Estonia 110 - Dealing with Disputes and Insolvency
After a short brake, it is time for the final chapter in the doing business in Estonia series - disputes and insolvency.
Estonia has a three-level court system. The first instance consists of county courts and administrative courts. The second instance consists of courts of appeal. The third instance is the Supreme Court of Estonia. The working language of the courts is Estonian.
Parties are also allowed to resolve disputes in arbitration.
In order to file a claim in a civil court, the state fee must be paid. The amount of the state fee depends on the value of the claim. For example, when filing a claim for payment of approx. EUR 50,000 or to recover property with the value of approx. EUR 50,000, the state fee would be approx. EUR 1,000.
Regardless of the value of the claim, the state fee cannot be higher than EUR 3,400.
Some types of claims are exempt from state fees. For example, the state fee is not charged for hearing of an action concerning wages, termination of a contract of employment or release of a person from service.
Measures for Securing an Action
The court may secure an action at the request of the plaintiff if there is reason to believe that failure to secure the action may render compliance with the judgment difficult or impossible. An arbitral tribunal may also secure an action based on a petition of a party unless the parties have agreed otherwise.
However, arbitral tribunals may not secure actions using means that restrict personal freedoms.
Measures for securing an action include, for example:
establishing a judicial mortgage over an immovable, ship or aircraft belonging to the defendant;
seizing the defendant's property;
prohibiting the defendant from entering into certain transactions or performing certain acts, including imposition of a restraining order.
To secure an action, the court may require the plaintiff to provide security in order to compensate for possible damage caused to the opposing party. In the case of a monetary claim, the court will secure an action only if the security is lodged at least in the amount of 5% of the monetary claim but not less than approx. EUR 32 and not more than approx. EUR 32,000. If the security is not lodged by the due date, the court will refuse to secure the action.
Execution of Court Judgments
If a debtor does not comply with a court judgment i.e. does not pay the debt, then the creditor should take the judgment to a bailiff. The bailiff will seize and sell the property of the debtor and the creditor may thereby recover the debt from the sale proceeds.
Recognition and Enforcement of Foreign Court Judgments
Foreign court decisions are recognised and enforced according to EU regulations, if applicable.
In other cases, a court decision of a foreign state is recognised in Estonia pursuant to international treaty or other sources of law once the decision may be enforced in the other country.
Generally a foreign court decision in a civil matter is recognised in Estonia unless the recognition of the decision would be clearly contrary to the essential principles of Estonian law (public order) and, above all, fundamental rights and freedoms.
Unless otherwise provided by law or international agreement, a foreign court decision may be enforced in Estonia only after the decision has been declared to be enforceable by an Estonian court.
Bankruptcy means the insolvency of debtor declared by a court judgment. A company is insolvent if it is unable to satisfy the claims of creditors and such inability, due to the company’s financial situation, is not temporary. A company is insolvent also if its assets are insufficient to meet its obligations and such insufficiency is not temporary.
Bankruptcy proceedings are commenced when a creditor or the debtor itself submits a bankruptcy petition to a court. If the debtor submits the petition, it must pay a state fee of approx. EUR 10. If a creditor submits the bankruptcy petition, a state fee in the amount of approx. EUR 300 must be paid. The creditor must set forth the basis in the petition for claiming that the debtor is insolvent and prove the existence of a claim against the debtor.
The court immediately publishes a notice (bankruptcy notice) in the official publication Ametlikud Teadaanded once and if it declares a company bankrupt. The notice includes information about the company and the bankruptcy trustee, a proposal for submitting claims against the company and the time and place of the first general meeting of creditors. Creditors are required to notify the trustee of all their claims against the debtor that arose before the declaration of bankruptcy not later than two months after the date of publication of the bankruptcy notice.
The trustee is obliged to inform known creditors in writing about the bankruptcy order and the time and place of the first general meeting of creditors.
In the case of a debtor’s bankruptcy petition, it normally takes one month for the court to declare the company bankrupt. In the case of a creditor’s petition, it usually takes 1,5 – 2 months. The whole process from submitting the bankruptcy petition until distribution of proceeds usually takes at least one year depending on the circumstances of the case. On average bankruptcy proceedings last for about two years.
Obligation to Submit a Bankruptcy Petition
If a company is insolvent and the insolvency is not temporary, the management board of the company must promptly but not later than 20 days after the date on which the insolvency became evident, submit a bankruptcy petition to a court.
After insolvency is evident, the members of the management board may no longer make payments on behalf of the company, except where making the payments conforms with due diligence requirements. The members of the management board are jointly and severally liable to the company for compensation damages with respect to any payments made by the company after the insolvency of the company became evident which, under the circumstances in question, were not made with due diligence.
Reorganisation is a new measure in the Estonian legal system introduced in the beginning of 2009. Reorganisation enables distressed companies on the verge of insolvency to restructure their debt, and apply other measures to regain financial health and restore profitability.
Applications to commence the reorganisation process must be submitted to a court by the debtor itself. In the application, the debtor must provide an explanation regarding the economic difficulties of the company and must substantiate the following:
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the insolvency of the company is probable in the future;
the company is in need of reorganisation;
the sustainable management of the company is possible after the reorganisation process.
Information posted above is intended as a general guide and does not constitute legal advice.