The Finnish economy relies on export finance. Foreign trade is important for a small open market economy like Finland. Finland's foreign trade was in surplus for a long time, but in 2011 the current account turned into a deficit and has remained in deficit since then.

Investments in Finland have remained stable in recent years and most come from other EU countries. Direct investments are boosted by acquisitions of Finnish companies and one growing area has been real estate investments.

As Finland uses the euro, the Finnish financial market is part of the international financial market. The Finnish stock market is also strongly connected to the international economy.

The loan market in Finland has seen some growth in alternative credit providers, especially in response to the active fintech sector and tightening regulation. The Finnish debt capital market has developed significantly since the financial crisis and has provided a source of corporate funding, in addition to bank lending.

In 2021, the Ministry of Finance estimated that Finland's economy will make a distinct recovery in the latter part of 2021 and the early months of 2022. However, according to the latest economic review published by the Ministry of Finance, economic growth is now predicted to slow down at the end of 2022 more than previously expected and GDP growth will slow down to 0.5% in 2023.

The Finnish government made a number of temporary changes in legislation in response to COVID-19 ‒ for example, bankruptcy and debt collection legislation included some mitigations. However, most of the temporary legislative changes were in force during the years 2020 and 2021.

In the loan market, owing to financial difficulties related to COVID-19, many private and corporate borrowers were granted grace periods and negotiated changes to loan terms, including covenants. Support from Finnvera, the specialised financing company owned by the State of Finland, in the form of guarantee to a bank loan was also used for the increased working capital needs resulting from COVID-19.

Currently, the future impact of COVID-19 on the Finnish economy remains uncertain.

The Finnish high-yield bond market has been relatively active during the past few years and has become a source of corporate funding, along with bank lending.

In 2014, the Finnish bond documentation template was introduced by the Confederation of Finnish Industries (EK) and the Advisory Board of Listed Companies, and is frequently used by high-yield bond issuers in the Finnish market. Furthermore, legislation that governs bondholder agents was enacted in September 2017.

The covenants tend to be lighter in the bond market, with the maturity of the bonds being usually three to five years (bullet payment).

The loan market in Finland has seen some growth in alternative credit providers, especially as a result of the active fintech sector and tightening regulation. Small and mid-cap companies usually consider alternative credit providers an option where security for a traditional bank loan may not be easily available.

Business angel financing has developed as an important source of early-stage capital for start-ups. The popularity of crowdfunding and peer-to-peer lending has also increased in recent years but remains rather small in total volumes.

Insurance and pension companies, as well as debt funds, also offer credit to corporate borrowers as an alternative to a bank.

The Finnish loan market is relatively small and most of the new trends come from abroad. Traditional banks still control most of the corporate loan stock. However, technology and the active fintech industry – combined with crowd funding and peer-to-peer loans – have evolved to reflect the flexible and faster needs of modern companies in the turbulent times.

Sustainability and ethical impact also continue trending and are more significant factors in banking and financing techniques.

As the financial market legislation is mainly derived from EU legislation, currently, there are no major local legal, tax or regulatory developments which would have a significant impact in the future on the loan market in Finland. Due to the steep increase of the volume of unsecured consumer loans as well as consumer payment defaults in the Finnish market, new legislation governing consumer lending has been put in place in the recent years. In addition, a comprehensive reform of consumer lending legislation is currently on the process, which aims to improve the position of consumers in the loan market.

There has been continuous development and growth in the sustainable loan market during recent years. As the market for sustainable loans (as well as investments) continues, financial market participants have strengthened their ESG capacities. It can be noted that ESG and sustainability are areas of focus and affect the financial market participants in many ways. More ESG-related legislation, mainly modelled on the EU's, has entered into force in Finland.

The main loan types are:

• green loans, which link the use of funds to green projects (in a similar way to green bonds); and
• sustainability-linked loans, which link the margin to the borrower’s performance on environmental or sustainability criteria.

On a general level, banking and financing activities ‒ as well as investment services ‒ are widely regulated in Finland.

