// COVID-19 //

Legal measures to tackle economical challenges of coronavirus outbreak / Daily update on actions & solutions /

DERLING PRIMUS lawyers hereby provide you with certain insights and most recent updates on actions in this extraordinary situation. 

N.B. Assessment of each situation has to be individual.
We are at your disposal to help you cope with the challenges during this difficult time because we care for you and your business.


Pan Baltic

The governments of Estonia, Latvia and Lithuania have set out the packages of temporary, timely and targeted measures to support people and businesses through this period of disruption caused by COVID-19.

The following is a Comparison summary, so called pan-Baltic checklist, of the principal measures and initiatives that the governments are implementing in response to the COVID-19 (Coronavirus) crisis.

Comparison of measures taken in Lithuania, Latvia and Estonia is a united project of lawyers in Vilnius, Riga and Tallinn of the pan Baltic law alliance DERLING PRIMUS.

2020.06.15 → Derling-Primus-Baltic-Checklist-EE-LV-LT-Covid19

Relevant updates in each jurisdiction:

Latvia & Lithuania

Please follow weekly updates with relevant comments in the link → primusderling.eu/covid-19/

Estonia

  1. The adopted amendments of the law in relation to the emergency situation
  2. Employment relations
  3. Contractual relations
  4. Corporate governance
  5. Data protection and privacy
  6. Taxes
  7. Relations with authorities
  8. Public procurement
  9. Structural Support of European Union
  10. Reorganisation proceedings

1. The adopted amendments of the law in relation to the emergency situation

The president of the Republic of Estonia proclaimed a cluster law on 4 May 2020 which solves numerous problems that have arisen in relation to the emergency situation. The cluster law establishes amendments which are vital for ensuring the continuation and operation of economy during the era of numerous restrictions. Integral amendments which were established in the cluster law are as follows:

Medical certificates are not compulsory in numerous fields. The cluster law amends the regulations regarding medical certificates in numerous fields due to the emergency situation. Such an amendment has been established in §§ 2642 of the Traffic Act pursuant to which a medical certificate must not be presented for substituting or replacing the driving licence, if the provisional driving licence became invalid during the emergency situation or during 30 days after the end of the emergency situation. Yet, the driver must physically and mentally be in a condition suitable for driving a vehicle. Also, it was established that if the provisional driving licence becomes invalid during the emergency situation or 30 days after the end of the emergency situation, the driving licence is considered to be valid during the emergency situation and 90 days from the end of the emergency situation. Similar provisions were adopted in numerous other fields regarding issued licences and areas where a medical certificate must be presented for practicing.

The due dates of presenting a bankruptcy petition and recovery are subject to the chance during the period of 12 March 2020 until two months after the end of the emergency situation. Pursuant to the law which was in effect prior to the adoption of the cluster law, the management board of a legal person was obliged to present a bankruptcy petition to the court within 20 days as of the insolvency becoming evident. Pursuant to the new cluster law, the obligation does not apply to the emergency situation and two months after the end of the emergency situation. During the period, a creditor of the legal person is also unable to present a bankruptcy petition, except for the employees who do not receive a subsidy which was established during emergency situation.

Additional regulations which have an impact on persons who are already staying in Estonia based on visas that have already been issued, were established for foreigners. The act was supplemented with a provision pursuant to which a period of stay may be terminated prematurely if the main purpose of the stay in Estonia is working and his employment contract or other contract or activity whereby an income or other financial benefits can be expected, terminates or has terminated. Still, numerous restrictions are not applied until 31 July 2020 to foreigners who are staying in Estonia as of 17 March 2020, if the main business area of their employer are the production of plants and animals, hunting and other business activities related thereto.

The amendments of the regulations of criminal proceedings ensure the administration of justice during the emergency situation. The amendments enable the body conducting proceedings to organise a telehearing if direct interrogation is difficult or unreasonably burdensome or if the telehearing is necessary for the protection of the interests of a person. Also, the amendments enable to oblige the witness to answer the questions in writing within a period specified by the body conducting proceedings, if the body conducting proceedings sees direct interrogation as irrational. The establishment of the institution of written testimony gives the body conducting proceedings a possibility to choose between meeting the accused, the witness, the civil defendant and third parties directly and sending questions for answering in writing. Pursuant to the previous regulation, organising interrogations was possible only by meeting the person directly or in the form of telehearing.

