FINLAND Law and Practice Contributed by: Timo Lehtimäki, Niklas Thibblin, Essi Hietaoja and Oona Honkamaa, Waselius
account/trade receivables or intra-group receivables) is created by entering into a security agreement and is perfected with a notice to the underlying debtor. In order to duly perfect the pledge, the underlying debtor needs to be notified of the pledge and instructed to make payments directly to the pledgee from day one (and not, for example, only upon a later trigger event). A contrary interpretation can also be argued, though the traditional view taken in Finnish legal doctrine is strict on this. Accordingly, owing to commercial reasons, it is rare that pledges over bank accounts or receivables would be fully perfected under Finnish law outside receivables-based financing structures. Instead, final perfection measures are typically taken only upon the occurrence of an event of default or similar trigger event. Such delayed perfection may, however, entail that the pledge will be subject to a hardening period and claw-back. Partially for this reason, it is common for floating charges to be provided to give additional comfort and protection for the lenders. No registration fees, stamp duties or other costs are involved in a pledge of bank accounts or receivables. Floating Charge A floating charge (also known as a business or enter - prise mortgage) will, by operation of law, cover all the chargor company’s movable assets in so far as any specific assets have not been separately pledged. Assets capable of being subject to a mortgage (gen - erally land and buildings thereon, certain vehicles, air - craft and vessels) are always outside the scope of the floating charge. Consequently, a floating charge will typically cover inventories (finished and semi-finished goods), raw materials, tools and equipment, as well as receivables and bank accounts, to the extent that they are not specifically pledged. A floating charge is created by the chargor company issuing one or more so-called floating charge promis - sory notes of a notional principal amount agreed with the secured lender. This establishes the maximum amount that can effectively be secured by the floating charge, but does not need to reflect the actual value of the assets or even the amount of debt secured by the floating charge. Consequently, it is common for the
principal amount to considerably exceed the actual asset value of the relevant chargor company; the prin - cipal amount is therefore no indication – in insolven - cy proceedings or otherwise – of the actual recovery available for claims secured by the relevant floating charge. By market practice, the principal amount of the promissory note is the total commitments under the secured facilities plus a reasonable buffer, most often 30%. The promissory notes are registered against the chargor company in the register of floating charges maintained by the Finnish Patent and Registration Office. After registration, the promissory notes are, legally speaking, pledged under a security agreement for the benefit of the pledgee and are delivered to the pledgee in original. There are only minor registration fees, and no stamp duties or similar are levied. Furthermore, a floating charge has certain drawbacks under Finnish law – namely as follows. • The chargor company retains the right to dispose of the assets covered by the floating charge in the ordinary course of business. • The floating charge will not crystallise until enforce - ment, where, in practice, only 50% of the net proceeds of the assets covered by the floating charge are used to satisfy the secured claims of the beneficiary of the floating charge with priority. The remaining 50% will be distributed to unse - cured creditors (where the floating charge holder will stand pari passu and pro rata for the amount of its unsatisfied claim). • The floating charge may not cover all assets of the company, as the chargor company may have pledged some assets separately. 5.2 Floating Charges and/or Similar Security Interests Finnish law recognises and permits a floating charge over all present and future qualifying movable assets of a chargor company, as outlined in 5.1 Assets and Forms of Security . Finnish law does not recognise the concept of a fixed charge similar to English law (for example), nor are the US-style UCC filings available.
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