However, as a main rule, own-account lending in the form of providing credit to a Finnish company or subscribing for notes issued by a Finnish company does not require a licence or other authorisation in Finland, provided that:

• the lending activity is not funded by deposits or other repayable funds from the general public; and
• no other licensed activity (eg, credit institution activity or investment service activity) is undertaken by the same entity.

A foreign service provider may conduct its activities in Finland either by establishing a branch or by providing its services across the border. The commencement of activities is contingent on the authorisation or notification procedure, where the activity is subject to licence.

See 2.1 Authorisation to Provide Financing to a Company. A foreign service provider may conduct its activities in Finland either by establishing a branch or by providing its services across the border. The commencement of activities is contingent on the authorisation or notification procedure, where the activity is subject to licence.

Granting security or guarantees to foreign lenders is not restricted or impeded as such. Financial assistance regulations, insolvency laws and other comparable regulations may restrict the possibilities of providing security.

Finland does not operate any foreign currency controls. Where money is transferred from non-EU member states, imports of foreign currency may need to be declared to customs, but there is no legal restriction on moving money in and out of the country. There may be anti-money laundering and tax considerations to take into account.

Subject to applicable anti-money laundering and sanctions regulations and any contractual terms regarding the use of proceeds, there are no restrictions on the borrowers use of proceeds from loans or debt securities.

Trusts are generally not recognised in Finland. The principle of agency is recognised in Finland and the use and role of a security agent is fairly common in syndicated loans. The Finnish Act on Bondholder Representatives, introduced in September 2017, applies to bondholder representatives and partly also to security agents of secured collective financing such as syndicated loans.

Unless otherwise agreed, a lender may transfer the monetary claim it has from the borrower to a third party.

A loan can be transferred on an individual basis or packaged up with other loans and transferred as a portfolio pursuant to overarching terms. In a securitisation transaction the creditor/issuer creates a financial instrument by combining and repacking loans and selling the related cash flow to investors in the form of securities.

The main rule is that, as an ancillary obligation, the security and guarantees 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 must be made either by the assignee or the assignor, including due perfection of any transferring securities (see 5.1 Assets and Forms of Security).

Debt buy-back is generally permitted, save for any contractual restrictions. With bond buy-back, securities market legislation may become applicable.

The Securities Markets Act contains provisions on the procedures to be followed in public tenders. The key element is equivalent treatment of the holders of the target securities.

Before the entry into force of a takeover bid, the offeror must publish an offer document containing essential and adequate information to assess the favourability of the bid. The offer document must be kept available to the public throughout the offer period, and it must be submitted to the target company and the relevant operator of trading on a regulated market.

In a mandatory offer, the offer document must describe how the acquisition shall be financed and provide information on security for payment in case payment is not made against delivery of the shares. Certain funds provisions can also be used in other acquisition finance transactions.

It is possible that the offer is made conditional on the availability of external financing on agreed terms. If the takeover bid includes a financing condition, any material terms as well as uncertainties related to the financing must be disclosed in connection with the publication of the bid.

In Finland, payments of principal to a foreign lender abroad are not subject to any withholding tax. The same usually applies to interests pursuant to the Finnish Income Tax Act. However, the interest could be subject to a withholding tax if the payment in question can be considered a capital investment in the debtors' equity. The tax would then be paid based on the Finnish Act on the Taxation of Non-residents' Income and Capital.

For a foreign lender it is important to note that all tax-related questions are highly related to the nature of the relationship between the lender and debtor (for example, if they are part of the same group) and whether the lender has a fixed place of business from a tax law point of view in Finland.

There is no direct legislation limiting the amount of interest one business can charge from another business. However, usury is a crime defined in the Finnish Criminal Code.

The Finnish Consumer Protection Act limits the interest that can be charged from consumers (especially regarding instant credits). A temporary restriction was put in place that prohibited charging the consumer more than 10% per annum as interest until the end of September 2021. Currently, the maximum interest amount for consumer loans has been brought back to 20%. However, the government has proposed that the maximum interest amount should be lowered to 15%.