2. Employment relations

  • What are the employer’s responsibilities for occupational safety?
  • Are employers required to permit staff to work remotely?
  • Can an employer lay-off or furlough staff temporarily?
  • Can an employer unilaterally reduce an employee’s contractual pay (or working hours and pay accordingly)?
  • Can an employer make employees redundant due to the impact of the pandemic and emergency situation?

Obligation to ensure occupational safety: Employers have an obligation to ensure working conditions that comply with occupational health and safety requirements. Among other things, harmful biological factors in the workplace should not endanger the health and lives of employees and other individuals in the workplace. Biological factors include, inter alia, viruses, including the COVID-19 virus.

It also must be taken into account that it is allowed to be in public places only alone or with maximum one other person and  a 2-metre space must be between all persons. However, this limitation is not applicable to families moving together and to people who fulfil public tasks.

Consultations and meetings: On the basis of recommendations of the Health Board and the Government of the Republic, face-to-face meetings and consultations are not recommended. All meetings and consultations should be conducted remotely via IT solutions, such as Microsoft Teams or BigBlueButton.

Lay-off: The employee and the employer can agree on unpaid leave; however, the employee is under no obligation to agree to this. Employees may also use their paid holidays. If the employee and the employer do not reach an agreement on unpaid leave, the employer is required to pay the employee the average wage. In accordance with the legislation in force, lay-offs are not permitted (see also § 35 of the Employment Contracts Act).

Sick leave certificate: A certificate of incapacity for work is issued if there is a real risk of infecting others or becoming infected. Sick leave certificates are not issued to employees who have travelled to Estonia from abroad, if there is no reason to suspect that they have been infected. Sick leave certificates are only issued to individuals who have been in contact with an infected person or are actually ill; therefore, a sick leave certificate cannot be used as a solution to the current situation. Yet, if the sick leave certificate is issued, the state grants a subsidy of 70% of the average salary of the last 6 months from the first day during the period of Mach to May 2020 (see also § 51(1) Health Insurance Act).

Reductions in pay and working hours: Estonian legislation provides for the possibility of reducing pay (but not below €584) and working hours. The employer may reduce the pay and working hours for up to three months if:

  1. the employer is, due to unforeseen economic circumstances beyond its control, unable to provide an employee with work to the agreed extent; and
  2. the situation is economically onerous on the employer.

The employer must notify the employee of the reduction in pay at least 14 days in advance. Unforeseen circumstances beyond the employer’s control may include, for example, a prohibition on entertainment events (see also § 37 of the Employment Contracts Act).

Redundancy: An employer may extraordinarily cancel an employment contract if continuing the employment relationship is impossible due to a decrease in the work volume or reorganisation of work or other reasons. In the current emergency situation, a number of employers may have the right to make employees redundant. If, in the employer’s judgment, this is the best solution for overcoming economic difficulties, the planning of redundancies should begin in good time (see also § 89 of the Employment Contracts Act).

Compensation measures: For companies whose turnover and revenues have fallen sharply the Unemployment Insurance Fund compensates the wages for two months in amount of 70 percent of the average gross salary of the previous 12 months, but not more than 1000 euros. The employer is obliged to pay the employee at least EUR 150 in addition, as well as the labour taxes. The cost of the support measure is expected to amount up to EUR 250 million.

Applying for subsidies: It is possible to apply for subsidies from the Estonian Unemployment Insurance Fund, if the economic activities of the employer are suppressed. Employers of the public and private sectors, irrespective of the size of the company, are eligible for applying for the subsidy. The subsidy is granted if the employer is compliant to two of the following conditions:
1) the turnover of the company must have fallen by at least 30 percent compared to the same period last year;
2) at least 30 percent of the workforce no longer have a job;
3) salaries have been reduced by at least 30 percent.

From 6 April 2020 it is possible to apply for the subsidy for March. The subsidy for April can be applied for at the beginning of May and the subsidy for May can be applied for at the beginning of June. The subsidy is composed of 70% of the average salary of the nine months that preceded last three months. For further information, please see the webpage of the Estonian Unemployment Insurance Fund.

