May-June 2011, Estonia, Latvia, Lithuania, Finland, Sweden
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RR ALLIANCE NEWS
Inside this Issue:
Estonia
- Supreme Court Gives Thorough Guidelines on Restructuring Act
- Supreme Court Clarifies Interplay between Estonian Competition and Criminal Law
Latvia
Lithuania
Finland and Sweden
On 9 May 2011 Estonian Supreme Court rendered a ruling in a dispute over the restructuring of AS Väätsa Agro. Toomas Vaher, Partner at Raidla Lejins & Norcous, Estonia and Marit Toom, Senior Associate at Raidla Lejins & Norcous, Estonia successfully represented AS Swedbank and Swedbank Liising AS in the dispute. The Supreme Court gives many important and somewhat surprising guidelines in its ruling for implementation of the Restructuring Act, clarifyingseveral issues that have been under discussion since the Restructuring Act entered into force at the end of 2008. Below are some main statements made by the Supreme Court.
- The commencement of restructuring proceedings "freezes" all the existing legal relationships between the debtor and the creditors. This means that although the creditors may implement legal remedies (such as terminating a contract due to infringement of payment obligations) those remedies take effect only in case the restructuring proceedings are unsuccessful and the proceedings are terminated.
- In certain exceptional cases it is possible to restructure also future obligations and reorganize for example leasing agreements. However, the future obligations arising from leasing agreements can only be postponed if they cannot be cancelled or reduced.
- It is possible to convert the creditors’ claims into the share capital of the debtor without the consent of the creditor. In case of a secured creditor a consent is needed.
- If the term of the restructuring plan is extremely long (over 10 years) additional collaterals have to be offered to the creditors (pledges by third person, surety etc).
- It is possible to immediately initiate new restructuring proceedings if the previous proceedings fail because the court did not approve the restructuring plan.
- It is possible to submit alternative restructuring plans for the creditors to approve.
In conclusion, although the Supreme Court’s ruling clarifiesseveral issues of the restructuring proceedings, it also opens some doors that are bound to raise new disputes and difficulties implementing the Restructuring Act.
Supreme Court Clarifies Interplay between Estonian Competition and Criminal Law
At the beginning of May 2011 the Estonian Supreme Court rendered a ruling in the KPK Teedeehitus criminal proceedings. In Estonia, where competition law breaches are criminalized, KPK Teedeehitus was accused of coordinating prices, market sharing and information exchange with a competing undertaking in a public procurement for road construction. The proceedings were terminated against one undertaking based on leniency-like grounds. As for KPK Teedeehitus, the Court acquitted both the natural person and the legal entity involved and provided several valuable insights into the interplay between Estonian competition and criminal law.
The Court found that since more precise rules of competition law are provided in legal acts other than the Penal Code, in order to find someone guilty of a crime of anti-competitive agreement, one has to determine objective and subjective elements necessary to constitute offense based on the national equivalents of Article 101 of the Treaty on Functioning of the European Union (TFEU) and not based on the respective – a much more laconic – clause in the Penal Code. That includes also considering possible justifications for an anti-competitive agreement (similar to Article 101(3) TFEU) with regard to which the Court explicitly stated that in criminal proceedings, it is not for the accused to prove the existence of such justifications, but for the prosecution to substantiate their non-existence.
In its very thorough analysis, the Court took account of EU competition law principles and case law of the EU Court of Justice. Even though EU law was found not to be directly applicable, the Court held such approach necessary in order to prevent emergence of two different legal orders within the field of competition law in Estonia, one legal order for domestic agreements and one for the agreements affecting trade between Member States.
In that light, the Court found that agreeing on prices constitutes at least a concerted practice with an anti-competitive object. The Court confirmed that "appreciable effect" constitutes a non-explicit element of the Estonian equivalent of Article 101(1) TFEU, but found that price-fixing as a hard-core restriction cannot be exempted under the de minimis rules. That finding does not, however, rule out the possibility of a hard-core agreement being found justifiable and thus legitimate, if there are grounds that preclude unlawfulness of the act, inter alia if such an agreement fulfills all the conditions specified in Article 101(3) TFEU – or its national equivalent in the present case.
When looking into possible grounds precluding unlawfulness, the Court seemed to suggest that if competitors openly conclude an anti-competitive agreement and do not hide the fact, they might be deemed to be in error of law. Even though such argument was never raised in the present case and was, thus, not tested, it might be useful to consider such additional defense in future cases.
It needs to be pointed out that the Supreme Court ruling was made based on the substantive law applicable at the time of the offense that is no longer effective. However, it is likely that the principles provided by the Court could also be relevant with regard to interpretation of the Competition Act and Penal Code in force.
Raino Paron (CV), Partner
For further information please contact
at Raidla Lejins & Norcous in Tallinn.
In an effort to restrict flow of requests for residence permits which are based on minor or ‘simulative’ investments Saeima (the Parliament) has adopted amendments to the Immigration Act establishing more burdensome criteria for obtaining a residence permit.