It is noted that the Finnish Business Tax Act also limits the amount of interest that can be tax deductible in businesses.

Lastly, we note that an unreasonable or unfair interest provision could also be adjusted pursuant to the Finnish Contracts Act. The standard for the adjusting a contract between two companies is, however, rather high.

Most types of assets may be used as security under Finnish law. However, the creation of any security interest requires the existence of a valid underlying obligation, execution and delivery of a pledge agreement in favour of the pledgee and due perfection. Financial assistance regulations, insolvency laws and other comparable regulations may restrict the possibilities of providing security.

Pledges of movable assets are rarely used in commercial banking, as the transfer of possession required for creating a pledge is usually difficult and/or unpractical for both the lender and the borrower. However, security based on ownership (leasing) and retention of title (hire purchase) can be created and aircrafts, ships, vessels in excess of 15 metres, trucks, buses and tractors may be subject to a specific mortgage registered with the Finnish Transport and Communications Agency (Traficom).

The most common forms of securities granted by a company of its assets are the following.

Mortgage over Real Estate

A pledge of real property is implemented by pledging one or more real estate mortgage notes to secure the payment obligation under the lender's receivable. Title to a real estate as a whole or to an unseparated parcel or a specified share of the real estate can be mortgaged, as can certain transferrable leasehold rights to a real estate.

A mortgage can only be granted if the title or leasehold has been registered in the title and mortgage register of the Finnish Land Registry. All new mortgages are granted electronically and thus perfection is achieved by registration in the land registry. The registration time varies and may take up to a month. A nominal fee per registration is charged.

Floating Charge over Fluctuating Assets

A floating charge is created by registering the charge in the Trade Register (see 5.2 Floating Charges or Other Universal or Similar Security Interests). The registration time varies, currently being up to 16 days (from receipt of the duly completed registration forms). A nominal fee per registration is charged.

Shares

Shares (and other securities) that are registered in a securities register may be charged and perfected by registration of the securities account in which the shares are deposited. Shares not registered in a securities register may be charged and perfected by notice to the relevant company, which will enter the security interest in its shareholder register. Further, if share certificates have been issued with respect to the shares, they are delivered to the possession of the pledgee.

Pledge of Receivables and Bank Accounts

The pledge is perfected by the delivery of a notice to the debtor or account bank. A due perfection generally requires that a pledgor is precluded from controlling or disposing of the receivables or the bank account. Furthermore, it is customary to ask the account bank to give a separate undertaking not to exercise set-off against the funds on the account.

Under the laws of Finland, the governing law of the perfection of a security interest is the law of the location of the collateral (lex rei sitae). A security interest that has not been validly perfected is void against attachments and execution proceedings, and against a bankruptcy estate. Should the borrower enter bankruptcy proceedings shortly after the perfection of the pledge, the same may further be subject to recovery to the bankruptcy estate.

Floating charge is recognised and can be used to provide security over all movable assets of a debtor's business, excluding property that has been (previously) separately pledged or is capable of being mortgaged (other than vehicles).

A floating charge is created by registering the charge in the Trade Register. The floating charge is registered as security for the payment of a floating charge promissory note (or notes) with a specified principal amount, interest rate and enforcement costs. These establish the maximum amount that can be effectively secured by the charge and are neither an indication of the actual value of the assets nor evidence of an actual debt between the debtor and any creditors. The actual debt relationship is generally evidenced by a loan (or other) agreement made between the parties.

Under Finnish law, receivables and financial assets (with the exception of tax refunds) fall into the scope of the floating charge. Except for financial assets and receivables, assets covered by a floating charge cannot be pledged separately but the debtor can dispose of the movable assets in the ordinary course of business. New assets acquired by the debtor will automatically be covered by the floating charge.

