According to the results of a survey conducted by R. Harmer and N. Cooper for the European Bank for Reconstruction and Development (EBRD) in 2003 (updated in 2004), Estonia's national legislation has a medium overall degree of compliance with the international standards articulated by a number of international organizations, including the World Bank. The EBRD assessment is based on the Bankruptcy Act (2003) of Estonia, which has undergone several changes, in 2004, 2005, and 2006. According to the EBRD's assessment there are a number of positive aspects to bankruptcy procedures in Estonia but at the same time there is room for improvement in several areas, particularly in the rehabilitation processes. The EBRD assessment is based solely on the content of the insolvency law. It has not evaluated or assessed the effectiveness or practical operation and application of those laws, nor has it evaluated institutional capacity to apply the law. The EBRD's subsequent 2006 Law Assessment offers no information as to whether amendments to Estonia's bankruptcy law have had the effect of changing the country's level of compliance with insolvency principles.

General Overview

Harmer and Cooper's 2004 report on a 2003 survey of insolvency law conducted by the European Bank for Reconstruction and Development (EBRD) rated Estonia's national legislation as "medium" compliant, overall, with the international standards set by the World Bank, the Asian Development Bank, and the United Nations Commission on International Trade Law (UNCITRAL). The EBRD assessment employs the following rankings in its assessments: (1) very high; (2) high; (3) medium; (4) low; and (5) very low. For the category "commencement and effect of proceedings," Estonia received a "medium" rating, whereas for the category "assets of estate," it achieved a "high" compliance rating. For the category "creditors' treatment and involvement," Estonia was ranked as having "very high compliance."

Harmer and Cooper's 2004 EBRD assessment cautions that its rankings are "based solely on the content of the insolvency laws of the respective countries" (p. 8). The assessment does not investigate the practical application of the law, its enforcement, or the infrastructural capacity to do either. The 2006 EBRD "Commercial Laws of Estonia," on the other hand, does mention the issue of "effectiveness" of the insolvency regime in Estonia. Citing the e results of the 2004 EBRD Legal Indicator Survey on Insolvency, the "Commercial Laws of Estonia" concludes that the system is more creditor-oriented, which is likely to result in the debtors' perception of the system as slow and expensive. Moreover, structural problems with court systems and some deficiencies in insolvency legislation "militate against the insolvency regime functioning properly" (p. 15)

The 2003 EBRD examined the provisions of the Bankruptcy Act (2003) of Estonia. This law has been amended several times, in 2004, 2005, and 2006. The assessment found that Estonian insolvency law has several positive attributes. For instance, Estonian law provides a detailed set of financial criteria to define the condition of insolvency, and specifies the evidence that may be introduced in support of such a claim. The law also elaborates the procedures for hearing and accepting applications, sets qualification standards for individuals who may act as a representative in an insolvency procedure, and, details the means and requirements by which to avoid pre-bankruptcy transactions. However, it is important to note that there is no publicly available information as to whether or not the amendments made to the law since 2003 would justify any change in the overall assessment of Estonia's compliance regarding insolvency standards.

On the other hand, the Harmer and Cooper assessment found some deficiencies in Estonian law, particularly in the area of rehabilitation processes, which were found to be unnecessarily exacting and which failed to provide for essential commercial processes. Compromise requirements often stipulate that creditors be paid in full, and setting of extremely high minimum payments to creditors might seem desirable, but they are unreasonable in the commercial context. In addition, going through the full bankruptcy process does not lead to a release of all debts. Further problematic elements to the law are that the position of secured creditors is not clear, nor is the possibility of making claims for certain types of liabilities arising from civil wrongs. Finally, the law fails to address cross-border insolvencies, nor does it make bankruptcy available when there are not enough assets to cover the costs of such proceedings.

The provisions of the Code of Civil Procedure are applicable to bankruptcy proceedings as well, but are subordinate to the provisions of the Bankruptcy Act of 2003. According to the Act, "a court hearing a bankruptcy matter shall, at its own initiative, take measures to ascertain the facts relevant to the bankruptcy proceedings and organize collection of the evidence necessary for the ascertaining of the facts. In the cases provided for in the Bankruptcy Act, the acts provided for in the Code of Enforcement Procedure shall be performed by an interim trustee or trustee who has the rights and obligations of a bailiff." Further provisions of the act identify the courts that are competent to hear bankruptcy cases (county and city courts) and set out the jurisdictional requirements for the filing of bankruptcy petitions. The act also stipulates the manner in which creditors' claims are to be satisfied out of debtor assets, "by transferring the assets of the debtor or rehabilitating the undertaking thereof." It also provides release from debt via bankruptcy proceedings to a debtor who is a natural person.

The Bankruptcy Act also establishes the right of the Ministry of Justice to supervise the activities of a trustee in bankruptcy, and to verify that the trustee's activities conform to all procedural requirements. It permits the Ministry of Justice to appoint auditors, if so required during the course of the proceedings, including those situations where proceedings are abated as a result of lack of assets. Finally, the Act allows for appeals against bankruptcy court rulings in certain situations, and sets forth the specific conditions that must be met for such an appeal to be allowed.

The World Bank's "Doing Business: Closing a Business" assessment of Estonia's performance with regard to insolvency offers a comparison of costs in time (in years) and money (as a percentage of the estate) for the resolution of bankruptcy proceedings with the average performance of EBRD countries and the performance of countries within the European and Central Asian region. It also permits a comparison of recovery rates, presented in the form of pennies on the dollar. According to this comparison, Proceedings in Estonia average 3.0 years, compared to 1.4 years for OECD countries and 3.5 years for the region. In Estonia, the cost of bankruptcy averages at 9.0% of the estate, compared with 7.1 for the OECD and 14.3 for the region. Finally, recovery in Estonia runs, on average, to about 39.9 cents to the dollar, whereas in the OECD it is 74.0 cents and for the region it is only 29.5 cents.