Debt-to-Equity in Formal Restructuring — Long-Awaited Amendments to Finnish Legislation

Authors: Heikki Majamaa and Jan Lilius Read time: 3 min

Background

Recent amendments to the Finnish Restructuring of Enterprises Act introduce debt-to-equity conversion as part of formal corporate restructuring proceedings. Effective from 1 January 2026, this reform aligns Finnish insolvency law with the EU Preventive Restructuring Directive. This is an important milestone under Finnish insolvency regime, as Finnish law has not previously allowed debt conversion in formal restructuring without shareholder consent.

The aim of the reform is to promote opportunities to restructure a debtor company’s capital structure during corporate restructuring. The purpose is to strengthen the position of debt financiers and thereby improve access to international debt financing for Finnish companies. Finnish restructuring has generally been regarded as particularly debtor-friendly among international investors such as bond holders.

Key Features of the Amendments

Pursuant to the new legislation, creditors of companies can convert restructuring claims into shares or equity-like instruments (e.g. options) during restructuring. Such conversion results into ownership dilution for the existing shareholders, as creditors become part-owners. Decisions on share issuance and related corporate actions are included in the restructuring programme and can under certain prerequisites be enforced even without shareholder consent.

Voting & Approval

Shareholders constitute one separate voting group whose approval by a simple majority is required for debt-to-equity contrary to a qualified majority required under the Companies Act.

Under certain conditions, a cross-class cram-down can also be used to implement a debt-to-equity conversion in a restructuring programme. In other words, even if shareholders voted against debt-to-equity conversion, the court could still affirm the programme if sufficient support is received among other voting groups and there are no obstacles for affirmation.

After voting, the entire restructuring programme, including the debt-to-equity swap, is submitted by the restructuring administrator to a district court for affirmation. Once affirmed, the restructuring programme overrides the normal rules under the Companies Act.

Practical Considerations

Historically, debt-to-equity conversions have been rare in Finland due to shareholder opposition and reluctance from financial institutions to hold equity. The new legislation provides restructuring administrators with a valuable tool to reduce debt and strengthen equity without relying on shareholder approval.

Finnish restructuring professionals have warmly welcomed this long-awaited amendment. For mid-sized and larger formal restructurings, it offers a valuable new tool that administrators can use alongside debt reductions and other business rearrangements.

Overall, the amendment brings Finland closer to Nordic and EU best practices, enhancing the country’s competitiveness in corporate restructuring.