As previously, a foreigner is entitled to apply for a temporary residence permit for a term not exceeding five years if she/he has invested at least LVL 25,000 (approx. EUR 35,000) in the share capital of an operating company. However, it is now determined that such company shall pay at least LVL 20’000 (approx. EUR 28,000) in taxes per financial year (doubled from LVL 10,000 before). This applies only to investments in companies having annual turnover of less than LVL 7,000,000 (approx. EUR 9,960,000) and less than 50 employees. In case of companies with higher turnover and/or higher number of employees the minimum qualifying investment amount will be LVL 100,000 (approx. EUR 142,000).
Amendments concern also criteria for investment in real estate. The general requirement setting forth the investment value (between LVL 50,000 and LVL 100,000 depending on location of the real estate) has been supplemented with some further requirements. The seller must be a legal entity registered in Latvia, a citizen of Latvia or other EU country, or a person residing in Latvia with a valid residence permit. The minimum cadastral value of the target real estate has been set between LVL 10,000 and LVL 30,000 (depending on location of the real estate).
Amendments to Civil Procedure Act Introducing E-correspondence between the Court and Litigants
In the second reading Saeima has adopted amendments to Civil Procedure Act introducing e-correspondence between the court and litigants. The third (and final) reading is expected in early fall.
The amendments provide that all court documents will be delivered to the litigant by e-mail if the litigant has notified the court that it agrees to use e-mail for correspondence with the court and has submitted a respective e-mail address. Should any technical problems arise with the delivery of a particular e-mail, the documents will still be delivered via registered mail. The amendments also introduce a general presumption that documents sent by e-mail shall be deemed delivered on the third day after they have been sent.
New Construction Act to be debated in the Parliament
On 9 June 2011, Saeima will hear in the first reading the new Construction Act. The draft of the new Construction Act has been prepared with an aim to create modern and advanced rules of construction process harmonizing Latvian legislation with EU requirements and to simplify the administrative part of construction process with a goal to catch up with construction regulations of Denmark, i.e. so that the coordination of construction would not exceed 70 days, thus, substantially improving the business environment and attracting local and foreign investors.
The draft is based on four key principles to be followed during the construction process by construction participants, as well as state and municipal institutions. Those principles are architectural quality, transparency, principle of sustainable construction and accessibility principle.
Guntars Zile (CV), Partner
For further information please contact
at Raidla Lejins & Norcous in Riga.
TopLithuania
On 7 June 2011, amendments to the Law on Pharmacy came into force. The amendments were made according to Commission Regulation (EC) No 1234/2008 of 24 November 2008 concerning the examination of variations to the terms of marketing authorizations for medicinal products for human use and veterinary medicinal products.
The list of criteria according to which the similarity of medicinal products with those registered in the Republic of Lithuania is determined has been adjusted and supplemented. Moreover, it is now required that variations to the terms of marketing authorizations for medicinal products should be certified only according to the procedure established in the Commission Regulation.
The terms for notification of intentions of parallel import of medicinal products for the holder of permit for parallel import have been shortened, as well as the main obligations of the holder of permit for parallel import have been stated. Additionally, from the date of adoption of these amendments, the permit for parallel import will be issued for an indefinite period, and the holders of permits for parallel import will have the possibility of requesting the suspension of the license.
Proposal to Adopt a New Wording of the Law of Financial Collateral Arrangements
At the moment, two draft laws on Financial Collateral Arrangements are registered in the Seimas of the Republic of Lithuania. Due to recent considerable increase in the number of financial pledges as a guarantee of financial arrangements in the European financial sector, Directive No 2009/44/EC was adopted. It was decided to widen the content of financial collateral arrangements, to allow a possibility for the parties to the financial collateral arrangement to choose an additional measure that secures financial obligation – credit claims (monetary claims for a credit issued by a credit institution, except credits that result from consumer credits).
Considering the provisions adopted in Directive No 2009/44/EC, it is proposed to specify the content of financial collaterals and to additionally indicate the usage of the credit claim, as well as application, determination, substantiation and briefing.
By adopting the above-mentioned proposal, business entities would obtain extended opportunities to use financial pledge, because not only money or securities could be afforded as financial collateral, but credit claims as well.
New Law on Placement via Temporary-Work Agencies
There are currently no legal acts which regulate placement via temporary-work agencies in the Republic of Lithuania. The Law on Placement via Temporary-Work Agencies has been adopted (and will enter into force on 1 December 2011) with the purpose to transpose the provisions of Directive No 2008/104/EC of the European Parliament and of the Council of 19 November 2008. The Law contains specifications of employment relationship between temporary workers and temporary work agencies and regulates the rights and obligations of the participants’ inplacement via temporary-work agencies.
The Law distinguishes the following subjects:
- temporary agency worker (a worker with a contract of employment or an employment relationship with a temporary-work agency with a view to being assigned to a user undertaking to work temporarily under its supervision and direction);
- user undertaking (any natural or legal person for whom and under the supervision and direction of whom a temporary agency worker works temporarily);
- temporary-work agency (any natural or legal person who, in compliance with national law, concludes contracts of employment or employment relationships with temporary agency workers in order to assign them to user undertakings to work there temporarily under their supervision and direction).