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; therefore, it does not provide as strong a protection as a pledge or mortgage over a specific asset. In the event of bankruptcy, the lender is entitled to 50% of the realised value of the charged assets, while the remaining 50% is available for distribution to the unsecured creditors (including a floating charge lender's debt not covered by its priority ranking).

The floating charge is most commonly used to supplement other forms of security, such as charges on real estate, pledges of shares and pledge of receivables.

Under the Finnish Companies Act, a limited liability company is 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.

Further, the assets of a Finnish limited liability 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.

It is also required that all business transactions entered into by a Finnish company must provide adequate corporate benefit for the relevant Finnish company. Any acts that diminish the company’s assets or increase its debts without a business rationale may constitute unlawful distribution of assets.

In addition, the assets of a limited liability company cannot be distributed if it is known – or should be known ‒ that the company is insolvent or that distribution of assets will result in insolvency.

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 that provide an unjustified benefit to a shareholder or another person, or that are 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.

Corporate Benefit

The existence of corporate benefit and the fulfilment of the other requirements are ultimately questions of fact. 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 may be found in the form of the availability of intra-group financing.

Should the aforementioned requirements not be fulfilled, any guarantee or other security provided for obligations owed by other parties may be limited and funds or proceeds received may have to be returned to the guarantor.

Upstream and Cross-Stream Guarantees

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 (ie, by a subsidiary for the benefit of its parent) or cross-stream (ie, for the benefit of a sister company). Consequently, a Finnish company should not grant guarantees (upstream or otherwise) when there is no business rationale in doing so.

These issues are typically dealt with by including an appropriate limitation language in the agreements and in the structure of the financing arrangement (where available). It is further advisable to request a copy of the relevant corporate decision (or an extract of it), in which it was decided to enter into the guarantee in question.

Pursuant to the mandatory provisions of the Finnish Limited Liability Companies Act, a limited liability company may not provide loans, assets or security for the purpose of a third party acquiring shares in the company or its parent company. The provision does not apply to measures taken within the limits of the distributable assets and aimed at the acquisition of shares for employees of the company or a company that is a related party.

In most cases, board approval is sufficient to approve the grant of security or guarantees, but if there is more than one shareholder in the company granting such security or guarantee, a shareholder resolution may be required.

It is noted that security interest over future receivables is not necessarily binding on third parties as, according to the prevailing view in the legal literature and in the High Court praxis, the creditor can, with binding effect to third parties, only pledge receivables that have come into existence (“earned receivables”). Thus, despite the perfection by notification, the assignment may not be binding on third parties before the creditor has fulfilled its contractual obligations relating to the receivable.

When considering whether a receivable is earned and existing at the time of the pledge, the decisive factor normally is whether the creditor/assignor has fulfilled its contractual obligation that gives rise to the receivable. A trade receivable is, for example, generally considered earned by the creditor (seller) once the seller has delivered the product to the debtor (purchaser) in accordance with the agreed terms and conditions. In the case of future receivables, it is recommended that a notification is made for each receivable once this has been earned.

The security agreement typically contains provisions on how the security interests are released. Specific release letters can also be issued.

Such provisions usually provide that, with regard to assets where the pledge has been perfected by giving the asset or the relevant floating charge and/or mortgage note(s) into the possession of the pledgee, the security is released by returning the relevant asset or notes to the pledgor. Once a pledged floating charge note is released, it may be re-pledged as security for new debt without loss of priority or retained unpledged (in reserve) by the pledgor. Upon application by the holder of a floating charge note, the identity of the holder is recorded in the Trade Register.

In case the security interest is registered to a specific register, such as a mortgage, following the release, the security interest can be deregistered and re-pledging requires a new registration. The mortgage can also be annulled.

Security not registered in a public register is normally released by notice to the relevant debtor (in the case of monetary claims, including bank account claims and insurance claims) or company (in the case of shares). For shares and other securities registered in a securities depository, the relevant account operator (a bank) is instructed to deregister the security over the securities account in which the securities are held.