Contact persons at Derling Primus: Toomas Taube and Andres Siigur

3. Contractual relations

  • To avoid any liquidity problems, is it permitted to delay the payment of a purchasing price, interest payments or the performance of other financial obligations?
  • How can Force Majeure be proven?
  • Does the emergency situation constitute grounds for unilaterally altering the conditions of a contract?

What constitutes an event of Force Majeure, and what does not? Force Majeure means any event or occurrence which is outside the reasonable control of the debtor and which could not be foreseen or avoided. It must be borne in mind that parties may agree on conditions of Force Majeure different from those provided by law. The Estonian law allows for classifying an epidemic as an event of Force Majeure; however, whether the Covid-19 pandemic is considered an event of Force Majeure or not, depends on the definition of Force Majeure in the relevant contract (see also § 103 (2) of the Law of Obligations Act).

Effects of Force Majeure: Force Majeure excuses a party from performing its contractual obligations and restricts the use of most remedies against the party relying on Force Majeure. However, in the case of Force Majeure, the following remedies may be used against the party: refusal to perform an obligation, withdraw from the contract or reduce the price (see also § 103(2) and § 105 of the Law of Obligations Act).

Reliance on Force Majeure: Successful reliance on Force Majeure is not possible in all circumstances. First, the mere existence of a Force Majeure event may not excuse a party from its contractual obligations; the clause will require that the Force Majeure event must actually cause, prevent or be attributable to a delay or failure of a party to perform its obligations. Second, it should be borne in mind that the party that wishes to rely upon the Force Majeure must prove the existence of Force Majeure. Inability to prove the existence of Force Majeure normally results in an obligation to perform the contract. Consequently, companies should focus on information management to ensure that they are able to prove Force Majeure and draw their contractual partners’ attention to the obligation to clarify the effect of Force Majeure on performance if the party wishes to rely on Force Majeure (see also § 103(1) of the Law of Obligations Act).

Force majeur as a factor which excuses a party from liability has become topical regarding numerous contractual obligations. Questions regarding loan agreements and lease contracts will be addressed as follows.

Obligation to fulfil loan agreements: Numerous recipients of the loan can currently be in financial difficulties but the difficulties do not excuse them from repaying the loan even if the financial difficulties were caused by the spread of COVID-19. The recipients of the loan should negotiate the terms with lenders in such situations.

Banks have expressed their readiness to comply with their clients’ needs by offering new loans or relaxing repayment schedule. Inter alia it is possible to apply for a grace period. Generally, banks agree to amend (temporarily) the terms, if the client has not fallen into arrears. Also, it must be considered that if numerous recipients of the loan are present, they all must apply for the amendment of the loan agreement.

Banks have a possibility to involve KredEx to implement comprehensive measures and to alleviate the negative effects of the emergency situation it has on business. If a bank relaxes the repayment schedule for an existing bank loan not backed by KredEx or is willing to issue a new loan to the business, KredEx will give its guarantee to that loan. If it is not possible to come to a positive solution in collaboration with a bank, businesses have a right to apply for extraordinary working capital loan or for investment loan provided by KredEx.  Additional information can be found from the webpage of KredEx.

In addition to KredEx, Enterprise Estonia (EAS) is also going to endorse businesses. EAS alleviates financial difficulties by offering two methods: (i) by awarding micro-enterprises and small-scale enterprises with a non refundable aid; and (ii) by awarding the sectors of entertainment, catering and tourism with a non refundable aid. Also, the supplementary budget bill established an opportunity to support state-owned enterprises or enterprises which hold a vital position in Estonia with capital injection or loan worth up to 300 million euros.

Obligation to fulfil lease contracts: Financial difficulties do not excuse the lessee from paying the rent pursuant to the law. However, the lessee can still have a right to reduce the rent or to refuse to pay the rent due to the financial difficulties caused by the emergency situation.

Whether the intended use of the rooms is restricted or precluded is dependent on the effect the restrictions established by the Government of Estonia have on the residential lease relation.

