2. 31/01/2012Mika Salonen2 Insolvency Laws in Russia and Finland Topical Legal Questions Concerning Economic Cooperation Between Russia and Finland Mika Salonen

3. 31/01/2012Mika Salonen3 LEGISLATION RUSSIA: Federal Law No. 127-FZ on Insolvency (Bankruptcy) of October 2002 –Former Law No. 6-FZ of Insolvency of 8 January 1998 FINLAND: Law on Corporate Restructuring of 25 January 1993/47 Bankruptcy Law of 20 February 2004/120 Former law from Tsar era (9th November 1868/31)

4. 31/01/2012Mika Salonen4 COMMENCEMENT OF INSOLVENCY PROCEEDINGS RUSSIA: Threshold for commencement of insolvency proceedings under Russian Law is: –at the amount of at least RUB100,000 (~€2500) outstanding unpaid for 90 days after it becomes due Creditor may only initiate insolvency proceedings against a debtor on the basis of a court approved claim Either debtor itself, creditor or a federal executive body may file an application to the court to declare a debtor insolvent

5. 31/01/2012Mika Salonen5 COMMENCEMENT OF INSOLVENCY PROCEEDINGS FINLAND: Creditor or debtor itself may file for bankruptcy General requirement for a declaration of bankruptcy is the insolvency of debtor Insolvency means that a debtor is unable to pay his debts when they fall due Unless it is otherwise proven, the debtor shall be deemed insolvent especially if: 1.the debtor has discontinued payments; 2.determined in enforcement proceedings during the six months preceding the filing of the petition for bankruptcy that the debtor cannot repay the claim in full; 3.a debtor has not repaid the clear and due claim of the creditor within a week of the receipt of a reminder

6. 31/01/2012Mika Salonen6 RUSSIA – DIFFERENT INSOLVENCY PROCEDURES Supervision –aims to analyse current financial state of debtor and provide an overview of all existing claims against it –also aims to preserve the debtor’s property by restricting the actions of the debtor –management still has powers even if bankruptcy manager is nominated –lasts maximum of seven months Financial rehabilitation –during supervision debtor or a third party may propose financial rehabilitation to the first creditors meeting –in that case, financial rehabilitation commences with a court ruling specifying the terms of financial rehabilitation –may last up to two years, with the aim being to restore the debtor to solvency and the discharge of debts according to a debt repayment schedule

7. 31/01/2012Mika Salonen7 RUSSIA – DIFFERENT INSOLVENCY PROCEDURES External administration –aims to restore debtor to solvency –may last up to 18 months (subject to a further six months extension) –commences upon a court ruling based on a decision of creditors meeting and appointment of an external administrator Insolvent liquidation –most common in smaller cases –focuses on the realisation and distribution of the debtor’s assets –lasts for 6 months (with further six-month-extension) –winding-up of the debtor is carried out –management’s powers are immediately terminated and vest in the liquidator Composition –During the procedures always possible to make voluntary arrangement – in creditors’ meeting and confirmation by court

8. 31/01/2012Mika Salonen8 RUSSIA – PRIORITY OF CLAIMS - OUTLINE 1.Personal injury and some related claims 2.Employees and copyright fees claims 3.Others From secured claims (depending on whether security under a facility agreement): –70-80% to the secured creditor: This cannot amount to a value greater than the sum of the original principal amount secured and interest accrued thereon; –15-20% to creditors of first and second priority: This distribution only applies where there are insufficient funds to otherwise discharge these claims; and –5-10% for expenses incurred due to insolvency proceedings (judicial fees and the like) Not fully free right to realize security

9. 31/01/2012Mika Salonen9 FINLAND - PRIORITY OF CREDITORS - OUTLINE 1.Secured creditors –Pledge to real (immovable) or movable property 2.Costs of bankruptcy estate or administration in previous corporate restructuring (legal fees etc.) 3.Security based on floating charge –50% from value of property under floating charge 4.Other creditors

10. 31/01/2012Mika Salonen10 LIABILITY RUSSIA: Management could become personally liable if insolvent company continues business FINLAND: No general obligation of debtor to file for insolvency procedures

11. 31/01/2012Mika Salonen11 FINLAND – DIFFERENT INSOLVENCY PROCEDURES Bankruptcy –powers of the management have fully been transferred to the administrator (trustee) of the bankruptcy estate –trustee represent the estate estate possesses all assets of the debtor debtor ceases to exist as operational entity –clarification of liabilities, sale of assets, distribution of monies to creditors Corporate restructuring –moratorium –administrator should draft a restructuring program – creditors vote –management of debtor continues with limited powers –no change of ownership, only restructuring of liabilities and business – equity conserves value unlike in bankruptcy

12. 31/01/2012Mika Salonen12 OUTLINE OF BANKRUPTCY - FINLAND Petition for bankruptcy Hearing of debtor "Questioning of debtor" Court decision of adjudication in bankruptcy Lodgement of claim (Estate administrator sets the date) Report on assets --------------------- Report on debts (Draft) disbursement list, to be certified by the Court Legal Proceedings Estate inventory Closing down, final settlement of accounts Disbursements to creditors 2 months from the lodgement date + 3 months from the due date of the draft disbursement list 2 months of the beginning of the bankruptcy Approximately one week time limit for presenting a statement

13. 31/01/2012Mika Salonen13 OUTLINE OF RESTRUCTURING PROCEEDINGS - FINLAND Time when the petition became pending Hearing Report on assets and liabilities Draft restructuring programme Time limit max. 4 months ------------------------------ Preliminary proceedings Statements Disputes Division of creditors into groups Approval of the programme Subsequent hearing, approval consideration Voting on the draft restructuring programme Rectification opportunity, voting reports Interim orders Quick approval Appeal about the approval decision

14. 31/01/2012Mika Salonen14 OUTLINE OF BANKRUPTCY - RUSSIA Supervision -> Must be completed within 7 months from the date when a bankruptcy petition was filed Bankruptcy proceedings (liquidation) -> Must be completed within 12 months External administration -> May last for up to 18 months Financial restoration -> May last for up to a maximum two years Composition (settlement) -> Allowed at any time

15. 31/01/2012Mika Salonen15 CONCLUSIONS Undisputed and due claim of creditor -> bankrupcy In Russia insolvency issues is primarily regulated by one law –this contains both restructuring and liquidation Russian system – central role for courts and their competence to rule Finland – bankruptcy means – creditors take over - principle of autonomy of creditors Russia – principal purpose is to restore solvency Finland purpose to sell business or assets or under restructuring to restructure debts and business

16. 31/01/2012Mika Salonen16 CONCLUSIONS In Russia ”difficult” to reach full take over by creditors In practise in Finland also court will first decide whether restructuring rules could be applied Attorneys act as trustees or administrators in Finland, in Russia special professionals to act bankruptcy managers Russian system seems to be rather complicated as there are 4-5 different procedures Russia: debtor friendly, but personal liability may arise more easily if debtor company continues business insolvent In both countries creditors wish to avoid procedures regulated by courts and look for voluntary work-out schemes

17. 31/01/2012Mika Salonen17 CONTACT INFORMATION Attorneys at law Borenius Ltd Yrjönkatu 13 A, FI-00120 Helsinki, Finland Office +358 9 615 333 Fax +358 9 6153 3499 info@borenius.com - www.borenius.com MIKA SALONEN Attorney at law, Partner Direct+358 9 6153 3508 Mobile+358 400 812 648 Email mika.salonen@borenius.com

18. 31/01/2012Mika Salonen18