According to Finnish law, competing security interests are determined by the first-in-time principle, meaning that as a main rule the security established first shall have the best priority. If the formalities for perfection are not complied with, a security interest is not created and such lenders rank as unsecured creditors in terms of priority.

The priority ranking of the notes of pledge reflecting a mortgage over real property is registered in the National Land Survey of Finland; as a starting point, the priority follows the order of registration. The same applies to floating charge promissory notes, as well as mortgages over motor vehicles, ships and aircrafts.

Unless otherwise agreed between holders of pledges over movable property, a creditor with an earlier perfected pledge (ie, possession of the property) has priority over any subsequent pledge. Certain limitations can be agreed in connection with a pledge and it is possible to agree to change the priority so that an earlier security interest ranks after a later established security.

Contractual Subordination

Contractual subordination is possible and commonly used ‒ for example, in acquisition and real estate finance transactions and project financing. Typically, the subordination applies only between the parties to the agreement. There are no specific provisions under Finnish law generally for subordination arrangements in non-insolvency scenarios, apart from those relating to statutory subordination that are regulated by the Finnish Companies Act and concern a special kind of subordinated loan (ie, so-called capital loans) issued by a limited liability company.

Bankruptcy and Execution Proceedings

In bankruptcy and execution proceedings, a debtor's debts are paid in accordance with the Finnish Act on Ranking of Claims. In insolvency, as a main rule and subject to any intercreditor or other agreements, creditors with similar priority principally have equal rights to disbursement from the bankruptcy estate in proportion to the amount of their claims.

In insolvency proceedings, 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;
• certain debts incurred by the business during debt restructuring under legislation, 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 (up to 50%);
• unsecured debt, in proportion to the debt owed to each creditor; and
• certain subordinated creditors, such as loans and mass debt instruments issued by the debtor that are subordinated to the other creditors.

As a main rule, the enforcement triggers may be freely determined by the parties (the most typical triggers would be non-payment, commencement of insolvency proceedings and material breach of contract).

The enforcement procedures vary depending on the type of security. Furthermore, the enforcement procedure may be different if the security provider is simultaneously undergoing insolvency proceedings. The most common method for enforcement is the liquidation of the collateral by auction or other sale.

Movable Property

The Finnish Commercial Code (“the Code‟) stipulates a default method for the enforcement of a pledge of movable property (outside bankruptcy). However, the Code is not mandatory and it is common practice to deviate from or exclude entirely the Code’s applicability in a Finnish law pledge agreement (provided the security provider is not a consumer). It should be noted that the pledgee is entitled to enforce the security without obtaining any judgement or court decision.

Thus, as regards shares in Finnish limited liability companies, bank accounts, IP rights and receivables, the method is typically agreed in the security agreement and can be done at the pledgee’s discretion immediately upon a default by the debtor. Finnish law pledge agreements commonly provide that the pledgee is authorised to enforce the pledge in any manner it deems appropriate, including by selling, transferring or otherwise disposing of the pledged property ‒ be it through public auction or privately.

In the case of cash receivables, the notice of transfer to the debtor of the pledged receivable usually already states that the debtor is required to make payment to the pledgee/secured party into a designated account and that the pledgee exercises all rights relating to the receivables.

However, the Code requires that the pledgee must act diligently and also give due consideration to the debtor’s justified interests when liquidating the asset. Regardless of the method of liquidation, any proceeds in excess of the creditor’s receivable must be returned to the pledgor.

Real Estate

A pledge of real property does not provide the pledgee with the immediate right to sell the secured assets if non-payment or insolvency occurs. The creditor must either obtain a valid title (that is, a court judgment) for execution from a court or arbitral tribunal or submit a claim when the debtor's assets are realised by the bankruptcy administration. Although typically the property is declared foreclosed by the execution authority, a court judgment may declare immediate foreclosure on a mortgaged property. Nonetheless, in this event, the pledgee must apply to the bailiff for the sale of the real estate.

It should also be noted that enforcement action by third-party creditors may affect the pledged property. The execution authority may foreclose on property that is pledged as security, but the secured claim retains its priority in any resulting realisation proceedings.

