Application no. 37598/97 
by Tomas BÄCK 
against Finland

The European Court of Human Rights (Fourth Section), sitting on 22 October 2002 as a Chamber composed of

Sir Nicolas Bratza, President
 Mr M. Pellonpää
 Mr A. Pastor Ridruejo
 Mrs E. Palm
 Mr M. Fischbach
 Mr J. Casadevall
 Mr S. Pavlovschi, judges
and Mr M. O’Boyle, Section Registrar,

Having regard to the above application lodged on 10 July 1997,

Having regard to Article 5 § 2 of Protocol No. 11 to the Convention, by which the competence to examine the application was transferred to the Court,

Having regard to the observations submitted by the respondent Government and the observations in reply submitted by the applicant,

Having deliberated, decides as follows:


The applicant, Mr Tomas Bäck, is a Finnish national, who was born in 1957 and lives in Karperö. Before the Court the respondent Government were represented by their Agents, Mr H. Rotkirch, then Director-General for Legal Affairs in the Ministry for Foreign Affairs, and Mr A. Kosonen, Director in the same Ministry.

A.  The circumstances of the case

The facts of the case, as submitted by the parties, may be summarised as follows.

In 1988 and 1989 the applicant and another person contracted to guarantee a bank loan granted to N. As N. was eventually unable to meet the reimbursement conditions, the applicant and his co-guarantor each paid the bank about FIM 113,000, i.e. about EUR 19,000 (excluding interest).

In 1995 N. applied for debt adjustment in accordance with the 1993 Act on the Adjustment of the Debts of a Private Individual (laki yksityishenkilön velkajärjestelystä, lag om skuldsanering för privatpersoner 57/1993; “the 1993 Act”) and proposed a payment schedule for the court’s approval. The applicant opposed the request, arguing that such adjustment could lead to an unjustified deprivation of his property, consisting of his claim against N. The applicant argued that N. was young and healthy and could be expected to be able to reimburse his debts to the guarantors in due course. In the alternative, the applicant requested that the adjustment of N.’s debts be postponed.

On 19 April 1996, after N. had found employment, the District Court (käräjäoikeus, tingsrätten) of Korsholm/Mustasaari granted him debt adjustment and adopted a payment schedule which was to take effect on 1 June 1996 and remain in force for five years. The applicant’s claim against N. was reduced to FIM 2,168 (about EUR 360). The District Court considered that N.’s solvency had been significantly weakened due to his previous unemployment and unsuccessful business activities. As a guarantee always involved a precarious element, the applicant’s claim based on his recourse against N. could not be considered the applicant’s “property” for the purposes of the Convention. Given that N. was able to reimburse FIM 420 (EUR 70) a month to his creditors already at the time of the court examination, it was not possible under the 1993 Act to postpone the entry into force of the payment schedule.

Among N.’s other creditors was bank F. with a claim in the amount of FIM 231,722 (EUR 38,973), of which District Court retained FIM 4,510 (EUR 758) in his payment schedule.

In his appeal the applicant contended that the almost complete extinction of his claim against N. violated his property rights under the Convention. No legislation on debt adjustment had existed at the time when the applicant had contracted to guarantee N.’s debts. The radical writing-off of his claim furthermore discriminated against him as a private creditor who, unlike creditor banks, would receive no compensation from the State.

On 14 October 1996 the Court of Appeal (hovioikeus, hovrätten) of Vaasa upheld the District Court’s decision and its reasoning. The applicant was refused leave to appeal to the Supreme Court (korkein oikeus, högsta domstolen) on 19 February 1997.

B.  Relevant domestic law and practice

The 1993 Act was enacted during a recession in the Finnish economy, one of the purposes being to reduce the high volume of unpaid debts owing to banks. The banks received significant subsidies from the State in compensation. According to the 1993 Act, a court may write off debts on condition that the debtor agrees to a payment schedule in favour of the creditors determined by the court (section 25). The court assesses the amount of revenues needed to cover the debtor’s inevitable living expenses and to meet any obligation to pay allowances (sections 4-5). The excess revenue shall be used for paying off the creditors during a fixed period in the amounts determined by the court (section 23).

