Ministry wants bankruptcy-free period until end of emergency situation

Minister of Justice Raivo Aeg (Isamaa).
Minister of Justice Raivo Aeg (Isamaa). Source: Government Communication Unit

The Estonian government will on Thursday discuss a proposal by the Ministry of Justice to halt the obligation for filing bankruptcy for the duration of the current emergency situation and a period of two months to follow its conclusion. According to Minister of Justice Raivo Aeg (Isamaa), this is necessary so that business-owners can address payment difficulties caused by the current crisis.

While business-owners are required by law to file for bankruptcy within 20 days of becoming insolvent, under the Ministry of Justice's proposal, the required deadline would be halted as of March 12, when the Estonian government declared an emergency situation. The change would expire two months after the end of the emergency situation.

Aeg told ERR that halting the bankruptcy filing requirement is necessary in order to provide business-owners with some breathing space for addressing payment difficulties caused by the coronavirus-induced crisis, and the goal is to prevent the mass filing for bankruptcy.

"As a consequence of the coronavirus, we are in a situation in which business-owners have very abruptly developed payment difficulties," Aeg explained. "As a result of the emergency situation, consumers cannot buy or consume, and business-owners cannot sell as they usually do, earn income, pay wages. Typical opportunities for overcoming payment difficulties, such as finding new markets, producing new products, seeking new clients or restructuring, in large part aren't possible right now either."

While the law currently calls for business-owners to file for bankruptcy within 20 days of becoming insolvent, this would put business-owners under pressure, because they would have to decide quickly whether or not to file for bankruptcy, he said. He added that in the current market situation, bankruptcy proceedings may lead to the sale of a business-owner's assets under poor market conditions, which would be detrimental to both the debtor and their creditors.

"In order for business-owners to have the opportunity to adjust their economic activities according to the situation to have arisen, as well as take advantage of aid measures being offered by the state, they need more time than usual, which the bill would offer," the minister said.

Change to apply to all business-owners

Despite the fact that the goal of the bill is to provide relief to those business-owners who have fallen on hard times as a result of the spread of the coronavirus and implemented restrictions on movement and activity, the change would apply to all business-owners.

According to Aeg, the imposing of specific conditions had been considered in the process of working out the bill in question, such as the condition that payment difficulties had to have occurred as a result of impacts of the coronavirus.

"We decided against the imposing of specific conditions based on the assessments of international insolvency experts and taking into consideration the fact that it is difficult to assess such conditions, and they would give rise to disputes and increase the burden on courts," he explained.

"While the impact of the change on creditors is restrictive on one hand, as they cannot file for bankruptcy for a debtor during this period, this change will not mean that a creditor does not have the right to demand to have their claim satisfied," the minister said. "The goal of the proposal is to support business-owners so that they have the opportunity to continue their activities and find ways to fulfill creditors' claims."

During this proposed so-called "bankruptcy-free period," he cited as an example, business-owners would have the opportunity to provide services online, restore their economic activity following the end of the emergency situation, as well as utilize aid measures being offered by the state.

"Business-owners who have no prospect of restoring and continuing their economic activity following the end of the emergency situation should file for bankruptcy; this bill would not take the right to do so away from them," he added.

According to the justice minister, it is difficult to assess exactly how many business-owners would be affected by the change, as this would depend on how long the emergency situation will last and how great business-owners' difficulties would become in the process.

The bill is expected to be approved at Thursday's government meeting, after which it will be submitted to the Riigikogu, he said.


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Editor: Aili Vahtla

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