In the 10 years of validity, the Estonian Commer-cial Code has been amended numerous times. The most recent substantial amendments came in force on Jan. 1, 2006. Among these amendments many are related to the reduction of unreasonable bureaucracy or the elimination of otherwise unnecessary stipulations. As a result, the establishment of companies and the carrying out of everyday commercial activities has been considerably simplified.
Principles governing the functioning of the directing bodies of a company have been made more reasonable, and many unnecessary rules and formalities in cases of mergers, divisions and transformations of the companies have been abolished. For instance, a member of the management board will not be required to submit a separate specimen signature to the commercial register any more.
At the same time the competence and liability of directing bodies and their members have been elaborated, and rules relating to increase or reduction of share capital have been set down in more detail. Other important, welcomed amendments have been made in relation to much-disputed principles regarding the nullification and cancellation procedure of directing bodies' decisions. Many amendments have been specifically tailored to improve and protect creditors' and smaller shareholders' interest by specifying certain aspects of the liability of the management and supervisory bodies.
One particularly important amendment concerns the possibility of entering a notation on the right of pre-emption in case of transfer of shares into the Estonian Central Register of Securities. The notation will render any transfer of ownership of the shares contrary to the rights granted by the notation null and void. From now on it will be possible to establish a company with a closed list of shareholders who will not be able to transfer freely their shares to third persons. It is a matter of dispute whether such possibilities are always justified but the legal solution to the matter is interesting.
All the above-mentioned amendments are necessary and have simplified many aspects of commercial activities.
Still, there are amendments which have uncertain effects upon the everyday activities of undertakings and entrepreneurs, and a number of them are somewhat vague or even highly questionable. For example, there are now more persons liable for the actions performed before the company has been entered into the commercial register, which has brought along unprecedented grounds for liability. The purpose of the new regulation is clearly to discourage the circulation of shelf companies and make such companies as unattractive as possible by extending the liability of the founders of the shelf company to any future shareholder who might acquire shares from the founder.
In our opinion, the solution is not well founded, and the legislator has not targeted the real essence of the problem: the long queues for notaries' appointments and the processes within the commercial register. A great deal of uncertainty is created by providing that together with the founders of the company also the persons in whose economic interests the company was founded will be liable for the founders' actions (including, for example, the assessment of the value of the contribution to the share capital). The concept of economic interest is very broad in the context of shelf companies and creates risks for the future possible shareholders.
The amendments do not take into account that a shelf company is rarely founded in the interests of a specific person but rather in the interest of the unspecified future shareholder. So in reality this amendment holds a person liable for the unlawful actions (for instance, providing false information in regards to the value of contributions to share capital) of another person, even if the person in question is not aware of any illegal activities and has not been able to avoid such illegal actions. Basically we are talking about strict liability of any future shareholder for the actions of a person with whom they have never had any contacts and about whose past actions they have therefore no knowledge.
Naturally, it is important to protect the interests of the creditors, but the measures imposed for that purpose need to be justified and proportionate, and they should provide legal certainty to all the concerned parties and should not unreasonably interfere with the right of ownership and freedom of enterprise.
A member of Baltic Legal Solutions, a pan-Baltic integrated legal network of law firms which includes Kronbergs & Cukste in Latvia Jurevicius, Balciunas & Bartkus in Lithuania, dedicated to providing a quality 'one-stop shop' approach to clients' needs in the Baltics.
Leon Glikman is attorney at law at Teder Glikman & Partners
