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Home » Guide to working life » Employment relationships » Termination of employment » Bankruptcy and company reorganisation
Last updated: 22.06.2023

Bankruptcy ends a company’s operations

Bankruptcy means that a company discontinues its operations because of debt and insolvency. The company no longer has the capacity to operate or provide work for its employees.

Bankruptcy is implemented by the decision of a district court. The district court also assigns a receiver, who is usually a local lawyer. 

If a company goes bankrupt, both parties can terminate an employment relationship to end 14 days after the date of termination. The right to terminate applies to both permanent and fixed-term employment contracts. This 14-day notice period cannot be extended based on a collective agreement or an employment contract. The employment contract of a worker on family leave can also be terminated in the event of bankruptcy. 

The bankruptcy estate may enter into a new fixed-term contract with a redundant worker. This is quite common in situations in which workforce is still needed for a clearance sale, for example. 

Pay security ensures the payment of wages and other receivables in the event of bankruptcy

Wage security is a statutory arrangement in Finland. It ensures that the worker will get her or his wages and other receivables based on her or his employment relationship in a situation in which the employer has become insolvent.  

When bankruptcy begins, the receiver must prepare a list of unpaid liabilities arising from the employment relationship without delay. In cooperation with the local Centre for Economic Development, Transport and the Environment (ELY Centre), the receiver must examine which liabilities can be paid through wage security. However, the employee is ultimately responsible for applying for wage security.  

The employee must apply for wage security within three months of the due date of the receivable (e.g. wages, supplements, overtime compensation and holiday compensation). 

The form for applying for pay security is available from the ELY Centre online service
Read more about pay security and how to apply for it

The aim of company reorganisation is to avoid bankruptcy 

The company reorganisation procedure is a process during which the company’s chances of survival are examined, concrete solutions for the revival of business are sought, and a detailed programme of measures and the repayment of debt is drawn up. 

The purpose of company reorganisation is to revive a company with financial problems and save it from bankruptcy. Company reorganisation can be applied for by a debtor or creditor. Company reorganisation and its conditions are laid down in the Restructuring of Enterprises Act. 

Termination of employment on the basis of company reorganisation 

In the procedure for termination of employment on the basis of company reorganisation, the maximum notice period is two months. If the employee’s notice period is shorter, the shorter period will apply. However, compliance with this shorter notice period is not possible until the company reorganisation procedure has been confirmed. 

In a company reorganisation procedure, the employer may also terminate a fixed-term employment contract. This is not normally possible, as a fixed-term employment contract is binding on both parties. However, unlike the employer, the employee cannot terminate a fixed-term employment contract under such circumstances. 

Termination in the event of company reorganisation requires that the employer has a need to reduce the number of workers. This may be related to a need that has arisen before the confirmation of the reorganisation programme or to a need specified in the confirmed reorganisation programme. 

Termination is permitted before the confirmation of the reorganisation programme if work has ended or decreased substantially and permanently because of a measure related to the reorganisation procedure and no other work is available, not even through training. 

In the event of bankruptcy, the receiver has an obligation to provide the employee with a reference. The reference may indicate the duration of the employment relationship, a description of the tasks and the reason for the termination of the employment relationship. However, only the employer can provide an assessment of the employee’s skills and behaviour.

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