11 proposals for decreasing insolvency

Director General of the Chamber of Commerce, Mait Palts said that one of the concerns entrepreneurs continue to have is the  spreading of unfair competition via malicious insolvencies. “Although the problem cannot be eliminated completely, we think it is necessary to alleviate it, even more so because it has been talked about for so long,” he said. “Honest and transparent economic environment is what the entrepreneurs want and together with ministries and state institutions they are willing to take specific measures – talking only does not help the entrepreneurs,” he said.

“Our proposals are a good starting point for the Ministry of Justice, which can be used as the basis for developing potential measures,” said head of the Employers’ Confederation Toomas Tamsar. “However, these are proposals that require additional analysis and impact assessment,” he said.

1. More efficient supervision over the obligation to submit annual reports, including restrictions for the companies who have failed to submit the report in due time. For example, restrictions on participating in public procurements and suspending the permit for economic activities until the annual report has been submitted.
2. Simplifying the voluntary termination of a company, because terminating a company is complicated and time-consuming. One possibility could be allowing faster process for terminating a company during the minimum of six months.
3. The debtor’s liability in the process of division and merger of companies. Division and merger of companies should not preclude the debtor’s liability under the penal law. For that purpose, we propose different solutions. For that we propose different solutions. For example, in certain exceptional cases division and merger of a company should be prohibited, e.g. for ensuring criminal proceedings or if a company has no board.
4. Establishing the solvency ombudsman institution who would carry out national supervision in bankruptcy proceedings and in certain cases would take over the costs of bankruptcy proceedings. This would allow identifying the reasons for insolvency in justified cases and if necessary, bringing the persons who caused insolvency to justice.
5. Establishing the restriction for foundation of a company on a private person who is a board member of a company that has failed to submit the annual report within a year/ repeatedly and/or failed to submit tax declarations to the Tax Board.
6. Ensure that each company has a board member, because otherwise there will be nobody who would be responsible for submitting the bankruptcy petition if the company is insolvent.
7. Simplifying the application of the prohibition on business, establishing in the law a non-exhaustive list of cases when the prohibition on business is definitely applicable for a board member of a company who is a debtor during bankruptcy proceedings. For example: prior prohibitions on business, repeated failure to submit annual report or tax declarations, unreasonable payments or delay with the bankruptcy petition.
8. Suspension of the term for recovery of property upon reorganisation, because according to the current procedure, an entrepreneur may transfer the property in bad faith during the reorganisation procedure, which then in the subsequent bankruptcy proceedings cannot be taken back, because the term for recovery may have lapsed.
9. Prevent cases when a legal entity is terminated and omitted from the register despite the ongoing judicial proceedings or application for revalidation of the entitled person in the event of abatement of a bankruptcy proceeding, because the law foresees its liquidation within two months.
10. Disclosing the execution proceeding data of bailiffs similarly to tax arrears, first and foremost the fact that execution proceeding has started and the amount due. Currently the rulings are public and available in the State Gazette, but that is not operative enough.
11. Checking the address of a legal entity, because at the moment it is possible to establish as the legal address a location that in reality does not exist or is just a plot of land where a company could not operate (e.g. a field without any buildings). Often this opportunity is used, due to which it is impossible to deliver the necessary documents to the companies and find the people responsible liable for insolvency.

The Chamber and the Employers’ Confederation hope that as a result of the cooperation between business organisations and Ministry of Justice, it will be possible to solve or at least alleviate the problems related to insolvency.

Read about the proposals in more detail here.