The Implementation of Debt-to-Equity Conversion Is Progressing

Debt-to-equity conversion is closer than ever to being added into the restructuring administrator’s toolbox. The newly formed Government has included the implementation of debt conversion in Finnish in-court restructuring proceedings in the Government Programme for the upcoming parliamentary term.

This reform is necessary and long-awaited. Currently, the lack of debt conversion makes our restructuring proceedings uncompetitive and hinders the availability of financing compared to our main competitor countries, such as Sweden, where debt conversion has already been implemented.

The introduction of debt conversion as a tool that can be used during restructuring proceedings will enable the preparation of restructuring programmes that will no longer be contrary to the ranking of claims. This problematic feature has long existed in Finland but not in many other jurisdictions, and it is contrary to financial theory.

Under the existing system, shareholders have benefited from debt cuts while creditors have suffered damage as the amount to be repaid has been reduced. The implementation of debt conversion will strengthen creditors’ standing in relation to the company's shareholders.

Debt conversion will also introduce improved opportunities for Finnish companies to acquire funding from e.g. the constantly developing bond markets. The availability of a larger spectrum of financing sources will better secure the continuation of a distressed company’s business.

Debt conversion will most likely be only available to listed and large companies. The availability of debt conversion as an option will probably improve the willingness of large companies to apply for restructuring proceedings in time. This, in turn, will ensure that the most important goal of restructuring, i.e. the continuation of profitable business, will be realised better.

Borenius has previously assessed the necessity of debt-to-equity conversion together with the Government. Our Restructuring & Insolvency practice has conducted an international comparative study on debt-to-equity conversions performed by companies with financial difficulties. Read more about the research we conducted for the Government here.

If you have any questions concerning debt-to-equity conversion and how it may impact your business, please do not hesitate to contact the Borenius lawyers listed below for more information.