After receiving a judgment ordering the debtor’s payment obligation to be fulfilled, the creditor may apply for the enforcement of the judgment. Pursuant to the provision of the Finnish Enforcement Code, the real estate can be sold by public auction or free sale as decided by the execution authority (district bailiff).

Business Mortgage

A business mortgage may be enforced only through the public enforcement procedure set forth in the Finnish Enforcement Code or in connection with bankruptcy proceedings. In practice, the latter is more common. If the debtor is bankrupt, creditors whose claims are secured by a floating charge must allow the bankruptcy administration to carry out all measures related to the liquidation of the assets and then distribute the net proceeds.

The benefit of a floating charge is realised through the application towards payment of claims secured by registered floating charges of 50% of the net proceeds received in the liquidation of the relevant assets. Any part of the secured claims not so paid is treated as unsecured debt and in such capacity competes on equal terms with other unsecured claims.

Lastly, it is noted that the Act on Financial Collateral Arrangements includes some specific provisions regarding enforcement of security.

The choice of foreign law as the governing law of a contract will generally be upheld by the courts of Finland, subject to the limitations and exceptions set forth in:

• Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I); and
• Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II). 

It is, however, noted that the choice of law clauses are only binding and enforceable between the parties and will not affect the standing of a third party. So, the relationship between the secured party and a third party (eg, competing creditor) is governed by the laws of the location of the collateral (ie, the question when the security interest is valid against other creditors).

Under Finnish law, the submission to foreign jurisdiction is recognised, subject to the application and applicability of the Council Regulation (EC) No 1215/2012 of 12 December 2012 on jurisdiction (recast) and the recognition and enforcement of judgments in civil and commercial matters and the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (the Lugano Convention), as applicable.

Finnish courts will recognise a waiver of immunity to the extent it is permitted by international law.

A final judgment for a definite sum given by a foreign courts against the company will be enforceable in Finland without review of merits, subject to the application and applicability of:

• the Council Regulation (EC) No 1215/2012 of 12 December 2012 on jurisdiction (recast) and the recognition and enforcement of judgments in civil and commercial matters;
• the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention); and
• the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (the Lugano Convention).

As of 1 January 2021, the Council Regulation (EC) No 1215/2012 (recast) is no longer applicable in terms of the UK. Currently, recognition and enforcement of judgments issued by English courts in Finland is subject to the applicability of the Hague Convention on the Choice of Court Agreements (2005).

It is noted that, pursuant to the Finnish Contracts Act, the terms and conditions of the foreign law documents may be set aside or modified if adjudged to be unreasonable and may also be subject to limitation of action by passage of time.

Further, if an application of the foreign law may result in an outcome contrary to Finnish mandatory law or Finnish public policy, it can be set aside irrespective of the agreed choice of law.

A Finnish company can be wound up by means of liquidation proceedings under the Companies Act. A company can only be liquidated via this out-of-court procedure if the company is not insolvent (that is, the value of its assets is greater than its liabilities). Liquidation proceedings do not include the involvement of a court, and are initiated by the passing of a shareholders' resolution.

There are also statutory proceedings in Finland aimed at restructuring the debtor's operations and debts – namely, a restructuring ‒ governed by the Restructuring of Enterprises Act.

The purpose of a restructuring is for the company to adopt a restructuring plan that is acceptable to the creditors. In practice, the most common element in restructuring plans is a haircut on the principal amounts owed by the company to those creditors.

Bankruptcy or other insolvency of the security provider does not generally affect the validity of security interests. As a main rule, under the Finnish Bankruptcy Act, a secured creditor can continue enforcement proceedings that have been initiated prior to bankruptcy. Once bankruptcy has begun, the secured creditor can enforce its security interest after giving notice of its 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 in order to assess the validity of the creditor's claims or preserve its own interests. In certain cases, the bankruptcy estate can sell the security assets itself (subject to court order or permission of the secured creditor). However, the secured creditor would still be entitled to the relevant proceeds of sale. With regard to enforcement of publicly listed shares, the limitation to the secured creditor’s right to enforce the security do not apply.

