FINLAND Law and Practice Contributed by: Timo Lehtimäki, Niklas Thibblin, Essi Hietaoja and Oona Honkamaa, Waselius
Private credit providers lending into Finland have typically agreed to lighter security packages than tra - ditional Finnish banks, which commonly insist on a very heavy security package. The approach taken by international private credit providers with regard to the scope of a typical security package is in line with the approach used for decades by international banks lending into Finland. 5.3 Downstream, Upstream and Cross- The borrower, its parent companies, subsidiaries and group companies may provide collateral and guaran - tees for financing purposes (ie, the guarantees may be upstream, downstream and cross-stream). Finn - ish financial assistance rules, as well as the rules on the unlawful distribution of assets (both of which are related to the concept of corporate benefit), will, in practice, impose limits on which entities can effective - ly grant guarantees and security. Financial assistance rules are discussed in more detail in 5.4 Restrictions on the Target . Corporate Benefit All arrangements entered into by a Finnish limited liability company must provide “adequate” corporate benefit for the relevant Finnish company. This is some - thing that cannot be mathematically measured under Finnish law, and there is no universal definition for corporate benefit either. Therefore, the matter needs to be assessed on a case-by-case basis, taking into account the unique properties of each company, the then-current circumstances and the information avail - able to the company/board of directors. To address concerns regarding corporate benefit, it is beneficial to be able to structure the transaction so that at least the key guarantors and security grantors receive a direct benefit from the transaction – eg, via on-lending of loan proceeds. Stream Guarantees Guarantees in General The corporate benefit related to certain individual actions may be difficult to assess or prove. When assessing the existence of corporate benefit in ret - rospect, the analysis is to be made without hindsight and based on the circumstances current at the time when the relevant action was taken (and not, for exam - ple, on subsequent events that the board of directors
could not reasonably foresee, or which were statisti - cally remote, when making the decision). Unlawful Distribution of a Company’s Assets The concept of unlawful distribution of a compa - ny’s assets included in the Finnish Companies Act (624/2006, as amended) in essence entails any acts that diminish the company’s assets or increase its debts without a business rationale. Since the con - cept of unlawful distribution of a company’s assets is linked to the concept of business rationale, it is much entwined with the concept of corporate benefit, though they are two separate issues. Consequently, provided that a Finnish company receives adequate corporate benefit from entering into the relevant trans - actions, it is less likely that the rules on unlawful distri - bution of assets would be breached as well. 5.4 Restrictions on the Target Financial Assistance Under the mandatory provisions of the Finnish Com - panies Act, Finnish limited liability companies are prohibited from providing loans, funds or guarantees/ security for the purpose of the acquisition of shares of the company or of any of its direct or indirect parent companies. This prohibition extends to the acquisi - tion of existing shares, subscription of new shares as well as option or subscription rights (and similar), and applies before, during and after the time of the acqui - sition. Therefore, any refinancing of acquisition debt is also generally considered to fall within the scope of the financial assistance prohibition. To mitigate the risks where, for example, a facility has multiple purposes (such as acquisition financing, working capital and refinancing), from a Finnish per - spective it would be advisable to divide the facility into tranches, with the acquisition debt being its own tranche. The relevant loan and security documenta - tion also typically includes an appropriate Finnish law limitation clause. There are no set whitewash procedures available in Finland or specific time limits after which the limita - tion would cease to apply, though there is an under - standing in the market that the financial assistance cannot prevent refinancing forever. However, while no whitewash procedures are available, post-closing
45 CHAMBERS.COM
Powered by FlippingBook