The intended use of the rooms might be restricted due to the order of the Government of Estonia pursuant to which a two-metre space must be between all persons. If fulfilment of this order is not possible during the intended use of the rooms, the lessee might have a right to reduce the rent.

The intended use of the rooms might be precluded due to the orders of the Government of Estonia pursuant to which all schools and shopping malls must be closed. For example, if the intended use of the rooms pursuant to the contract is selling goods to customers of the shopping mall, the lessee must be able to use the rooms as a shop. By closing the shopping mall due to the emergency situation, the lessee is unable to use the rooms as a shop which is why the lessee might have a right to refuse to pay the rent or at least to reduce the rent.

In order to understand the intended use of the rooms, relevant provisions of the contract must be analysed. If the intended use of the rooms according to the contract is precluded or is restricted, the lessee must immediately inform the lessor about it. The obligation to immediately inform the lessor applies to all other deficiencies as well.

For reducing the rent unilaterally and for refusing to pay the rent, a corresponding declaration shall be made to the lessor. It is important to bear in mind that if a lessor wants to set off the overpaid rent or to refuse to pay the rent, he must give the lessor 30 days’ notice. This means that the lessee must make a declaration to set off the lessee’s claim with the lessor’s claim 30 days prior to the next obligation to pay the rent.

Possibility of, and grounds for, unilaterally amending a contract: In accordance with Estonian law, a party has the right to request the amendment of a contract if the circumstances under which a contract is entered into change after the entry into the contract. A change in the circumstances should result in a material change in the balance of the obligations of the parties due to which the costs of one party for the performance of an obligation increase significantly or the value of that which is to be received from the other party under the contract decreases significantly. Measures to prevent the spread of the COVID-19 virus may result in a material change in the balance of the obligations of the parties. Parties have the right to amend the contract at any time in agreement with the other party (see also § 97(1) of the Law of Obligations Act).

Amendment procedure: A contract may be amended upon submission of a relevant request to the other party. A party may request the amendment of the contract retroactively, but not as of a time earlier than the time when the balance of the obligations changed (see also § 97(4) of the Law of Obligations Act).

For further information about Force Majeure, read articles by Piret Blankin available here and here.

Contact persons at Derling Primus: Piret Blankin, Margo Lemetti, Hannes Vallikivi and Karl-Erich Trisberg

4. Corporate governance

  • Can a general meeting be held remotely?
  • Will the sudden change in the economic situation result in additional disclosure obligations for listed entities?

General meeting:

Shareholders of a private limited company may adopt decisions without calling a shareholders’ meeting. The management board should communicate the draft decision to all shareholders by any means which leave a written record and set a time limit for comments to be submitted. Comments must be submitted by any means which leave a written record. If a shareholder fails to notify within the set deadline whether or not they vote in favour of the decision, it is considered that the shareholder has voted against the decision.

If the Articles of Association provide for electronic voting, a general meeting or a shareholders’ meeting may be held, by a decision of the management board or supervisory board, via the Internet, two-way communication or by using other safe technology. It should be noted that watching a meeting via web-stream is not considered participation in the meeting, which means that participation without voting is not taken into account. Therefore, the participants should be able to vote by mail, electronically in advance or during the meeting.

Publication of information by publicly-traded companies: European Securities and Markets Authority (ESMA) has published recommendations on information disclosure and business continuity planning in relation to the impacts of the COVID-19 outbreak.

For further information on the organisation of meetings see Andres Siigur’s comment in Ärileht.

Contact persons at Derling Primus: Andres Siigur, Hannes Vallikivi

5. Data protection and privacy

  • May an employer disclose an employee’s actual or probable COVID-19 diagnosis to other employees?
  • Can employers request or require information from an employee about potential or actual exposure to the COVID-19 virus (e.g. health certificate)?

Protection of employees’ health data: If the processing of health data is absolutely necessary to ensure occupational safety, the employer may process the employees’ health data. In such a case, all general principles of data protection, in particular the principles of data minimisation and confidentiality, are to be respected. The employer must document all activities involving the processing of personal data and decision-making processes relating to measures to control the COVID-19 outbreak in order to be subsequently able to demonstrate compliance with the General Data Protection Regulation (GDPR).

