In three and a half years roughly 600–650 companies have left about EUR 233 million unpaid, ERR News reports, quoting Signe Viimsalu, head of the insolvency service at the Competition Authority (Konkurentsiamet). The reason is the spread of phoenix schemes, called company burial in Estonian.
In such a scheme the same business moves from one company to the next. Each company in turn becomes insolvent, but its debts stay behind. According to ERR, the insolvency service and bankruptcy trustees say the practice is sold openly: struggling companies are handed to stand-in directors, moved abroad or registered at addresses that host hundreds of debtors.
Viimsalu told the programme Pealtnägija that of the more than 300,000 private limited companies in the commercial register, 20 percent have some kind of problem, and that 20,000 legal persons currently have nobody on their management board. A bankruptcy trustee quoted by ERR described the typical signs: tax debts, enforcement notices and missing annual reports, then suddenly a new board, a new address and a beneficial owner abroad whom nobody can trace.
ERR names addresses in central Tallinn with hundreds or thousands of companies registered to them, and a route that leads indebted companies to Bulgaria. The notary who handled such transfers said the law contains no explicit ground to refuse the transfer of an indebted company.
Viimsalu and a trustee argue that burial achieves little, because the liability stays and filing for bankruptcy costs less in state fees. If you are a business owner with no money personally and none in the company, file for bankruptcy and put an end to the ordeal
, Viimsalu said.
Source: ERR News, . The text above is our own summary; the words in quotation marks are the source's.
What this means for an Estonian entrepreneur
For an Estonian entrepreneur who buys an existing company or takes on a new business partner, the signs named in the report are a checklist: tax debts, enforcement notices, missing annual reports and a recent change of board, address and owner. Checking these before signing protects the buyer, and a company owner in trouble should know that handing the company to a stand-in does not remove liability.
A due diligence report checks a company's tax debts, register history, annual reports and owners before you buy it or do business with it. Due diligence report