New trends in Estonian insolvency law
Signe Viimsalu 29.01.2010
1 January 2010 was the date of entry into force of a new Bailiffs Act which established, for the first time in Estonia, a joint professional chamber of bailiffs and bankruptcy trustees and amended, among other acts, the Bankruptcy Act.
Some examples of the new Bailiffs Act and the 151 amendments to the Bankruptcy Act are presented below:
Certain additional synergy will hopefully be received as a result of the Chamber's activities in organising the keeping of a joint warehouse of movable property to be sold in execution and bankruptcy proceedings, the development and management of information systems required for the work of bailiffs and bankruptcy trustees and the organisation of management of documents subject to archiving. According to law, an electronic auction environment will be introduced by no later than 1 January 2013. The effective management and cooperation of the Chamber will be placed within the competence of the following eight bodies: occupational union, professional union, council, board of the occupational union, board of the professional union, examination board, audit committee and court of honour. According to the Ministry of Justice, a person designated by the Ministry of Justice will be responsible for the management of the Chamber until the election of the council and the boards of the occupational union and the professional union of the Chamber.
In accordance with amendments to the Bankruptcy Act, a bankrupt debtor may only be deemed to be such a person with regard to whom the court has declared bankruptcy. In accordance with the draft, the amendment was necessary due to the fact that the term "commencement of bankruptcy proceedings" was abolished and replaced by "appointment of an interim trustee". The reason behind the desire to relinquish the "commencement of bankruptcy proceedings" is to avoid the labelling of a person as bankrupt before the declaration of actual bankruptcy. Such labelling may bring along negative economic consequences for the debtor, particularly in cases where an unjustified bankruptcy petition is filed. Negative consequences arise from the dismissive attitude of the society to the bankrupt person - there is a strong likelihood that most economic relations will break off and there will be no other possibilities for the person (who was able to cope before the bankruptcy petition) than to go bankrupt.
From this year on, instead of a ruling made about commencing bankruptcy proceedings, such proceedings will now start with the declaration of bankruptcy. The commencement of bankruptcy proceedings will be made equal to the declaration of bankruptcy. This amendment will also inter alia remove the confusion in the context of cross-border insolvency proceedings where it was not quite clear which judicial decision the court of a foreign state had to automatically recognise in the case of insolvency proceedings in Estonia.
However, in the light of the new wording we could also look at the applicable Reorganisation Act which refers, in quite a lot of important issues, to bankruptcy proceedings commenced with regard to an undertaking and which, as of the entry into force of the amendments to the Bankruptcy Act, may take on a different substantial and legal effect - at least as long as the Reorganisation Act is amended in turn.
Following the example of the German Insolvency Act (1999), for the first time the provisions of the proceedings for the release of a debtor who is a natural person from obligations (known also as Chapter 11 of the Bankruptcy Act) have taken effect in Estonia in 2004.
In other developed countries the respective provisions for alleviating the burden of debt of natural persons had existed for a long time, e.g. in Denmark since 1984, in France since 1989, in Finland and Austria since 1993, in Norway and Sweden since 1994, in the Netherlands since 1997 and in Belgium since 1998. After having waited for six years, in January these provisions entered into force with regard to debtors who are natural persons which, under certain circumstances, also allow proceedings for release from debt in the case of abatement, i.e. if the debtor is insolvent, but his/her assets are insufficient to cover the costs of the bankruptcy proceedings and it is impossible to recover or reclaim the assets or if the satisfaction of the claims is unlikely. Up to now the applicable principle was “are you rich enough to go bankrupt?”, as in the event that the abatement of bankruptcy proceedings took place before the declaration of bankruptcy, it was impossible for a debtor who is a natural person to get involved in the proceedings for the release from debt.
As a result of an amendment to the Bankruptcy Act, the principle prevalent in bankruptcy proceedings that the proceedings for the release from obligations can only be conducted in the case of such natural persons who have assets that are at least sufficient to conduct bankruptcy proceedings will be relinquished. A petition for commencement of proceedings for the release from obligations may be filed by the debtor who is a natural person by filing a bankruptcy petition or after a bankruptcy petition filed by the creditor or, in addition, before the first general meeting of creditors or during bankruptcy proceedings when the court begins the termination of bankruptcy proceedings due to abatement.
Thus, it is possible for the debtor to file a petition at almost any time (before as well as after the declaration of bankruptcy). A positive side to proceedings for the release from obligations applicable up to now was the motivation of people to deal with their debt and file a bankruptcy petition early enough. However, the procedure applicable to date included a shortcoming, as a person who no longer has assets lacks the motivation to strive for a “new and better life”. The reason was that within thirty years creditors could take away all of the assets acquired by the debtors. In accordance with the explanatory memorandum to the draft, the new act is based on this value judgement. The question which may arise here is: is there not a danger that a person who has caused his/her insolvency intentionally will be released from his/her obligations?
However, it is hoped that this problem will be avoided via a filter mechanism, i.e. both the prerequisites of the regulation of the proceedings for release from obligations for conducting proceedings and supervision will be more stringent.