If your company has become insolvent and is not able to satisfy creditors’ demands in a sufficient manner, bankruptcy must be declared. This is done though a court.
Bankruptcy is declared as the result of bankruptcy proceedings. Proceedings are commenced on the basis of a bankruptcy petition. In the course of the bankruptcy proceedings, the creditors’ demands are satisfied via transfer of company’s assets or through reorganization.
Stages of the bankruptcy process
1.Submit a bankruptcy petition
You may submit the petition for initiating bankruptcy proceedings yourself, this may be done by your creditors or other persons set forth in legislation. If the company is permanently insolvent, the bankruptcy petition must be presented by the member so the company’s management board or liquidators. The bankruptcy petition is to be submitted to the county court of your location.
The creditor who submits the bankruptcy petition must supply proof of the size, grounds and term for discharge of the claim. If you submit the bankruptcy petition yourself, you must append an explanation regarding the reason for the insolvency and a list of the debts.
To submit a bankruptcy petition, you will have to pay a state fee + VAT.
2.The court publishes the notice of the bankruptcy petition in the Ametlikud Teadaanded (Official Notices).
3.The court appoints a trustee in bankruptcy
The trustee in bankruptcy is a trustee who reviews the insolvent debtor’s business activity, administers the bankruptcy estate and defends the rights and interests of all creditors, as well as those of the debtor. This trustee is the legal representative of the debtor who shall execute transactions in the name of the debtor and represent the debtor in disputes over property.
The trustee in bankruptcy shall be allotted a fee the amount of which shall be determined by a judge. The fee shall be paid from the debtor’s assets. The court may oblige a creditor who submitted a bankruptcy petition to pay the fee of a temporary administrator and to deposit an amount with the court to cover expenses if there is reason to presume that the bankruptcy estate will not be sufficient to cover it.
The appointment of the trustee in bankruptcy will be decided by the court within 10 days of the date on which the petition is admitted. If the court holds a preliminary hearing for appointment of the trustee in bankruptcy, the appointment of the trustee in bankruptcy will be decided in 20 days.
4.A preliminary hearing is held in court
If the bankruptcy petition is submitted by the creditor, the court will hold a preliminary hearing and will appoint a temporary trustee in bankruptcy. The time for the hearing is decided by the court within 10 days of the date on which the petition was admitted; the court shall send out invitations.
5.The court reviews the bankruptcy petition
If the bankruptcy petition was submitted by a debtor, it will generally be reviewed within 10 days (within 30 days in exceptions). Applications submitted by creditors shall be reviewed within 30 days (within 2 months in exceptions). If it becomes evident that the debtor has committed a crime upon insolvency, the court will notify the prosecutor or police.
6.The court makes a decision on bankruptcy:
A)The court does not declare bankruptcy due to abatement of the bankruptcy proceedings
The court shall end bankruptcy proceedings without declaring bankruptcy if the debtor does not have enough assets to cover the costs of the bankruptcy proceedings and it is not possible to regain the assets or demand it back, including lack of opportunity to bring a claim against a member of the management board. Proceedings shall also be terminated as abatement if the debtor’s assets consist primarily of recovery claims and claims against third parties and it is doubtful that these claims will be satisfied.
B)The court declares bankruptcy
The court shall declare bankruptcy with a respective ruling. When declaring bankruptcy the court shall decide the time and place where the first general meeting of creditors will be held, the appointment of the trustee in bankruptcy and the application of measures for securing the action. The bankruptcy decision is subject to immediate execution. The court shall publish a notice regarding the bankruptcy decision in the Ametlikud Teadaanded. After publication of the notice, the decision may be appealed for 15 days.
7.The court notifies the Commercial Register promptly of the declaration of bankruptcy.
Consequences of declaring bankruptcy:
- debtor obliges to submit to the trustee in bankruptcy a list of assets belonging to it as of the day the bankruptcy was declared, including obligations;
- the assets of the debtor become the bankruptcy estate and the right to administer the estate is transferred to the trustee in bankruptcy;
- creditors’ demands are covered from the debtor’s assets;
- debtor forfeits the right to execute any transactions;
- interest and fine for delay cease to accrue on demands against the debtor;
- the business name of the debtor may be used after declaration of bankruptcy only together with the word “pankrotis”(in bankruptcy).