The idea of establishing the Insolvency Division is modelled on the institution of the Finnish Bankruptcy Ombudsman, which has been operating in Finland since 1995.
The Insolvency Division represents the state in carrying out its statutory duties and operates independently. According to the explanatory memorandum to the Bankruptcy Act, independence is necessary to enable the Division to freely handle all bankruptcy proceedings, including those involving state-owned enterprises. This allows the Division to independently determine the necessity, extent, and feasibility of intervention.
The creation of this Division was necessary because the existing supervision system in Estonian bankruptcy proceedings is ineffective. By conducting state supervision in bankruptcy cases to identify unlawful insolvency, the Insolvency Division helps enhance entrepreneurial culture, detect insolvency causes, and identify illicit behaviour in insolvency creation. Thus, the Insolvency Division contributes to the functioning and improvement of a fair business environment in Estonia.
The Insolvency Division is financed from the state budget. Its activities are not directly profit-making, but the Division is entitled to recover its expenses, if possible, from the debtor’s bankruptcy estate.
The Insolvency Division is responsible for the supervision of debtors and identifying insolvencies that have been unlawfully created. The Division monitors, investigates and audits. As a result of its activities, individuals causing damage to companies are held accountable, for example, through compensation claims or assisting in the investigation of economic, financial and bankruptcy offenses.
Among other responsibilities, the Insolvency Division helps to develop consistent practices in all areas of insolvency (including bankruptcy, reorganisation and insolvency proceedings for debtors who are natural persons) and conducts administrative supervision of bankruptcy trustees.
The primary source of information for the Insolvency Division is the judicial system. According to the Bankruptcy Act, the Division has access to bankruptcy, reorganisation, debt restructuring, or individual’s proceedings for the release from obligations, and related proceedings from the moment the court receives a petition or action to initiate proceedings.
In addition, information is provided by attorneys, lawyers, reorganisation advisors, bankruptcy trustees, debtors themselves, persons connected to them, various creditors, other state and local government authorities, payment service providers, consumers, ordinary citizens and the media.
The right to obtain information is crucial for the Insolvency Division to fulfil its objectives.
When supervising debtors, the Insolvency Division has the right to promptly and at no cost acquire information and documents essential for carrying out the supervision from the court, the bankruptcy trustee, the debtor, persons connected to the debtor, creditors, the creditors’ general meeting, the bankruptcy committee, government authorities, credit institutions, or any other relevant party.
This information allows the Insolvency Division to determine whether the debtor’s insolvency has been caused unlawfully.
We hereby appeal to the public. All persons with information about potential unlawful conduct by (bankrupt) debtors who are legal persons and persons connected to them (owners, management, family, accountants, advisors, etc) in creating insolvency or increasing solvency difficulties, including concealment of accounts and property, diversion of property, and defrauding creditors and those who hold property belonging to the bankrupt or have obligations towards the bankrupt, are obliged to share this information with either the (interim) bankruptcy trustee and/or the Insolvency Division. Please send the relevant information as a memorandum to our email address: avalikuurimine (@) konkurentsiamet.ee or call (+372) 667 2703.
Pursuant to the Bankruptcy Act, the Head of the Insolvency Division is independent and impartial in performing their duties. The Insolvency Division must maintain independence in its decisions while supervising the debtor’s activities and exercising administrative supervision of the legality of the bankruptcy trustees’ actions.
The Head of the Insolvency Division is free to make decisions, for example choosing which bankruptcy proceedings to investigate more closely and which not to. To do this, he or she must be independent, and the law guarantees this. The Head of the Insolvency Division must be impartial towards the parties when conducting the proceedings. Unlike a bankruptcy trustee, the Insolvency Division does not represent the debtor and creditors, but the state and the public interest. However, he or she must consider the interests of both parties to achieve a fair and lawful outcome. He or she must also be impartial towards different creditors, whether these are from the state, public or private sector.
The Head of the Insolvency Division is appointed for a term of 5 (five) years. This allows them to achieve the Division’s objectives and contribute to the positive development of the Estonian insolvency field.
The Head of the Insolvency Division represents the Insolvency Division and leads its work, ensuring the lawful, precise and timely fulfilment of its duties. He or she approves internal guidelines and procedures regulating the Division’s work, grant general and special authorisations for representing the Division, conducting supervisory activities, making recommendations, and issuing administrative acts, perform activities and issue administrative acts in accordance with legal acts, including resolving appeals, keep separate records of the Division’s budget execution, ensuring the Division’s expenses are kept separate and perform other tasks stipulated by legal acts.
The bankruptcy committee is an important body that regularly supervises bankruptcy trustees in bankruptcy proceedings of bankrupts who are either natural or legal persons.
It is a collegial body that protects the interests of ALL creditors in bankruptcy proceedings, monitors the activities of the bankruptcy trustee, and performs other duties provided by law in bankruptcy proceedings.
The bankruptcy committee verifies whether the activities of the bankruptcy trustee are expedient and in compliance with the law in specific bankruptcy proceedings, and monitors the course of the business activities, the accounts and the financial situation of the debtor for such purpose.
The bankruptcy committee has the right to examine the bankruptcy trustee’s file and, where necessary, to demand additional information and documents concerning the bankruptcy proceedings, and to monitor the bankruptcy trustee’s economic activities related to the management of the bankruptcy estate.
