guarantees to foreign lenders?

There are no restrictions on the making of loans by foreign lenders or granting security or guarantees to foreign lenders.

 
26. Are there exchange controls that restrict payments to a foreign lender under a security document, guarantee or loan agreement?

There are no exchange controls that would prevent payments from Finland to a foreign lender under a security document, guarantee or loan agreement.

 

Taxes and fees on loans, guarantees and security interests

27. Are taxes or fees paid on the granting and enforcement of a loan, guarantee or security interest?

Documentary taxes

No stamp duties, documentary taxes or any other similar ad valorem taxes are payable when establishing or enforcing a loan, guarantee or security, except:

  • When enforcing a pledge of securities (including a pledge of shares) by selling pledged shares or other securities (where the sale takes place outside a stock exchange), asset transfer tax must be paid by the seller at the rate of 1.6% of the purchase price.

  • When real property is sold, asset transfer tax must be paid at the rate of 4% of the purchase price.

Registration fees

Registration fees must be paid to the relevant registry for the following types of security:

  • Real estate mortgages.

  • Floating charges.

  • Mortgages in respect of motor vehicles, ships and aircraft.

  • Pledges of intellectual property.

However, all the fees are flat (not percentage based) and relatively small.

Notaries' fees

Notary fees are not applicable in Finland but court costs and professional fees (including enforcement fees) may be payable.

 
28. Are there strategies to minimise the costs of taxes and fees on the granting and enforcement of a loan, guarantee or security interest?

The applicable fees are not considered prohibitively expensive.

 

Reform

29. Are there any proposals for reform?

The legislation governing the mortgages on ships, aircraft and certain vehicles is subject to a reform proposal that purports to create a uniform legislation applicable to the mortgage on all these vehicles. In addition, a deed of pledge system similar to the real estate mortgages is proposed to be introduced.

A system allowing real estate sales, mortgages and pledges to be entered into and issued in an electronic form is expected to be established by the end of 2013.

 

Online resources

Finlex

W www.finlex.fi

Description. Finlex is an online database of up-to-date legislative and other judicial information of Finland. Finlex is maintained by the Finnish Ministry of Justice. Most of the information is only available in Finnish and Swedish. Some translations of Finnish Acts and Decrees are also available in English. These may, however, be out-of-date and should only be used for guidance. The database contains approximately 600 full-text translations (some of which are potentially out-of-date) of Finnish Acts (mostly in English).



Contributor profiles

Antti Niemi, Partner

Peltonen LMR Attorneys Ltd.

T +358 9 4176 0456
F +358 9 4176 0417
E antti.niemi@peltonenlmr.fi
W www.peltonenlmr.fi

Professional qualifications. Attorney-at-law, Finland, 2002

Areas of practice. Banking; finance; M&A and general corporate law; dispute resolution.

Recent transactions

  • Advising OM Group (NYSE), a leading US speciality chemicals maker, on Finnish law acquisition financing and security aspects in connection with the acquisition by it of the German VAC Group.
  • Advising a syndicate of Nordic banks in refinancing of senior loan facilities and issues related to security granted in Finland in relation to a group of companies operating in the medical sector.
  • Advising the European Directories Group in Finnish law aspects (in Finland Fonecta Group) in relation to its financial restructuring.

Languages. Finnish, English, Swedish

Professional associations/memberships. Finnish Bar Association; International Bar Association.

Publications. PLC Cross-border handbooks 2008-2009 Volume 2: Securitisation – Finland.

Janne Tuulos, Partner

Peltonen LMR Attorneys Ltd.

T +358 9 41760 470
F +358 9 4176 0417
E janne.tuulos@peltonenlmr.fi
W www.peltonenlmr.fi

Professional qualifications. Attorney-at-law, Finland, 2004

Areas of practice. Banking; structured finance; contract law; M&A.

Non-professional qualifications. BSc (Econ), Helsinki School of Economics and Business Administration

Recent transactions

  • Advising Pääkaupunkiseudun Junakalustoyhtiö Oy in connection with the long term financing for procurement of new commuter trains for the traffic within Helsinki Metropolitan area.
  • Advising Finnish Export Credit in connection with several export credit finance transactions and related matters.
  • Advising HSBC Bank plc in connection with export credit facility for a Brazilian company and related buyer credit guarantee issued by Finnvera.

Languages. Finnish, English, Swedish, German

Professional associations/memberships. Finnish Bar Association; International Bar Association.

Johanna Nurkkala, Associate

Peltonen LMR Attorneys Ltd.

T +358 9 4176 0435
F +358 9 4176 0417
E johanna.nurkkala@peltonenlmr.fi
W www.peltonenlmr.fi

Professional qualifications. Master of Laws, Finland, 2011

Areas of practice. Banking; finance; M&A; general corporate law.

Recent transactions

  • Advising Crédit Agricole Corporate and Investment Bank and Société Générale as finance parties in connection with Finnvera supported export credit facility made available by Finnish Export Credit for a major Russian telecom operator and related agreements.
  • Advising HSBC Bank plc in connection with two export credit facilities for Gazprombank OJSC, Russia and related buyer credit guarantees issued by Finnvera.

Languages. Finnish, English, Swedish

Publications. Article on real estate sale and lease back transactions and choice of law questions published in the annual Finnish law review, Business Law Forum, 2011.


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