Legal Alerts/26 Mar 2025
The Draft Government Bill on the Implementation of Debt-to-Equity Conversion Published
Implementing debt conversion into Finnish insolvency regulation was one of the action points stated in Finnish Prime Minister Orpo’s Government programme. The Finnish Ministry of Justice has now published its draft proposal for the bill on the implementation of debt conversion in Finnish in-court restructuring proceedings (Fin: laki yrityksen saneerauksesta). Currently, the absence 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. Borenius’ Attorney Robert Peldán represented the Finnish Bar Association in the working group.
Background and objectives
The working group was tasked with developing a legislative proposal to facilitate debt conversion in corporate restructuring. The primary objective is to expand the scope and conditions for debt conversion, considering the interests of companies of varying sizes, their owners, and creditors. The proposed changes aim to improve the capital structure of financially distressed companies, enhance their competitiveness, and ensure the availability of international debt financing. Debt conversion will also correct the risk distribution between shareholders and creditors in the event of restructuring. Until now, creditors – especially subordinated ones – have suffered losses while shareholders have benefited from debt reductions. Debt conversion will have many positive impacts on businesses, but we envisage that it will be mostly reserved for large-scale restructurings. However, it will be a powerful addition to the toolbox of restructuring and thus contribute to more successful restructuring proceedings.
Current legal framework and need for change
Under the current Finnish legislation, debt conversions require the cooperation of the company's owners, as decisions on share issuance and other necessary corporate actions fall under the shareholders' authority. The proposed legislation seeks to address this by allowing such decisions to be made within the restructuring process – as part of the restructuring programme – potentially against the consent of the shareholders if certain conditions are met. This change is intended to align with international standards and improve the competitiveness of Finnish companies in international markets. Furthermore, this will improve creditors’ standing against shareholders in case of restructuring. This will help companies acquire funding from, for example, bond markets, as financiers will have better standing in case of restructuring.

Main proposals
The proposed legislation introduces the concept of "conversion restructuring" (Fin: konversiosaneeraus), which allows creditors to convert their claims into shares of the debtor company as part of the restructuring programme. This would eliminate the need for separate corporate decisions on share issuance directed at creditors after or before the restructuring programme is approved by the court. The legislation also includes provisions for other corporate actions necessary for debt conversion, such as issuing options or other special rights, amending the company's articles of association, or nullifying existing ownership. Currently, it is proposed that debt-to-equity conversion will apply to limited liability companies.
The restructuring programme in relation to debt conversion can be approved either by unanimity, by a majority of all groups (including the shareholders), or by the majority of one creditor group if the creditors approving the restructuring programme hold more than 20 percent of the debt. The last option for approving the restructuring programme will also make it possible without the consent of the debtor company’s shareholders, if the company is large enough and certain other prerequisites are met.
The draft proposal outlines the procedural requirements for implementing conversion restructuring, including the involvement of shareholders in the decision-making process and the conditions under which their rights can be altered. It emphasizes the importance of maintaining the principle of equality among shareholders, which grants them a certain level of protection while ensuring that no shareholder gains an unfair advantage. In addition, the position of shareholders cannot be worse than in the case of bankruptcy. The proposed changes also include simplified provisions for the registration and implementation of restructuring-related changes, such as share cancellations and amendments to the company's articles of association.
Conclusion
The proposed legislation represents a significant shift in the approach to corporate restructuring in Finland, aiming to streamline the debt conversion process and provide more flexibility for the restructuring administrator. By enabling creditors to convert debt into equity, the legislation seeks to ensure the continuation of businesses, reduce unnecessary bankruptcies, and support the long-term interests of the domestic business sector. The enactment of debt conversion legislation may also incentivise debtors to file for restructuring earlier, thereby increasing the likelihood of successful restructuring and minimising the impact on both creditors and the debtor.

What happens next?
In March, the draft proposal is going to be circulated by the Finnish Ministry of Justice for comments to more than 50 interested parties. Following the receipt of feedback, the Ministry of Justice will compile a summary of the comments, make necessary amendments, and submit the proposal for parliamentary proceedings during the Parliament’s Spring term in 2025. If the process proceeds as planned, the new debt conversion legislation is expected to come into force in Spring 2026. The request for comments is published here.
Borenius is pleased to host a seminar on debt conversion, scheduled for 9 April 2025. During this seminar, we will provide a comprehensive overview and share our insights of the relevant legislative changes, as well as hear Professor Hupli’s thoughts on the proposed amendments. From our guest speaker, we will also hear, among other things, about how debt conversion is used in Chapter 11 proceedings of the US Bankruptcy Code. If you wish to register for the seminar, please send an email to CR@borenius.com.
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.