The Supreme Court sorted out fees in bankruptcy
Vesse Võhma, Senior Associate
LAWIN Tallinn office represented successfully one of its clients in a Supreme Court case where the court decided that the minimum fee rates of trustees, established for proceedings of smaller bankruptcy estates, would not be applied if a bankruptcy estate exceeded 640 000 euros. This limits the fees of the trustees in bigger bankruptcy proceedings.
Due to the economic recession, the number of bankruptcy proceedings has grown considerably in Estonia. While the number of insolvency proceedings was about 200 in Estonia in the year 2007, the number of cases per year increased up to approximately 1000 in the years 2008-2010. The bankruptcy proceedings have given rise to polemics about several aspects of interpretation of the Bankruptcy Act, and the judicial practice regarding the principles of determining the fees of trustees in bankruptcy has also varied.
Until the year 2010 remuneration of trustees in bankruptcy was regulated mainly by subordinate legal instruments (regulations of the Minister of Justice) and the law laid down only the minimum fee rate for a trustee in bankruptcy, which was 1% of sale and recovery of a bankruptcy estate as well as of the money received and included in the bankruptcy estate as a result of other activities of the trustee.
By amendments to the Bankruptcy Act that entered into force on 1 January 2010, the calculation of fees of trustees in bankruptcy became regulated by the Bankruptcy Act. However, the wording of the amendments was probably not the best, as it gave rise to different interpretations followed in practice.
The main controversy was about whether the value of a bankruptcy estate, on the basis of which the fee of a trustee was to be calculated, was to include the value added tax or not. In bankruptcy proceedings with bigger bankruptcy estates, i.e. above 640 000 Euros (formerly above 10 000 000 kroons) there was the question whether the rates applicable to proceedings of estates of lower value, i.e. up to 640 000 Euros (formerly up to 10 000 000 kroons) could correspondingly apply.
The Supreme Court has answered both of these questions last year.
Although regarding the value added tax the court revealed its position on 31 December 2010 in a dispute (civil case 3-2-1-92-10) which was basically about calculation of the value added tax upon distribution of proceeds from the sale of a pledged object among creditors, but the same principles should be applied to determination of the amount of a bankruptcy estate on the basis of which the fee of a trustee is calculated. The court decided that while the value added tax was a state tax added to a sale price, on principle it did not belong to the seller, and therefore the price of property sold in a bankruptcy proceeding should be taken as basis net of VAT.
In its ruling of 12 October 2011 regarding civil case 3-2-1-71-11, the Supreme Court determined that if a bankruptcy estate exceeded 640 000 euros (formerly 10 000 000 kroons), the minimum fee rates of trustees, established for proceedings of smaller bankruptcy estates, would not be applied and the court would be able to determine the fee of the trustee within the limits of 1% - 5% of the cost of the property received in the bankruptcy estate. In said dispute LAWIN Tallinn office successfully represented its client that did not agree with the fee assigned to a trustee by a lower court, and the Supreme Court agreed with the interpretation of the Bankruptcy Act presented by our law office.