The aforementioned right to enforce does not apply to a creditor that has floating charge over the assets of the bankruptcy estate.

In bankruptcy proceedings, a debtor's debts are paid in accordance with the Finnish Act on Ranking of Claims 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 and 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 legislation, 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 is treated as unsecured debt);
• unsecured debt, in proportion to the debt owed to each creditor; and
• certain subordinated creditors, such as loans and mass debt instruments issued by the debtor that are subordinated to the other creditors.

Finland does not have a concept of equitable subordination. However, a transaction can become voidable and be subject to recovery in bankruptcy and corporate restructuring in accordance with the Finnish Act on the Recovery of Assets to Bankruptcy Estate.

Transactions can become voidable and be subject to recovery in bankruptcy and corporate restructuring in accordance with the Finnish Act on the Recovery of Assets to Bankruptcy Estate. A transaction may also become void under the Finnish Contracts Act, if the creditor has taken advantage of the debtor’s situation and there is a clear imbalance between the rights and obligations of the two contract parties. 

All transactions between an insolvent debtor and counterparty may fall under general grounds for recovery. Recovery on general grounds is possible if the act in question, alone or in connection with other acts:

• unjustly favours a creditor at the expense of other creditors;
• causes assets to become unavailable to creditors; or
• harms the creditors by increasing debt.

Furthermore, it is required that the debtor was insolvent at the time of the act – or that the act contributed to the debtor becoming insolvent at a later date – and that the other party to the transaction was aware (or should have been aware) of these circumstances.

Hardening Period and Recovery

The hardening period for a non-related party transaction is five years. Accordingly, a transaction concluded within five years prior to the date on which the bankruptcy or restructuring petition was filed may be subject to recovery if the above grounds are met. With related parties, there is no set hardening period defined in the Recovery Act. 

There are several situations where recovery on specific grounds is possible. Security granted in favour of a creditor may be subject to recovery, for example, if:

• such security was not agreed upon when the underlying loan was granted;
• the possession of the security was not transferred; or
• other actions required to perfect the security were not made without unjustified delay after the granting of the loan, including payment transactions that involve an extraordinary means of payment or payments made prior to their maturity date.

In the case of a non-related party, the hardening period is three months.

Project finance does not have a long history in Finland, but it has become more relevant in recent years. Project finance has been used for infrastructure projects in the PPP model, including four infrastructure projects in Finland. These projects are Highway 4 Järvenpää-Lahti (contract expired), E18 Muurla-Lohja (operational phase), E18 Koskenkylä-Kotka (operational phase) and Kokkola-Ylivieska rail project (procurement aborted). In addition, municipalities have used PPP as a way to finance new schools and hospitals. Project financing is also used in wind farm projects.

There is no project finance specific legal framework in place in Finland, but the parties must take into consideration the legislation relevant to the underlying asset and business. In addition, contract and insolvency law matters have significant relevance, such as rights under various project agreements and lender’s right to enforce their rights in an insolvency situation or use step-in clauses.

Typically, project finance structure requires large amounts of funds to be committed before the project generates any revenue or profit. As is typical for almost all project finance structures, the security for the financiers lays in the long-term projected cash flow rather than the company's assets or balance sheet. This is particularly the case in wind farm projects, where long-term certainty of revenue is vital in order to construct, develop and finance a renewable project. Such certainty is typically obtained via corporate power purchase agreements and, consequently, increasing number of corporate power purchase agreements (PPAs) are being concluded in Finland.

Although project revenues (such as corporate PPAs) are an important factor in the bankability of the projects, traditional security packages still play a key role for project finance loan decisions. In addition to sufficient equity financing, the banks will typically require pledges on all relevant project assets and cash flows, the SPV’s bank accounts, and also the shares in the SPV itself.