According to Article 9(1) of the GDPR, data concerning health constitute a special category of personal data, the processing of which is normally prohibited. By way of derogation, Article 9(2)(b) of GDPR permits the processing of special categories of personal data (including health data) if processing is necessary for the purposes of carrying out the obligations and exercising specific rights of the controller or of the data subject in the field of employment and social security and social protection law. The Occupational Health and Safety Act lays down employers’ obligations in relation to ensuring occupational safety. Consequently, (legal) processing of health data is permitted for the purposes of carrying out their obligations.

An employer is obliged to notify employees of cases of infection if there is a risk of an accident (regarding COVID-19 the last alternative provided for in § 15(1) of the Occupational Health and Safety Act, i.e. another incident at a workplace which may endanger the life and health of employees and those of other persons). In case of a risk of an accident, an employer is required to inform as soon as possible all employees who are or may be exposed to serious danger of the risk involved and of the steps to be taken. When notifying employees, disclosure of personal data should be avoided as far as possible (the need of disclosure must be considered on a case-by-case basis).

Requirement to provide a medical certificate: A medical certificate may be requested only in cases provided by law (§ 13 of the Communicable Diseases Prevention and Control Act). The Estonian Data Protection Inspectorate has explained that according to the legal analysis conducted so far, even in the context of COVID-19 and the emergency situation, the Government cannot create a different right of employers to process employees’ health data. In the interests of the health and welfare of themselves, others and society as a whole, both the employer and the employee should be guided by the principle that the employee voluntarily provides information about their health to the extent that the employer is enabled to organise work as safely as possible.

Contact persons at Derling Primus: Hannes Vallikivi and Margot Maksing

6. Taxes

  • Has the Tax and Customs Board provided for exceptions in declaring and paying taxes?
  • How should one act in the case of tax arrears or inability to follow the payment schedule?

Declaration and payment of taxes: No general exceptions or tax incentives have been provided for and the declaration of taxes is mandatory. However, the Government of Estonia has  established an exception pursuant to which the amount of the advance payment of the social tax of self-employed persons for 1Q of 2020 will be transferred by the state to self-employed persons’ prepayment accounts. If a self-employed person has already paid social tax in advance, he may use the funds to cover any tax liability, either immediately or in the future, and may also claim it to be transferred to his bank account.  What is more, employers are also excused from paying the social tax monthly payment, including during holidays without pay and while working part-time. The exemption was established for a definite period of time and the minimal obligation to pay the social tax does not have to be performed in March, April and May of 2020.

Tax arrears: Calculation of default interest on tax arrears has been paused from 1 March till 1 May and after termination of the state of emergency, the default interest on tax arrears was reduced from 0.06 percent to 0.03 percent per day. The Tax and Customs Board has the right to further reduce the interest (down to zero) depending on the situation after the termination of emergency situation.

Contact person at Derling Primus: Rolan Jankelevitš

7. Relations with authorities

Notarial acts: Notaries implement special measures as they see appropriate and the opening hours and work organisation vary among notaries’ offices. Wherever possible, the remote notarisation service should be used, which enables the carrying out of notarial acts through video calls, without visiting the notary’s office. Not all services can be provided by using remote notarisation, for example marriage contracts cannot be notarised remotely. The contact details of notaries are available at the website of the Chamber of Notaries.

Register entries: Electronic channels should be used to make register entries. Court offices, including the office of Tartu County Court, are open from 9:00 to 13:00 on weekdays. It is recommended that documents be submitted electronically, by e-mail, or to the court’s mailbox and that visiting the court office should be avoided. Documents can be requested from the court office in an electronic form or by mail.

Courts: Estonian courts, which used written procedures and technical solutions during the emergency situation, will hold more hearings in the courtroom again. Even after the end of the emergency situation, it is recommended to wear masks in the court, and the 2 + 2 rule must  be followed. For more details, see recommendations of the Council for the Administration of Courts, available on the Estonian courts website and an article by Sandra-Kristin Kärner on the Estonian Public Broadcasting (ERR) website.

Bailiffs and trustees in bankruptcy: In connection with the end of the emergency situation, bailiffs and bankruptcy trustees will start opening their offices. Further information and contact details are available on the website of the Chamber of Bailiffs and Trustees in Bankruptcy.

