Chamber’s Proposals Included in the Draft Commercial Register Act
At the beginning of December, the Government approved the Draft Commercial Register Act, which will bring several important changes to the commercial law. The draft act will establish the Commercial Register Act as a new law and will amend more than 30 acts, including more than 100 amendments to the Commercial Code. The Chamber has previously submitted 18 proposals to the draft act and by now the Ministry of Justice has taken several of these proposals into account.
One of the main amendments of the draft act is unifying the regulation related to all registers for legal entities of private law. According to the draft act, the rules of the Commercial Register will become applicable for all legal entities of private law and there will no longer be unreasonable differences in the register proceedings for legal entities of private law. The common rules will also be included in the Commercial Register Act.
Furthermore, the draft act foresees several important changes to the Commercial Code. For example, according to the draft act, the list of shareholders will, as a general rule, be kept by the Commercial Register and as a general rule, the data of the shareholders will gain legal significance in the Commercial Register. Furthermore, there will no longer be a minimum requirement for share capital, requirements for net assets will change and deletion of companies from the register will become simpler and faster in certain situations.
Below we will be giving an overview of the Chamber’s proposals the Ministry of Justice has already taken into account when preparing the draft act.
Board member liability not extended
The initial version of the draft act foresaw that if a creditor of a legal entity cannot satisfy their claims on the account of the assets of a legal entity, the creditor may request compensation of damages for themselves by a board member of the legal entity who has caused damages to the legal entity by violating their obligations. Currently, a creditor can request compensation of damages only for a legal entity, but not themselves.
The Chamber strongly opposed this amendment because it would have significantly extended liability of board members and caused unequal treatment of creditors. Such situation could have arisen for example when a board member has assets to satisfy the claims of only one creditor, but not all. By the proposal of the Chamber, the Ministry of Justice left this provision out of the draft act. Thus, the current principle according to which creditors have the right to request compensation of damages from a board member, but the board member is required to pay the compensation to a legal entity, not directly to the creditor, will remain in force.
Creditors to be notified of the deletion of a company
The draft act continues to include a principle according to which, in case if a company has not submitted the annual report within the term assigned by the registrar and at least three months have passed from the date of submission set out in the law, the registrar may delete the company from the register if certain preconditions have been met. The applicable Commercial Code does not allow for such fast deletion of a company from the register.
The Chamber pointed out for the Ministry the problem that in certain situations such amendment may unreasonably damage the interests of creditors. For example, there may be a situation where a company intentionally does not submit the annual report so that the registrar would delete the company from the register and this information does not reach the creditors of the company and therefore the claims of the creditors will not be satisfied before the company is deleted from the register. To alleviate this problem, the Ministry of Justice has updated the draft act with a provision that obliges the registrar to publish a notice of the deletion of a company from the register in Ametlikud Teadaanded at least three months before the deletion. The same information is also visible for everyone in the Commercial Register. The aim of the amendment is to ensure better protection creditors and notifying of the public of the danger of the legal entity being deleted from the register.
Shares can still be registered in the Register of Securities
With the proposal from the Chamber of Commerce, the Ministry of Justice has left out from the draft act a provision that prohibited foreseeing with the articles of association that a share may not be pledged if the registrar of the Estonian register of securities is the keeper of the list of shareholders. Such restriction is not included in the Commercial Code in force.
The aim of excluding the pledging is to ensure that the circle of owners remains the same. If pledging would be allowed and the pledge is realised, a person who the other shareholders do not want to see among the shareholders may end up among them. Therefore, there is no practical need for amending the existing provision and limiting the freedom of agreements for shareholders.
Entries to the Commercial Register can be made on certain dates
The draft act continues to include an amendment that is positive for companies. According to this amendment, legal entities will be able, with good reason, to apply making of a register entry on a certain date. A good reason may be for example the need that a merger would enter into force on a certain date. At the moment, such solution is not possible.
Initially, the draft act foresaw that if the desired date of entry falls on a rest day or national holiday, the entry will be made on the following day. However, in certain cases it is necessary that an entry would enter into force, for example, on 1 January or any other day that falls on a rest day or national holiday. Therefore, the Chamber proposed to the Ministry to amend the provision in such a manner that the registrar would not have to make the entry manually on the right date, but the respective information could be entered into the system already earlier and the entry would be automatically made on a rest day or national holiday. The Ministry of Justice has taken the Chamber’s proposal into account.
Commercial Register to publish information on rulings imposing fines
The draft act will give the registrar the right to disclose in the Commercial Register at a legal entity to a natural person related to the legal entity, for example, information regarding the rulings imposing fines on board members, if there are at least five valid rulings issued for one natural person. The initial version of the draft act stated ten rulings instead of five, but the Chamber proposed to decrease that number so that information could be disclosed in the Commercial Register on more persons. The wording of the draft act does not disclose cases where a single ruling imposing a fine has been issued for a person.
The Parliament will continue with the processing of the draft act. According to the draft act, the majority of the amendments will enter into force on 1 February 2023.
Should you have any questions, comments or proposals regarding the Draft Commercial Code Act, let the lawyers of the Chamber know by writing to juristid@koda.ee.
Previous versions of the Draft Commercial Code Act can be read HERE and the proposals of the Chamber HERE.