If the debtor fails to adhere to the payment schedule or contracts a new debt the schedule may be revoked, thereby enabling all creditors to claim payment as if no debt adjustment had been granted (section 42). If, for instance, the debtor’s payment ability or other conditions change significantly while the reimbursement scheme is in force, the debtor must inform the creditors within one month (section 7). Both the debtor and the creditors may seek to have the payment schedule amended, extended or revoked while it remains in force or, in certain circumstances, within five  years from the adoption of the schedule (sections 30 and 61). If the payment schedule is amended for the benefit of the creditors, it may be extended by a period corresponding to the period during which the debtor’s payment ability had  improved (section 44).

The court may hear one or several creditors, guarantors and co-debtors before deciding on the request for debt adjustment (section 52). An appeal lies open to the competent appellate court, unless such appeal is specifically prohibited or the appeal would concern a procedural matter (section 63).

At the relevant time the court could obtain, on the request of a creditor, the necessary information on the possible existence of circumstances which could lead to the refusal of a request for debt adjustment. As from 1997 the court may also obtain such information of its own motion.

In their Bill to Parliament (no. 183/1992) the Government noted that an insolvent private individual seldom had enough possessions to satisfy a creditor, as the bankruptcy costs had first priority. Neither could a declaration of bankruptcy eliminate a physical person’s future responsibility for his or her debts. By allowing the adjustment of the overall debts and fixing a payment schedule the debtor could be helped to resolve his or her future financial obligations, provided he or she complied with that schedule. Such assistance would also reduce the overall costs to society.

The Government nonetheless emphasised that the courts should seek to adjust a debt in the manner least detrimental to the creditor and only to the extent such adjustment would be necessary to remedy the debtor’s financial situation. Since underlying contractual terms should be interfered with as little as possible, the partial or complete extinction of a claim should be considered the very last resort. The possibility of ordering a payment schedule to remain in force for five years would enable the creditors to receive at least partial satisfaction.

The Government noted that somewhat similar legislation for debt adjustment had been, or were being, adopted in countries such as Denmark, France, Germany, Norway, Sweden and the United States of America.

In 1997 the 1993 Act was amended inter alia so as to tighten further the conditions for granting debt adjustment (section 9 a and section 10). A further amendment provided for the possibility of extending the payment schedule for two more years, for weighty reasons and provided the creditor was also a private individual (section 31a). These amendments were not applicable to the applicant’s case.  


The applicant complains under Article 1 of Protocol No. 1 that N.’s debt adjustment deprived the applicant of his property without compensation and without serving a legitimate aim in the general interest. N.’s debt adjustment effectively transferred to him an amount equal to the applicant’s net income per year, thereby placing an unreasonable burden on him. The infringement of his property rights was arbitrary and discriminated against him as a private creditor, if compared with the banks which received significant State subsidies for their credit losses.


1.  The applicant has first complained that the almost total extinction of his claim against N. by virtue of the debt adjustment scheme violated the applicant’s rights under Article 1 of Protocol No. 1 to the Convention. This provision reads as follows:

“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”

The Government submit that there has been no violation of Article 1 of Protocol No. 1 to the Convention, even though the impugned measures did constitute an interference with the applicant’s right to the peaceful enjoyment of his possessions or, in the alternative, amounted to a deprivation of his property and thus fell to be considered under the second sentence of the first paragraph of the Article 1 of the Protocol No. 1.

The Government note that the adjustment of N.’s debt to the applicant was granted in application of section 9 of the 1993 Act which constituted a law within the meaning of Article 1 of Protocol No. 1, being adequately accessible and sufficiently precise. The aim of the 1993 Act was to ensure that an individual person with financial difficulties would be able to  improve his or her financial situation, thereby preventing the negative effects of insolvency on society as a whole such as social exclusion, health and social problems and an expanding grey sector of the economy.

The Government explain that the large number of debt adjustment cases at the relevant time mainly resulted from the unfavourable economic development in the 1990s and the preceding increase in the taking of loans by households and companies. This increase was a result of the opened financial market and loosened control of credits. The extensive marketing of credits, a favourable economic development and the general expectations of economic growth encouraged some households to take loans without sufficient guarantees of being able to repay them, and the credit institutions were not sufficiently interested in verifying the solvency of debtors. A sudden and strong increase in unemployment, a reduction in the net income of households, a significant rise in the interest level and a strong decrease in the sales prices of houses created strong social and political pressure to establish a system under which an unreasonable debt burden of private individuals could be resolved. Serious detrimental effects of debt problems on individuals and society cannot be considered acceptable. Improving someone’s possibility of resolving debt problems can also reduce his or her need for social assistance. The salaried work of the debtor produces tax income to society. As debt problems of private individuals are prevented or resolved through debt adjustment, there is less need for the unfruitful use of the court system and enforcement authorities. The 1993 Act sought to ensure a balance between the interests of different parties so that the debtor was provided with a possibility to improve his financial situation, while the creditors were ensured a just share of the debtor’s present and future income and the disadvantages and social costs caused to society remained as small as possible.