The PPP model has been used somewhat in Finland, but the market share has remained small, partly owing to the ability of the state and municipalities to fund infrastructure projects at a lower cost themselves.

In addition to the infrastructure projects mentioned in 8.1 Introduction to Project Finance, municipalities have used PPP as a way to finance new schools and hospitals, and improvements to the railway network are planned.

There is no specific PPP legislation but laws governing public procurement apply to the procurement phase, either the general Act on Public Procurement and Concession Contracts or sector specific procurement regulations.

Usually, no governmental approvals are required for the financing of a project. Other than in respect of security documents, no registration or filing of the transaction documents in connection with the financing is required with any governmental body.

There are no notarisation requirements in Finland. However, to be able to use certain property as security for a loan, the pledge must be registered with the relevant register in order for it to be duly perfected and binding on third parties. Registration fees must be paid to the relevant registry for real estate mortgages, floating charges, mortgages in respect of motor vehicles, ships and aircraft and pledges of IP. However, all the fees are flat (not percentage-based) and relatively small.

No stamp duties are payable when establishing or enforcing a guarantee or security, except that an asset transfer tax must be paid by the seller at the rate of 1.6% of the purchase price when pledged shares or other securities are sold outside a stock exchange. In addition, when real property is sold and the ownership is transferred from a party to another party, asset transfer tax must be paid at the rate of 4% of the purchase price by the buyer.

Governing law varies depending on the parties; however, as a rule, general securities agreements related to the projects are made under Finnish law.

Finland's electricity market was gradually opened to competition in 1995. From the beginning of 2020, the wholesale and retail natural gas markets was opened for competition. The principal legal framework regarding energy markets consists of the Act on Electricity Markets and the Act on Natural Gas Markets. The Energy Authority is a licensing and regulatory authority that regulates and promotes operation of the electricity and gas markets, emission reductions, energy efficiency and the use of renewable energy.

The primary law as regards the mining sector is the Mining Act. The relevant governmental bodies are Ministry of Environment and Ministry of Economic Affairs and Employment.

There is no specific regime governing or restricting investment in energy or infrastructure projects in Finland over and above existing regulation for investors and funders more generally, but a particular proposed investment may be subject to legislative or regulatory control (eg, merger control rules). As regards the planning and implementation of the underlying energy or infrastructure project, the legal/regulatory position relevant to that project must be considered.

Deals are typically structured in the same manner as in other jurisdictions in Europe, as many of the sponsors and lenders are international. The project company is typically a private limited company, governed by the Finnish Companies Act, and is owned directly or indirectly by one or more sponsors.

In Finland, there are few absolute restrictions on foreign investment, and such restrictions are rarely relevant for project finance deals. However, foreign investments may be restricted or controlled if key national interests so require, in accordance with the Finnish Act on the Screening of Foreign Corporate Acquisitions, which was updated in October 2020.

Typically, project financings are financed as bilateral or club deals by international lenders and sponsors, such as commercial banks and infrastructure funds. Lenders are typically based in the European countries.

Project bonds can be used but are less typical in the Finnish project finance market.

There are no relevant export controls, other than for resources that may be restricted for safety or national security reasons or restricted under international conventions or regulations.

The acquisition of natural resources is generally not restricted. Any potential issues or considerations would need to be assessed on the basis of which natural resource is being extracted and comply with the primary legislation outlined in 8.4 The Responsible Government Body.

The Environmental Protection Act is a general act on the prevention of pollution that is applied to all activities that may cause environmental damage. The Regional State Administrative Agencies (AVIs) are charged with issuing environmental permits under the Water Act and Environmental Protection Act.

The Occupational Safety and Health (OSH) Act applies to all paid employment and other comparable functions and the Occupational Health Care Act applies to all employment for which the employer is bound by the OSH Act. The Employment Contracts Act contains provisions applicable in an employment relationship. Employment relationships are also governed by the Act on the Protection of Privacy in Working Life and the Non-Discrimination Act. The Ministry of Social Affairs and Health is the main responsible governmental body.