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Comprehensive changes in the Bankruptcy Act
15.01.2010
On 1 January 2010, a number of major amendments to the Bankruptcy Act entered into force. The amendments aim at clarifying and changing several important issues relating to bankruptcy proceedings. Below you find a summary of few of the amendments.
Rules relating to jurisdiction in bankruptcy matters were changed. It is presumed that the location of the debtor is its address entered in the commercial register one year before filing for bankruptcy unless it is proved that the actual location of the debtor is elsewhere. Thus, if the registered address of the debtor has been changed immediately before filing for bankruptcy, jurisdiction is determined based on the former address of the debtor unless the debtor is able to prove that it was not only a formal change but its location has indeed changed. The aim of this change was to reduce the chances of forum shopping and to avoid the possibility of a debtor changing its registered address in bad faith before filing for bankruptcy in order to mislead the creditors and thereby trying to escape their claims.
In the new version of the Act, the term “initiation of bankruptcy proceedings” is no longer used and has been replaced by the “appointment of an interim trustee”. Only a person who has been declared bankrupt by the court is regarded as bankrupt. In deciding not to appoint an interim trustee, the court actually decides that there is no good reason for assessing the insolvency of the debtor. The purpose of this amendment is to avoid situations where a person is treated as a bankrupt after the petition for bankruptcy has been filed but before it is actually declared bankrupt and the practical negative effects on the business of the person that can result therefrom. As to the practical aspects of declaring bankruptcy, there will not be any significant changes.
Under the changed regulation, a bankruptcy petition cannot be filed based on a debt for which a valid restructuring plan exists or which existed before approval of the restructuring plan. Such regulation is necessary to protect debtors, allowing them to carry out the necessary restructuring in peace without having to worry about creditors submitting bankruptcy petitions in bad faith, which may significantly hinder the restructuring procedure. If restructuring proceedings have been initiated against the debtor before filing for bankruptcy, the court cannot appoint an interim trustee and will stay the hearing of the bankruptcy petition until approval of the restructuring plan or premature termination of the restructuring proceedings.
Under the amended Act, the minimum amount of a claim necessary for the appointment of an interim trustee has been changed with respect to claims against natural persons; from now on, this amount is at least 40,000 EEK also in the case of debtors who are natural persons, not 10,000 EEK as before. The amendment was necessitated by inflation related reductions in the purchasing power of the Estonian kroon over the years.
One of the primary objectives of the Bankruptcy Act is to prevent bankrupt legal persons from participating in commerce. For that purpose, the requirement that the court should check whether the formal prerequisites for appointing an interim trustee have been met before declaring bankruptcy has been abolished. If the insolvency of the debtor has been established, the court will declare bankruptcy.
The rather confusing provisions regarding abatement of bankruptcy proceedings without declaration of bankruptcy have been totally rewritten in the new version of the Act.