The Government furthermore point out that where necessary, the debt adjustment is implemented in accordance with a payment schedule established for several years, taking into account the de facto solvency of the debtor. This way the debtor is afforded a way out of a hopeless debt situation and is able to plan his or her future in a sensible and realistic manner. The improvement of the debtor’s financial situation also ensures that the creditors’ claims are reimbursed to the extent possible, albeit with a longer  payment schedule. An arrangement ensuring a debtor’s present and future possibility of obtaining an income also serves the interests of creditors. Should a debtor fail to aim actively at reimbursing the debts, due to financial difficulties which he or she finds insurmountable, the creditors usually do not get any payments. When account is taken of the debtor’s de facto possibility of repaying his or her debts, the creditors may expect to have at least part of their claims satisfied. Furthermore, as a result of the assessment of the debtor’s solvency the creditors also avoid the useless and costly measures of recovering debts.

The Government conclude that the 1993 Act undoubtedly serves a legitimate “public interest” for the purposes of Article 1 of Protocol No. 1, even to the extent that it may imply the transfer of property from one individual to another. Debt adjustment legislation is common also in other member states of the Council of Europe.

The Government furthermore submit that the interference with the applicant’s property rights was in proportion to the legitimate aim sought to be realised. The issue of proportionality of the 1993 Act was thoroughly discussed in the Standing Constitutional Law Committee of Parliament as well as in its Standing Legal Affairs Committee, where it was felt that the position of creditors inevitably depended on the solvency of the debtor. The Standing Constitutional Law Committee emphasised the need to give due consideration to the protection of property provided for in the Constitution Act, meaning above all that the weakening of the creditors’ position, although inevitable as such, should not lead to unreasonable results. The Committee noted that a private individual was not released from his or her liability to reimburse a debt even when declared bankrupt. The effects of the proposed means of debt adjustment on the position of creditors therefore had to be assessed in the light of their possibility of obtaining payment out of the debtor’s future income and assets. As the amount of a debt would be reduced and the debtor freed from his or her liability to reimburse a debt  only where debt adjustment by other means was not possible, such an adjustment would not in reality weaken the position of creditors.

The Government emphasise that, in the present case, N.’s total amount of debt was FIM 1,391,375 (over EUR 234,000) out of which the applicant’s share was about FIM 113,000 (about EUR 19,000). In drawing up the payment schedule it was calculated that N. could afford to reimburse to the applicant a total of about FIM 420 (about EUR 70) per month. On the expiry of the five-year payment schedule, the applicant was to have received a total of FIM 2,160 (about EUR 360) from N. It is highly unlikely that N.  would ever have reimbursed his whole debt to the applicant in the absence of a debt adjustment; on the contrary, the applicant would not even have received the amount fixed by that adjustment.

The applicant, while accepting that the interference was lawful, contends that it was disproportionate to the aim sought to be achieved. As a creditor he was unable to avail himself effectively of his right to question the correctness of N.’s proposed payment schedule, being unable to obtain information on N.’s financial situation or to hear him under oath in respect of his debts. Equality of arms was not ensured and the time available for opposing a request for debt adjustment was short. Moreover, the duty under section 53 of the 1993 Act to investigate the debtor’s financial situation was not being properly fulfilled by the enforcement authorities. Due to the important number of debt adjustments at the relevant time the courts’ examination of each request was extremely summary in nature.

The applicant’s claim was lowered from FIM 118,500 (about EUR 20,000) to FIM 2,168.41 (about EUR 360). The adoption of N.’s debt adjustment scheme thus practically extinguished a claim on his part, the existence of which had already been confirmed by a court.

In the applicant’s view it was contrary to the 1993 Act to grant N. debt adjustment. N. himself was to blame for his heavy debt burden and his heavy debts were only temporary in nature, given his age. Had the applicant’s claim not been extinguished he could have sought payment of N.’s debt in a few years.

