FINLAND Law and Practice Contributed by: Tarja Wist, Wist Attorneys
is due to the statutory merger process providing for a distinct legal framework for creditor protec- tion. 5.6 Other Restrictions Under Finnish companies law generally, a corpo- rate benefit requirement is applied to each group company individually, and a benefit only to the parent company would not justify transactions by its subsidiaries. The target company would have obvious ben- efits in granting security for a working capital facility which is made available to it in connec- tion with the finance transaction. The question remains, however, whether and to what extent the subsidiaries of the target also have access to the working capital facility and have corporate benefit in guaranteeing and granting security for the whole facility, as is usually required by the lenders. 5.7 General Principles of Enforcement Enforcement of a pledge of shares, bank accounts or loans and other receivables is quite straightforward under Finnish law. Typically, the pledge agreement would grant the security agent wide discretion to choose the most ade- quate means of enforcement and allow the secu- rity agent to independently enforce the security interest by means of private or public sale of the shares, withdrawal of the funds deposited on the bank accounts and collection or sale of the loans and receivables, as appropriate. To balance this right, the security agent would have an obliga- tion also to observe the reasonable interests of the pledgor. This obligation entails that the security agent would have to act fairly and make reasonable efforts to obtain a fair market price for any items sold. Any excess realisations pro- ceeds would have to be returned to the pledgor.
The security agent’s right to independently enforce a pledge would also be upheld in bank- ruptcy proceedings against the pledgor, subject to the bankruptcy administrator’s right to step in in some cases. However, in corporate reorgani- sation proceedings, which aim at rehabilitating the company, enforcement is generally prohib- ited. Enforcement of a real estate mortgage, on the other hand, is more complicated and much more time-consuming, as it presupposes an enforce- able judgment against the borrower and an enforcement process before the enforcement authorities. A business mortgage is enforced only in the event of the liquidation of the encumbered company by means of a voluntary winding-up process or bankruptcy proceedings. When dis- tributing the assets, a business mortgage ranks behind any rights of pledge or mortgages and entitles the mortgagee only to 50% of the avail- able proceeds, while the remaining 50% is dis- tributed to the unsecured creditors. Two types of guarantees are most commonly used in acquisition finance transactions. In the private equity market, all companies of the tar- get group would typically be required to (cross) guarantee each other’s obligations under the working capital facility provided. Secondly, in the event of the structuring of the acquisition through a special purpose holding company (bidco), a parental guarantee is often required to secure a bidco’s obligations under the acquisition facility. Such parental guarantee 6. Guarantees 6.1 Types of Guarantees
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