Estonia - Reorganization Also to Apply to Tax Claims
- Estonia
- 12/22/2009
- Raidla Lejins & Norcous
In its 18 November 2009 judgement (Osaühing Loksa Ravikeskus civil case No 3-2-1-122-09), the Supreme Court explains the concept and procedure of reorganization of an enterprise and the role of tax arrears in the reorganization. According to the Reorganization Act reorganization of an enterprise is defined as the application of a set of measures in order for the enterprise to overcome economic difficulties, to restore its liquidity, improve its profitability and ensure its sustainable management.
In its analysis the Supreme Court notes that the law does not provide an exhaustive list of the tools at hand for reorganization; the list includes extension of the deadline for performing obligations, settling a monetary claim in installments, reduction of the amount of debt and exchanging an obligation for shares of a legal person. The Supreme Court emphasizes that the law only excludes transformation of a claim that has resulted from an employment contract, but that it does not exclude the transformation of a tax claim.
There is no objective justification for preferring the tax authority in reorganization proceedings (the same applies to bankruptcy proceedings). In the opinion of the Supreme Court giving preference to tax claims would render rehabilitation of an enterprise through reorganization proceedings virtually impossible and instead bankruptcy proceedings would have to be brought against the undertaking whose enterprise is to be reorganized. Given that enterprises in economic difficulties can easily have tax arrears arising from their tax liabilities, the ban on transforming tax arrears would make it actually impossible to carry out successful reorganization proceedings.