While accepting, in general, that Article 1 of Protocol No. 1 and the public interest considerations justify a wide margin of appreciation on the part of the Contracting State, the applicant is opposed to direct property transfers from one citizen to another as in the case of a debt adjustment. Finland’s serious recession in the beginning of the 1990s did not justify such direct property transfers. Nor has the debt adjustment legislation been repealed, even though the country is no longer facing a crisis of that kind. A more appropriate policy for supporting debtors and avoiding serious social consequences would be in the form of a State allowance. If, as the Government argue, debt adjustment seeks to alleviate and prevent social problems, the State should at least give up its fiscal claims on debtors. In the payment schedule adopted for N. the county tax authority was to receive over FIM 3,000 (on a claim with the book-value of FIM 155,000). Thus, through the almost complete extinction of his own claim the applicant indirectly had to take part in securing N.’s payment of a fiscal claim.


The applicant argues, moreover, that while the adjustment of N.’s debts may have saved him from “social misery”, at the same time similar misery was created for creditors. The interference with the applicant’s property rights placed too heavy a burden on him in comparison with N. The applicant contests the Government’s assertion that through the debt adjustment he was ensured the reimbursement of an amount higher than that which he could have hoped to receive without such an adjustment. The amount which the applicant had to reimburse as co-guarantor of N.’s loan amounted to roughly the applicant’s annual salary. Whereas the applicant is obliged to pay off for 15 years the loan he had to take out in order to reimburse half of N.’s loan, N.’s responsibility for paying his court-reduced debts was reduced to a period of only five years. At the time, however, N. was estimated to have 31 years left to work before retirement.

The Court considers, in the light of the parties’ submissions, that the complaint raises serious issues of fact and law under the Convention, the determination of which requires an examination of the merits. The Court concludes therefore that this complaint is not manifestly ill-founded within the meaning of Article 35 § 3 of the Convention. No other ground for declaring it inadmissible has been established.

2.  The applicant has also complained that the deprivation of his property by virtue of N.’s debt adjustment programme discriminated against the applicant as a private creditor, if compared with the banks which received significant State subsidies for their credit losses. Article 14 of the Convention provides as follows:

“The enjoyment of the rights and freedoms set forth in this Convention shall be secured without discrimination on any ground such as sex, race, colour, language, religion, political or other opinion, national or social origin, association with a national minority, property, birth or other status.”

The Government consider this complaint manifestly ill-founded as well. The applicant’s complaint about the state subsidies to the banks is neither substantiated nor relevant. Almost all Finnish banks received state aid to avoid credit crisis and to help its clients during the severe recession in 1992-1993. The state aid received by the banks was not used to cover losses in individual cases but was given on a temporary basis to keep the banks’ solidity at a sufficient level so as not to jeopardise the Finnish financial market and the economy as a whole. According to the conditions linked to obtaining state subsidies, the banks were not allowed to transfer non-performing loans or credit losses to any government-owned asset management company. Another condition was that the State subsidy received by the banks had to be fully repaid to the State.

According to section 31 of the Act on the Adjustment of the Debts of a Private Individual, the debtor’s assets shall be ordered to be distributed among the creditors in proportion to their respective claims. Thus the share of an individual creditor depends on the amount of credit he has given to the debtor. When deliberating on the Bill proposing the 1993 Act, the Standing Constitutional Law Committee of Parliament emphasised that all ordinary creditors must be placed in an equal position in a debt adjustment. As bank F. and the applicant were both ordinary creditors they were placed in a similar situation, both being reimbursed by N. in proportion to their respective claims.

In the Government’s view the applicant and the banks in question were thus treated similarly and accordingly there is no violation of Article 1 of Protocol No. 1 to the Convention read in conjunction with Article 14 of the Convention.

The applicant maintains his complaint. Even if banks did not receive direct State subsidies, they were able to borrow funds from the State in order to survive the recession. This policy discriminated against the private individuals who were obliged to take out bank loans at much higher interest rates.

The Court finds that the applicant has failed to substantiate his allegation that he was discriminated against as a private creditor in comparison with banks receiving State subsidies. At any rate those subsidies were granted as part of an overall political strategy to combat the effects of the recession. The applicant and the banks could therefore scarcely be considered to have been in analogous situations for the purposes of Article 14 of the Convention.

It follows that this complaint is manifestly ill-founded and must be rejected in accordance with Article 35 §§ 3 and 4 of the Convention.

For these reasons, the Court

Declares by a majority the applicant’s complaint concerning the alleged violation of his property rights admissible, without prejudging the merits;

Declares unanimously the remainder of the application inadmissible.

Michael O’Boyle Nicolas Bratza 
 Registrar President