Estonian bankruptcy law gives pledge creditors several advantages over other creditors in bankruptcy proceedings, including the priority to satisfy their claims out of the money received from the sale of the pledged asset in the first ranking of claims. However, uncertainty arises regarding the division of expenses between pledge creditors in cases where a pledged asset has been encumbered with several rights of security.
The Bankruptcy Act allows for a prohibition on business for the duration of bankruptcy proceedings regarding both natural and legal persons. However, since the act is broadly worded and it is unclear for what purpose a prohibition on business may be applied with respect to a board member, and what restrictions limit the application of such prohibition, the Supreme Court has attempted to fill the legal gap.
The Supreme Court recently highlighted an Estonian regulation related to loans granted to natural persons which is often forgotten or overlooked by creditors. Agreements for such loans are common. However, if they contain a jurisdiction clause under which all disputes arising between the parties in relation to such agreement must be settled in a specific court in Estonia, this clause may turn out to be void.
Under Estonian law, a guarantee is an independent obligation, the validity of which is not influenced by the validity of the obligations secured by it. The aim of the guarantee is to provide comfort; the beneficiary under the guarantee may enforce the guarantee once an obligor has failed to perform its obligations as secured by the guarantee. The Supreme Court has recently ruled on this issue.
If a company becomes permanently insolvent, the management board must promptly submit a bankruptcy petition for the company to a court. If the bankruptcy petition is not submitted on time, company board members risk both civil and criminal liability. Thus, to ensure all obligations have been met and board member liability is excluded, the main issue is how to determine whether a company is permanently insolvent.
In a recent ruling the Supreme Court provided important standpoints in connection with obligations secured under a security agreement. In its judgment, the court clarified the meaning of a 'global security arrangement'. The court found that global security arrangements are not always permissible and in some cases can be void. This ruling will have an impact on banks as lenders, as well as on borrowers.
The nature of the liability of a company board member in situations relating to insolvency is complex. Filing a bankruptcy petition in a situation where a company could still be saved may make the board member liable to the company; however, if the board member fails to file a bankruptcy petition on time, he or she could be liable to the company, as well as its creditors. The Supreme Court recently set out its position on the matter.
The Estonian Central Bank and the Financial Supervision Authority often cooperate with their Scandinavian colleagues. Amendments to the Credit Institutions Act recently entered into force, introducing a new regulation on cross-border banking supervision and cooperation between financial supervision authorities. The amendments facilitate tighter cooperation between the financial authorities of EU member states.
The Debt Restructuring and Debt Protection Act aims to help natural persons who are experiencing financial difficulties. The act complements the Reorganisation Act, which fulfils a similar function for businesses. Since the acts entered into force, other legal policy measures have been suggested for the swift non-judicial reorganisation of businesses facing financial problems.
Estonian bankruptcy law, in line with that of many other countries, offers greater protection and rights to creditors whose claims are secured by a pledge. In bankruptcy cases involving pledged creditors, concern often arises in relation to the circumstances under which a pledgee may contest the final report on the bankruptcy proceedings. The Civil Chamber of the Supreme Court has analysed this issue in a recent ruling.
The Parliament is in the process of drafting a law that will give the Financial Supervisory Authority (FSA) authorisation to impinge on banking secrecy when investigating alleged misdemeanours, an offence punishable by a fine or detention. The current Credit Institutions Act, which governs banking secrecy regulations, allows the FSA impinge on banking secrecy only in case of criminal offences.
Including: Legal form and licensing; Financial supervision; Other requirements.
The Estonian Supreme Court recently analysed a problem which emerged in conjunction with a decrease in the value of pledged shares upon a change in share capital, and explicitly confirmed that the value of a shareholding is also influenced by attached voting rights. Such decisions demonstrate the importance of the quality of collateral, with those that borrow against esoteric collateral, such as shares, likely to be penalised.
Remuneration policies in the banking sector have been subject to criticism, as bonus-driven principles encourage the taking of high short-term risks for greater personal benefit instead of aiming for the achievement of long-term stable goals. Amendments to the Credit Institutions Act recently entered into force setting forth bankers' remuneration policies and establishing a legal framework for remuneration regulation.
One topic under discussion at most banks operating is the new Debt Restructuring and Debt Protection Act, which has a direct impact on businesses that extend credit to natural persons. Among other things, the act introduces new rules on suretyships and gives a debtor with solvency problems the option to request debt restructuring through the courts.
During the financial crisis the Estonian government made a principled decision to provide existing financial regulation with an ultima ratio (last resort) option of nationalising credit institutions (ie, banks) in order to secure the stability of the financial system and avoid chaos. Among other things, the nationalisation process may be commenced if a credit institution fails to comply with a substantial part of the existing standards.
In an insolvency, it is not uncommon for a person who obtained a mortgage in order to purchase real estate to lose the property and still owe the bank due to its decreased value. However, Parliament has passed the Debt Restructuring and Debt Protection Act, which should encourage dialogue between lenders and creditors in order to find solutions to solvency problems through compromise.
At present, much attention is being given to amending or creating new financial regulations. For example, the Basel III rules, which provide for higher capital requirements in order to reduce the riskiness of banks, are in the process of being ironed out. At the same time, the Estonian Ministry of Finance has prepared a draft act that will significantly change the regulations on financial collateral.
Several amendments to the Public Procurement Law recently came into force. Most of them resulted from the implementation of the Remedies Directive into national law. Independently, the locus of supervisory powers was moved so that, as of July 1, the independent Public Procurement Agency ceased to exist. Rather, supervisory tasks are now carried out by a public procurement unit within the Ministry of Finance.
Since most credit institutions (including banks) provide collateral agent services as well as acting as underwriters, the regulation stipulated in the Financial Supervision Authority's latest advisory guideline will introduce some new rules of play. The guideline is built on three pillars: the obligations of the collateral agent, the role of the underwriter and matters related to conflicts of interest.