Recent Developments in the Field of Insolvency and Restructuring

Authors: Jan Lilius, Olli Mäkelä, Carolina Wahlby, Johan Wahlund

Last Wednesday, Hannes Snellman’s insolvency and restructuring practitioners had the pleasure to attend a one-day seminar in Stockholm arranged jointly by INSOL International and INSOL Europe and sponsored by Hannes Snellman. Hannes Snellman’s Counsel Jan Lilius was a member of the Main Organising Committee of the event, and Senior Advisor Matti Engelberg chaired one of the panel discussions. Other Hannes Snellman attendees were Antti Alanko, Mika Karppinen, Olli Mäkelä, Carolina Wahlby, and Johan Wahlund. The focus of the programme was on current issues in the field of insolvency and restructuring, with both speakers and attendees from across the Nordic countries and elsewhere.

The first major topic under discussion was the EU Directive on Preventive Restructuring Frameworks (the “Directive”). Representatives of the Ministries of Justice from Finland, Sweden, and Estonia presented how their ministries intend to implement the Directive. It appears that even these in many respects similar Member States have quite different aims and concerns regarding the Directive, partly because of the differences in their existing insolvency frameworks. At this stage, it is still quite difficult to predict what kind of changes the Directive will lead to in the various national laws. For example, the Finnish Ministry of Justice has not yet decided on whether an entirely new procedure will be set up or whether the existing corporate restructuring framework will be amended. However, several speakers also emphasised the flexibility of the Directive. The discussion ended on a high note, as one delegate noted, quite justifiably, that instead of seeing the Directive as a “threat” to the existing regimes, lawmakers and practitioners should view it as an opportunity to modernise and harmonise them.

After a delegate discussion, the topic was continued with another panel discussion chaired by Hannes Snellman’s Matti Engelberg. At the core of the discussion were the practical challenges the EU Member States would be facing in connection with the Directive. The discussion centered around topics such as early warning systems and incentivising debtors and creditors to react before insolvency, class formation, debt to equity conversions, predictability, and schemes of arrangement under English law. A relevant question is whether the Directive will lead to actual pre-insolvency proceedings or just modified insolvency proceedings. In many of the comments made, the possibility of a court-confirmed workout of a single finance agreement was considered an important tool, which is currently still missing.

After the panel discussion, practitioners from Sweden, Finland, Norway, and Denmark compared their existing restructuring regimes. It appears that, even though the systems are broadly similar, the actual usability varies from country to country. In Finland, the corporate restructuring framework is robust, and it is used more often than in the other Nordic countries (408 proceedings commenced). At the other end of the spectrum, in Norway, restructuring proceedings are hardly ever used (7 petitions and only 1 commenced). The differences were further emphasised when the speakers compared their practical experiences by means of two case studies: Componenta and Top-Toy. Especially the Top-Toy case was a showcase of the need for harmonization of existing regimes, as Top-Toy’s administrator John Sommer Schmidt illustrated the difficulties in restructuring a single company with several thousand employees and branches in two other countries. It was surprising that even within the Nordic countries, differences in national legislation required essentially country-specific solutions, which in the Top Toy case contributed to the eventual bankruptcy of the company.

The last panel of the day focused on two “hot topics”: Brexit and board liabilities. The seminar participants were shown the impact that a no-deal Brexit would have on civil justice matters, such as recognition of insolvency proceedings and judgments. A no-deal Brexit would lead to many procedural disputes in ongoing litigations, and it would make it impossible to enforce British judgments for instance in the Nordic countries. However, it would be possible to close the gap after a no-deal Brexit if Britain, for example, ratified the Lugano Convention, but even this would take several years. Compared to an orderly Brexit under the Brexit deal or no Brexit at all, a no-deal Brexit would be highly unsatisfactory from the point of view of cross-border insolvency.

As the last topic of the day, the panel also discussed the issue of board members’ liability and differences between the Nordic countries. As a general takeaway, board members should be particularly careful in situations where their company seems to be heading toward insolvency and seek local legal advice where necessary. The new Directive in fact contains a general obligation for board members to take into consideration the interests of different stakeholders when the company is on the verge of insolvency.

Thus, overall one could say that the seminar was very successful and provided food for thought for both practitioners and business representatives. We look forward to seeing how the upcoming Directive will affect the national and cross-border insolvency landscape.