30. June 08
A draft Act which the Ministry of Justice today sent to other ministries for approval provides for reorganisation proceedings of companies facing solvency problems as an alternative to the current bankruptcy proceedings.
According to Indrek Niklus, an advisor to the Ministry of Justice, the aim of the draft Act was to create an alternative type of proceedings in addition to bankruptcy proceedings that result in the liquidation of insolvent companies. The new type of proceedings enables companies to survive in the case of temporary solvency problems.
The policy paper on Business Operators’ Rights compiled by the Ministry of Justice in 2006 highlighted, inter alia, that Estonia needs an alternative to insolvency proceedings to improve its international competitive ability,” Niklus explained.
“The new reorganisation proceedings should contribute to the reduction of the number of companies liquidated as a result of financial difficulties and enable them to continue business. This, in turn, will allow the claims of creditors to be satisfied to a greater extent and jobs to be preserved,” Niklus said. “This is a most topical issue in the current economic situation.”
Niklus admitted that compromises can be reached within the scope of bankruptcy proceedings, as well, but still companies facing solvency problems can only rarely be preserved in reality. “For example, last year and the year before it only five or six compromises were reached in bankruptcy proceedings,” Niklus explained.
Reorganisation proceedings can be commenced once the petition for reorganisation of the company in question is submitted. If it seems reasonable that reorganisation would enable the company to come out of the red, the court will commence reorganisation proceedings in response to the petition and designate a reorganisation adviser whose main task is to advise the owner of the company and supervise the owner's actions. The court will also determine a deadline by which the reorganisation plan must be submitted to the court for approval.
A reorganisation plan provides for the measures to be taken in order to resolve the solvency problems and the term within which the claims of creditors will be satisfied. The court can approve the reorganisation plan adopted (or not adopted) by creditors’ vote. A reorganisation plan not adopted by creditors’ vote will be subjected to an economic analysis. An approved reorganisation plan will only apply to the creditors whose claims are reorganised under the plan and who have been notified of the opportunity to participate in the adoption of the reorganisation plan.
A reorganisation plan approved by court is binding upon the debtor. The reorganisation proceedings are concluded once the reorganisation plan has been appropriately complied with.
The Ministry of Justice will expect opinions on the draft Act until 23 July.