Bankruptcy trustees typically perform their obligations personally. A bankruptcy trustee may use a representative and an assistant in performing acts and entering into transactions relating to the bankruptcy proceedings with the prior consent of the bankruptcy committee. A bankruptcy trustee must defend the rights and interests of all the creditors and of the debtor and ensure lawful, prompt and financially reasonable bankruptcy proceedings. A bankruptcy trustee must perform their obligations with the diligence expected from an accurate and honest bankruptcy trustee and take into consideration the interests of all the creditors and the debtor.
The chairman of the bankruptcy committee participates in the court hearing of the action for annulment of the bankrupt’s decision on behalf of the bankrupt.
Members of a bankruptcy committee who have wrongfully caused damage to the debtor, a creditor or a creditor with a consolidated claim through violation of their obligations are solidarily liable for the damage caused.
Persons with active legal capacity who are independent from the bankruptcy trustee may be members of a bankruptcy committee.
A person connected with the bankruptcy trustee must not be a member of a bankruptcy committee.
Persons related to a bankruptcy trustee include:
1) the bankruptcy trustee’s spouse, as well as the former spouse if the marriage was divorced within a year before the transaction;
11) the registered partner of the bankruptcy trustee, and the registered partner with whom the registered partnership contract was terminated within one year before the conclusion of the transaction;
2) persons who live in a shared household with the bankruptcy trustee or who lived in a shared household with the bankruptcy trustee during the year preceding the conclusion of the transaction;
3) ascendants and descendants of the bankruptcy trustee and their spouses or registered partners, sisters and brothers of the bankruptcy trustee, the ascendants and descendants and sisters and brothers of the bankruptcy trustee’s spouse, registered partner and of the person specified in clause 2 of this subsection;
4) a legal person the shares of which belong either wholly or partially to the bankruptcy trustee or the persons specified in clauses 1–3 of this subsection or to whose management body the bankruptcy trustee belongs or with whom the bankruptcy trustee has entered into an employment contract.
Also, a person referred to in subsection 6 of § 57 of the Bankruptcy Act may not be a member of the bankruptcy committee. By analogy, this means that a member of the bankruptcy committee may not be a person:
1) with a criminal record for an intentionally committed criminal offence;
2) who have been removed from the position of judge, notary, prosecutor or enforcement agent or disbarred or expelled from the board of auditors or who have been deprived of the profession of a sworn translator on the basis of clause 3 of subsection 3 of § 28 of the Sworn Translators Act or who have been deprived of the qualification of a patent agent on the basis of clause 1 or 2 of subsection 1 of § 20 of the Patent Agents Act during the preceding ten years;
3) who have been released from public service for a disciplinary offence during the preceding five years;
4) who are bankrupt;
5) with regard to whom a prohibition on business applies;
6) who have proved to be obviously unsuitable for supervision as a member of the bankruptcy committee in their previous professional activities or enforcement agent’s professional activities;
7) who have been deprived of the right to be a bankruptcy trustee or operate as an undertaking by a court judgment;
8) who have been excluded from the Chamber of Enforcement Agents and Bankruptcy trustees due to commission of a disciplinary offence in the preceding seven years or who have been deprived of the right to act as a bankruptcy trustee.
A member of a bankruptcy committee who must not be a member of the bankruptcy committee or who violates their obligations may be released by the court at its own initiative or at the request of a creditor.
The Head of the Insolvency Division, an officer of the Division, and an employee of the Division may not be a member of the bankruptcy committee.
A judge, a person connected to the bankrupt, the bankruptcy trustee of the bankruptcy proceedings, or a trusted practitioner may not be a member of the bankruptcy committee.
The bankruptcy committee is elected by the (first) general meeting of creditors.
The number of bankruptcy committee members is determined by the (first) general meeting of creditors.
The bankruptcy committee must have at least three and no more than seven members.
The bankruptcy committee must include individuals with both larger and smaller claims as presented by creditors.
The general meeting of creditors may release a member of the bankruptcy committee.
The court may release a member of the bankruptcy committee at their request if the general meeting has refused to release the member of the bankruptcy committee who has requested to be released.
If the general meeting of creditors has elected the members of the bankruptcy committee or made other changes to the committee, the bankruptcy trustee must immediately forward the list of the members of the bankruptcy committee and any changes thereto to the registry department of the Tartu County Court.
The public has the right to know the members of the bankruptcy committee, a supervisory body in specific bankruptcy proceedings, and how to contact them.
The general meeting of creditors may decide not to establish a bankruptcy committee. In this case, the general meeting of creditors performs the functions of the bankruptcy committee.
For the decision to establish the bankruptcy committee, determine the number of its members, elect its members, and remove its members, at least half of the present creditors whose claims constitute at least two-thirds of all claims must vote in favour.
Reasonable remuneration may be paid to the members of a bankruptcy committee out of the bankruptcy estate if payment of the remuneration is reasonable taking into account the specifications of the bankruptcy proceedings.
No remuneration is paid to a member of a bankruptcy committee who represents the state as a creditor.
Payment of remuneration to the members of a bankruptcy committee is decided by the general meeting of creditors which also determines the amount of and the procedure for payment of the remuneration.
The limits of the remuneration paid to the members of a bankruptcy committee out of the bankruptcy estate are established by the Ministry of Justice.
A member of a bankruptcy committee who does not receive remuneration is reimbursed for the necessary and justified expenses incurred in the performance of the obligations of the member out of the bankruptcy estate.
Last updated: 12.08.2024