Estonian Business Law: A comprehensive summary (14)
Archived Articles | 16 Oct 2002  | EL (Estonian Life)EWR
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BANKRUPTCY LAW

Bankruptcy law in Estonia functions similarily to the legal systems in Scandinavia and western Europe. This is noteworthy only because the idea of a private or public enterprise failing and then being taken through a court drive n process of distribution of assets was unthinkable as recently as 1991. Generally, the Estonian courts have handled this area of law quite well. The jump from the socialist economy to market economy brought about explosive growth in the number of companies registered in Estonia. In more recent years the use of bankruptcy laws has however clarified the situation, by filtering out many of the companies that failed economically. The frequent use of the bankruptcy laws in Estonia has helped make this vibrant economy more stable.

To file for the bankruptcy of a company, a creditor is generally required to initially send a warning of bankruptcy to the debtor. If the debtor does not pay the debt within 10 days after the warning, a bankruptcy application may be filed with the court ( under circumstances stated in the law, such warning is not required). If the court declares a company or private individual bankrupt, the right of administration of the property of the banrupt person or company is transferred exclusively to the bankruptcy trustee. An interim trustee is appointed by the court. The general meeting of the creditors may approve the court-appointed trustee or appoint another trustee in bankruptcy. In the latter case, the appointment must be approved by the court. In this manner, it is assured that the trustee has the confidence of both the court and the creditors. Trustees in bankruptcy must be sworn advocates or senior clerks of a sworn advocate or any other natural person with active legal capacity who holds a trustee’s certificate issued by the trustee examination and evaluation board formed by the Government of the Republic.

The primary duties of bankruptcy trustee are to protect the rights and interests of all creditors and the debtor, and to ensure a lawful and prompt bankruptcy proceeding.

There are 6 preferential classes of claims. These claims are hierarchical in nature meaning that class 1 is paid first, class 2 is paid second and so on. Class 2 claims are only handled once the claims belonging to class 1 are fully satisfied. The classes of preference run as follows:

1) Claims secure by a pledge excluding comercial pledges*;
2) Payments owed to employees;
3) Tax arrears;
4) Claims secured with a commercial pledge;
5) Other claims that are presented in time and recognized;
6) Other claims that are not presented in time but recognized.

The property is divided between the creditors whose claims belong to the same class proportionally.

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* A commercial pledge according to Estonian laws is a pledge set on all movable assets of a company. A commercial pledge is registered and its existence does not prohibit a company from selling its property in the normal course of business.



 
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