Amendments of the Estonian Bankruptcy Act Apr 21, 2010
On 1 January 2010, the latest version of the Estonian Bankruptcy Act (the EBA) came into force, bringing several important changes. Thorough changes have been made to the regulations on the commencement of bankruptcy proceedings and to the position of pledge holders.
The previous version of the EBA stipulated that bankruptcy proceedings started with the filing of a bankruptcy petition to the court. This did not necessarily mean that the person or entity against whom the bankruptcy petition was filed was in fact bankrupt. A person or entity was bankrupt only after a court declared the person bankrupt, as indicated by a judgement. This system was potentially harmful to people or firms against whom an unfounded bankruptcy petition was filed, as the start of bankruptcy proceedings before a court had declared the person insolvent undoubtedly sent a negative signal to the public. It was possible that an unfounded bankruptcy petition could cause the bankruptcy of a person who in fact was not insolvent at the start of the bankruptcy proceedings. The latest amendment to the EBA has sought to address the problem. According to the amended EBA, a court receiving a bankruptcy petition does not signal the start of bankruptcy proceedings, instead the receipt of the bankruptcy petition obliges the court to appoint an interim trustee. The bankruptcy proceedings start with the declaration of bankruptcy by the court. This seems to be an amendment that is justified and necessary because the general public will not now receive a possibly misleading signal that a person or entity is bankrupt before the bankruptcy has been declared by the court.
The second important amendment to the EBA concerns the position of a pledge holder in bankruptcy proceedings. Previously, pledge holders could lose their right to security under certain conditions if they failed to present their claim secured by a pledge on time. This regulation was burdensome for the pledge holder because if it were not for the bankruptcy proceedings the pledge would have been enforceable. The amended EBA has now strengthened the legal position of pledge holders in bankruptcy proceedings. Now, for a pledge holder it is only important to present a claim secured by a pledge and to have it accepted at the meeting for the defence of claims. It should be noted that although the legal position of pledge holders in bankruptcy proceedings has improved notably, it is still important for creditors to present their claims secured by a pledge. If they fail to do so, the right of security held by the creditor will be deemed to have expired.
The new amendment to the EBA seems to offer a good balance between the rights of pledge holders and the need to execute effective bankruptcy proceedings.
For further information please contact Mr Paul Varul
The second important amendment to the EBA concerns the position of a pledge holder in bankruptcy proceedings. Previously, pledge holders could lose their right to security under certain conditions if they failed to present their claim secured by a pledge on time. This regulation was burdensome for the pledge holder because if it were not for the bankruptcy proceedings the pledge would have been enforceable. The amended EBA has now strengthened the legal position of pledge holders in bankruptcy proceedings. Now, for a pledge holder it is only important to present a claim secured by a pledge and to have it accepted at the meeting for the defence of claims. It should be noted that although the legal position of pledge holders in bankruptcy proceedings has improved notably, it is still important for creditors to present their claims secured by a pledge. If they fail to do so, the right of security held by the creditor will be deemed to have expired.
The new amendment to the EBA seems to offer a good balance between the rights of pledge holders and the need to execute effective bankruptcy proceedings.
For further information please contact Mr Paul Varul
