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Overall Attitude Towards Security Rights

The attitude of Finnish law towards security rights is in accordance with the growing international consensus that “secured credit is a general social and economic good”.[1] Security rights are generally thought to increase the availability of credit and lower its cost, thus stimulating economic activity to the benefit of society at large. In travaux preparatories, one regularly finds passages that emphasise the importance of security rights for enabling enterprise financing, especially small and medium-sized businesses.[2] The same holds true for legal literature.[3]

Yet, Finnish law does not always strive to offer “security rights of maximal strength”, but rather to strike a balance between the interests of different types of creditor on insolvency.[4] Probably the best example here is the treatment of enterprise mortgages (“floating” security rights) in bankruptcy proceedings. According to Section 5 of the Act on the Ranking of Claims (1578/1992), claims secured by an enterprise mortgage are entitled to payment with priority over other claims, but in bankruptcy proceedings only with respect to 50 % of the value of the (enterprise) mortgaged property. Moreover, even then certain other claims rank higher, such as those secured by a charge, a right of pledge, or a right of retention. The 50 % rule was introduced in 1993, as part of a general reform of priority rules. The explicit aim of this rule was to promote equality between creditors, and to reserve assets to be distributed among unsecured creditors. In the same reform, certain statutory privileges, such as those for tax and wage claims, were abolished, and the role of the 50 % rule was to maintain the priority accorded to enterprise mortgages, the same as it was when statutory privileges existed.[5]

Another example concerns mortgages on land-based means of transport, and the fact that ordinary automobiles (cars) and vans are not mortgageable under the Vehicle Mortgage Act. Leaving these vehicles outside the scope of the act was mainly motivated by the desire to keep the workload of the register authority manageable,[6] at a time when information technology was not yet widely used. However, distributional concerns have also been raised in later legal literature. It has been suggested that to include automobiles in the scope of the act (or basically enabling any non-possessory security right over individual automobiles) could considerably weaken the position of unsecured creditors. At present, for example in enforcement (debt recovery proceedings), an automobile may form a significant part of the property that can be distrained against.[7]

  • [1] On various manifestations of this consensus, see McCormack 2004, 15-22.
  • [2] See Government Proposal 133/2003 (for the Act on Financial Collateral), 15; GovernmentProposal 190/1983 (for legislation on enterprise mortgages), 1-2; Committee Report 1992:44 (onreform of the mortgage system for means of transport), 6.
  • [3] See Tepora, Kaisto and Hakkola 2009, 19-24; Tepora 2008, 104-106; Havansi 1992, 1-5.
  • [4] The question of justification for priority of secured over unsecured claims on insolvency has notsparked heated debate in Finnish legal literature, although the issues involved have been recognised. See Eva Tammi-Salminen, 2001, Sopimus, kompetenssi ja kolmas (Helsinki: SuomalainenLakimiesyhdistys), 133-151; Teemu Juutilainen, 2007, Security rights and the lack of a prioritydebate: How to proceed with choice of law and harmonization?, in Private law and the many cultures of Europe, ed. Thomas Wilhelmsson, Elina Paunio, and Annika Pohjolainen (Alphen aan denRijn: Kluwer Law International), 343-363.
  • [5] Government Proposal 181/1992, 12-19. See Clas Bergstrom, Theodore Eisenberg, and StefanSundgren, 2004, On the Design of Efficient Priority Rules for Secured Creditors: EmpiricalEvidence from A Change of Law, European Journal of Law and Economics 18: 273-297.
  • [6] HE 165/1976, Hallituksen esitys Eduskunnalle laeiksi autokiinnityslain 1 ja 22 §:n seka irtaim-istokiinnityksesta annetun lain 3 §:n muuttamisesta [Government Proposal 165/1976], 1-2.
  • [7] Tepora, Kaisto and Hakkola 2009, 48, 415-416.
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