Contact person at Derling Primus: Sandra-Kristin Kärner

8. Public procurement

Urgent purchases and orders: The virus outbreak and emergency situation justified the procurement of essential goods, services and works by using negotiated tendering procedure without prior publication of a tender notice, which can be carried out fast and with minimum formalities. A negotiated tendering procedure, without prior publication of a tender notice, does not require tenders to be submitted or called for in writing; in extremely urgent situations, only one tenderer may be contacted for negotiations. It is important to note that extreme urgency must have arisen from unforeseeable circumstances beyond the control of the contracting entity. Only the contracts essential in the emergency situation (e.g. for purchasing protective masks, disinfection of premises, setting up a field hospital, etc.) can be awarded by using the exceptional procedure. Simplified rules do not apply to ‘ordinary’ contracts that are not critical. The European Commission has published a set of guidelines regarding urgent purchases in emergency situations, which can be found here.

Procurement planning: even if the contracting authorities have decided to use negotiated procedures without prior publication to obtain means to combat the pandemic, procurement planning should not be overlooked. Even in an emergency, signing contracts directly and without other considerations is not permitted. In the planning phase, one should at the very least ascertain that only one particular partner is objectively able to fulfil the contract. In other cases, contacting prospective partners by e-mail and notifying them of the purchase intent might help speed things up. Even if the market is currently unable to satisfy the contracting authorities needs, open communication is the key. Partners might be able to increase their production or (re)start it or offer creative alternatives.

Tax arrears and exclusion from tender procedure: The likelihood of tax arrears increased in an emergency situation. During the emergency situation, the calculation of interests on tax arrears was stopped retrospectively from March 1st until May 1st. However, the obligation to pay taxes was not lifted, i.e. tenderers can still be excluded from a tendering procedure due to tax arrears. In order to avoid problems, business operators should contact the Tax and Border Guard Board to defer their tax arrears. The Tax and Border Guard Board confirms that any problems that have emerged as a result of the emergency situation will be dealt with in a flexible manner. Deferred tax arrears do not constitute a ground for the exclusion of a tenderer. According to the Ministry of Finance, if, however, a tenderer has tax arrears, and overriding reasons of public interest necessitate the awarding of a contract, and the exclusion of the tenderer would result in the contract not being awarded (e.g. if there are grounds for mandatory exclusion from the contract award of all tenderers), it is permissible to not exclude the tenderer and to award the contract to that tenderer. The Ministry of Finance’s clarifications are available on the Ministry’s website section concerning public procurement.

Modification of a public contract: The usual procedure under the law on obligations applies to the content and performance of public contracts. Therefore, it is possible to claim Force Majeure if problems occur with the performance of a public contract (for details see paragraph 2 of this document). Modification of a public contract, including extending its duration and scope, is allowed only on the grounds provided for in the Public Procurement Act (see § 123 of the Act). The emergency situation did not change this. Due to unexpected and critical situation, a public contract may be modified for reasons of unforeseeable circumstances. The modification must be caused by circumstances unforeseeable to a diligent contracting authority or entity where the overall nature of the public contract is not altered and the value of any modification does not exceed 50 % of the original value of the public contract. A contract cannot be indefinitely modified by 50 %; each individual modification must be the result of unexpected and unforeseeable circumstances.

Review procedure and hearings:  According to the law it is permitted to resolve the request in a written procedure if, in the opinion of the Review Committee, circumstances of essence to the adjudication of the case can be established without holding a hearing. Therefore, it is in the interests of public health, of the health of all of us, that all requests for review are as precise and comprehensive as possible to enable the Committee to review the case without holding a hearing.

Contact person at Derling Primus: Priit Lember

9. Structural Support of European Union

On-site inspections: During the emergency situation the implementing agencies did not conduct on-site inspections. After the end of the emergency situation the implementing agencies have carried on the on-site inspections according to the inspection plan as usual. The on-site inspections cancelled due to the emergency situation will be conducted as soon as possible.

