It is a trite statement that the current economic situation in Estonia is becoming increasingly challenging for entrepreneurs. As small-to-medium sized companies' solvency and financial soundness is considered to be heading south, creditors face the challenge of litigating with practically nothing to back up the claim.
This brings about certain changes of perspective in the world of commercial litigation as well.
While in the recent booming days creditors and their lawyers were mainly challenged with disputes that were legally difficult, the main challenge today is to find adequate security for the actual enforcement of the judgement. While the reluctance to satisfy a claim might make it difficult for the creditors to obtain payment from the debtor, the factual lack of money on the creditor's part makes it impossible. The problem is then exacerbated by the fact that debtors with solvency issues tend to have a large number of unsatisfied creditors, including financial institutions, the latter almost definitely having some kind of security backing their claim, e.g. a mortgage on real property or commercial lien.
This leaves such creditors without security as suppliers with a clear claim, which looks good on paper, that is either terribly difficult or impossible to realistically recover.
Securing action is the best way for a creditor to obtain some kind of security for their claim, but herein lies another issue. The formal criteria for securing action in Estonian civil procedure provide quite a narrow range of grounds for doing so. For example, the debtor's apparent economic distress is not one of them, nor is the region's macro-economic perspective as a whole. Although some court rulings have taken these issues into consideration, court practice is inconsistent in this regard, giving no real legitimate expectations for applicants.
Solvency issues are further compounded by how easy it is to incorporate a new company in Estonia.
More and more often, businesses are being declared bankrupt only to be replaced by new companies with the same owners or persons closely connected to them. Intellectual rights are quietly transferred to the "successor," and creditors are left with a bleak outlook on recovery once again.
Even though Estonian civil-enforcement law and bankruptcy law provide for a means to recover a debtor's property if it has been transferred to another person with the aim of damaging the creditors' interest, the problem is that the courts' hands only reach as far as the first transaction. If the debtor and the debtor's close connections carefully cover their trail and transfer the property through a number of different transactions, the new owners would most likely be treated as owners in good faith.
These are only the most obvious examples of the difficulties that commercial litigation brings to the table in a challenging economic environment 's this only scratches the surface. The best course of action in practice seems to be to file suit quickly, get judicial security and hope that the defendant is not declared bankrupt before the entry into force of the judgement. Bankruptcy would bring an end to litigation in county courts by way of dismissal of action, and the creditor would have to establish a claim in the bankruptcy proceedings.
Paul Keres is a lawyer at Glikman & Partnerid, a member firm of the Baltic Legal Solutions, a pan-Baltic integrated network of law firms including Kronbergs & Cukste in Latvia and Jurevicius, Balciunas & Bartkus in Lithuania, dedicated to providing a quality 'one-stop shop' approach to clients' needs in the Baltics.
