One Year of COVID-19 and Related Governmental Measures in the Nordic Countries

Authors: Jan Lilius, Carolina Wahlby, Maria Orrgard, and Mikko Tavast

The COVID-19 pandemic and the resulting governmental measures recently marked their one-year anniversary. The common global expectation was originally that restructuring & insolvency cases would soar in just a few months’ time and eventually lead to multiple bankruptcies and formal restructuring proceedings.

Although there was an increased number of restructuring cases right at the beginning of the pandemic, the worst fears have not been realised. The main reasons for this include substantial state support available to businesses globally, temporary restrictions to insolvency laws, for example with regard to filing for bankruptcy, and the exceptionally low interest rates which remain prevalent today. Many creditors have also understood that the economic challenges related to the COVID-19 pandemic are not a permanent state of affairs and have fortunately refrained from overly aggressive actions. However, the pandemic is not yet over, and the situation may change at any time as the national governmental measures and lockdowns are gradually set aside. Moreover, there are businesses that are simply not viable even under normal circumstances, but during this pandemic, even companies with a viable business may find themselves subject to insolvency proceedings.

We have already seen a considerable increase in small-scale bankruptcies in Finland over the course of February and March this year. In Sweden, bankruptcies somewhat surprisingly decreased during 2020, and this trend has continued at the beginning of 2021, with the exception of bankruptcies related to restaurants, bars, and catering, which have been subject to a considerable increase during January and February this year. Unfortunately, this development is something that middle-sized and even large companies may also have to face later this year. It is important that all stakeholders do their best to prevent companies with a viable business from ending up in unnecessary liquidations because of temporary liquidity concerns.

Corporate restructuring in Finland (in Finnish: yrityssaneeraus) and company reorganisation in Sweden (in Swedish: företagsrekonstruktion) are potential ways for distressed companies to avoid liquidation. It is also in the interest of creditors to carefully consider whether there is a fair chance that the debtor’s business will recover from the impacts of COVID-19 before they decide whether to oppose a restructuring application or take actions resulting in the bankruptcy of the debtor company.

On that note, it has been proposed that the Swedish Government adopt a new Business Reorganisation Act to replace the existing act and to implement the Directive on Preventive Restructuring Frameworks, Second Chance and Measures to Increase the Efficiency of Restructuring, Insolvency, and Discharge Procedures (2016/0359). The proposal suggests  substantial changes to the Swedish reorganisation regime, including, for example, an enhanced viability test, limited super-preferential rights, and a new expedited reorganisation process instituted for entities only seeking a mandatory write-down of debt (in Swedish: offentligt ackord). The Finnish Ministry of Justice is in the process of preparing a government proposal regarding changes to the Finnish Restructuring of Enterprises Act, the Act on the Adjustment of the Debts of a Private Individual, and other related laws. According to the Ministry of Defence’s estimate, the government proposal will be presented at the end of this year, and an extension of the due date of implementing the directive (17 July 2021) will be necessary. The Directive is to be implemented in Sweden and Finland no later than 1 July 2022. However, it is yet to be seen what the respective governments will ultimately decide.