Eligibility of costs: The beneficiary may need to incur additional expenses to properly implement the project, including those related to the impact of emergency situation. Such expenses may include, for example, the costs of postponing events, seminars, supply chain failures, or expenses due to labour movement restrictions. Expenditure related to the spread of Covid-19 shall be considered eligible if it is incurred after 1 February 2020. However, it should be borne in mind that, as usual, the beneficiary must comply with certain conditions. Expenses related to Covid-19 shall be considered eligible if (i) the beneficiary has made every effort to recover or avoid the costs incurred and (ii) the beneficiary provides supporting documents to implementing agency.

Extension of eligibility period: In addition to costs, the emergency situation may have given rise to problems which may hinder the implementation of the project. When the timely implementation of the project may be at risk, one should react promptly. In order to extend the eligibility period of the project, an application to amend the grant decision should be submitted to the implementing agency. It should also be borne in mind that, for certain operations, there are additional conditions for amending the grant decision which must also be met.

Contact persons at Derling Primus: Margo Lemetti and Priit Lember

10. Reorganisation proceedings

To overcome financial difficulties of a business, it is possible to commence the reorganisation proceedings. In reorganisation proceedings, measures which help the business in financial difficulties to continue with its business activities are taken and due to that the obligations at least for the most part can be fulfilled.

Reorganisation proceedings should be favoured instead of bankruptcy proceedings. The purpose of reorganisation proceedings is to help a business overcome financial difficulties by providing them with the judicial protection and inspection. However, in bankruptcy proceedings a business is liquidated, and the claims of creditors are fulfilled by selling assets and receiving money from the recovery of transactions. At this time, the financial difficulties of businesses have been caused by the spread of the virus COVID-19 and by measures taken by governments for hindering the spread of the virus which is why financial difficulties can be deemed as temporary.

For commencing reorganisation proceedings, a reorganisation application must be submitted to the court of the seat of the business. A reorganisation application of a business must contain an explanation regarding the reasons for the financial difficulties and shall substantiate that the business is likely to become insolvent in the future; the enterprise requires reorganisation; and the sustainable management of the enterprise is likely after the reorganisation.

The commencement of reorganisation proceedings has a positive effect on the financial situation of the business as a debtor. As a result, the court suspends enforcement proceedings conducted regarding the assets of the business and can suspend court proceedings regarding a financial claim against the business on the basis of the application of the business and the approval of the reorganisation adviser which is appended to the application, until the reorganisation plan is approved or reorganisation proceedings are terminated. The result does not apply to the claims based on employment relationship and to the claims for support. In addition, it is of great importance that the calculation of a fine for delay or a contractual penalty which increases in time on claims against the business is suspended until approval of a reorganisation plan. Therefore, reorganisation proceedings have a positive effect on collectable claims and on claims potentially becoming collectable in the future.

However, the reorganisation proceedings should also be in the interests of creditors as they are more likely to get their obligations fulfilled in case of the business continuing with the business activities. The creditor finds out about the commencement of the reorganisation proceedings about the debtor with a reorganisation notice where the sum of the collateral claim and principal claim is shown. Also, a due date for answering to the reorganisation notice is set forth in the reorganisation notice. It is of great importance for the creditor to meet the deadline. If the sum of principal and collateral claim differs in the reorganisation notice from the amount known to the creditor, the creditor must answer to the reorganisation notice by the due date and point out the difference. The creditor agrees to the sum of claims set forth in the reorganisation notice by failing to answer to the notice by the due date.

The reorganisation plan is the most important document of reorganisation proceedings for the creditor and for the debtor. The claims are transformed in the reorganisation plan which could mean for example reduction of the amount of debt or fulfilment of a financial claim in instalments. It is of great importance that the debtor is unable to conclude special agreements with creditor as a reorganisation plan must be followed. The creditors can vote in favour or against the reorganisation plan which is how they can affect the process of fulfilling obligations.
The reorganisation proceedings can terminate by fulfilling or not fulfilling the reorganisation plan. If a court terminates reorganisation proceedings prematurely, all consequences of commencement of reorganisation proceedings retroactively cease to exist. Therefore, for example a calculation of a fine for delay or a contractual penalty recovers, and it is considered as the calculation was never suspended. This however is not applied to fulfilling the reorganisation plan by the deadline or before the due date.


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