It has to be noted that legal relations between a temporary-work agency and user undertakings are relations falling under civil law. Legal relations between a temporary agency worker and a temporary-work agency are the relations falling under labor law. But legal relations between a temporary agency worker and a user undertaking are not understood as typical labor law relations due to the reason that an employment contract between a temporary agency worker and a user undertaking is not concluded. An employment contract is concluded only between a temporary agency worker and a temporary-work agency.
The Law stipulates that a user undertaking under this Law shall have a right to request a work assignment to be executed and instructions to be performed. Considering the fact that a user undertaking will be in total control of the work process, a user undertaking is fully responsible for ensuring safe and healthy working conditions. Therefore, during the period of temporary work a user undertaking assumes only some, but not all of the employers’ rights and obligations.
Amendments to the Law on Conciliatory Mediation in Civil Disputes Came Into Force
The amendments to this Law are related with Directive No 2008/52/EC of the European Parliament and of the Council of 21 May 2008 on certain aspects of mediation in civil and commercial matters.
Firstly, the scope of application of the Law has been extended. From now on, the Law is applicable to both national and international civil disputes. Article No.2 of Directive No 2008/52/EC that regulates the concept of a civil dispute has practically been implemented in full. The Law also lays down an obligation for the Council of Judges to establish cases and methods according to which judicial conciliatory mediation would be performed by the courts of general jurisdiction. Inter alia, the opportunity to use IT and electronic communications in the procedure of conciliatory mediation is established, but only with a common agreement of a dispute parties. For the purpose of stimulating the development of conciliatory mediation and ensuring its quality, the Ministry of Justice has been instructed to draw up a plan of measures.
Proposal to Adopt the Law on Electronic Money and Electronic Money Institutions Has Been Registered in the Seimas of the Republic of Lithuania
Directive 2009/110/EC of the European Parliament and of the Council of 16 of September 2009 on the taking up, pursuit and prudential supervision of the business of electronic money institutions had to be implemented by Member States by adopting legal acts prior to 30 April 2011. For that purpose, though late, the draft of the Law on Electronic Money and Electronic Money Institutions was proposed for the Seimas of the Republic of Lithuania.
The purpose of the draft is to determine the list of electronic money issuers that are provided with exceptional rights to issue electronic money. At the moment, the right to issue electronic money is vested in commercial, specialized banks and the Central Credit Union. It is suggested that the list of electronic money issuers should be extended by allowing other credit institutions to issue electronic money. It is also believed that this provision would stimulate competition and establishment of such institutions. It is defined in the draft that credit institutions will at the same time retain the right to issue electronic money, but this will not continue to be their exceptional right, and for this reason there will be no need to establish specialized banks. For a legal person to become an electronic money institution there will be a requirement to get a license, have a minimum amount of equity capital (not less that EUR 350,000) and to comply with other specified conditions.
Electronic money would be secured by electronic or payment cards, used only for the performance of payment operations and would be accepted by persons other than issuers. Redemption of electronic money would not be limited and payments related to redemption would be applicable only regarding the conditions indicated in the draft of the Law and only if provided in the contract between the issuer and the holder of electronic money.
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Irmantas Norkus, (CV), Managing Partner |
Finland and Sweden
Emissions Trading in the EU - Getting Ready for the Trading Period Starting in 2013
In short an emissions trading scheme works as a price mechanism for an artificially created commodity, i.e. an emission allowance. The allowance generally allows its holder to emit a certain amount of a particular substance, e.g. greenhouse gases. In contrast to other commodities, such as coal, oil, grain, metals etc., there are no concrete underlying goods as for an emission allowance. It is an artificial market that exists only because participants in the emissions trading scheme have an obligation to surrender emission allowances in equivalent volumes to their emissions. If the underlying obligation to surrender allowances is removed, the market for emission allowances will disappear. In the case of greenhouse gases, the market for trading allowances is generally referred to as the ‘Carbon Market’.
The EU Emissions Trading System (‘EU ETS’) is a so called ‘cap-and-trade scheme’, meaning that the total volume of emission allowances on the market (i.e. the ‘cap’) is set in advance. In a cap-and-trade scheme market participants are free to trade emission allowances after the initial allocation of allowances has taken place. This way the market and the price of allowances will guide emission reductions to take place where they can be achieved at least cost. This is at least the underlying economic theory of emissions trading.
Major changes in the scope of the EU ETS are about to take place in the near future. Airlines will join already from the beginning of 2012. New industrial sectors will be included from 2013 onwards such as, for example, the petrochemicals, ammonia and aluminum industries. Furthermore, emissions of certain other greenhouse gases than CO2 will also be covered starting in 2013. The EU ETS operates in the EU and the EEA, and thus covers all in all 30 countries (the 27 EU Member States as well as Iceland, Liechtenstein and Norway).
Another major change in the EU ETS starting in 2013 is the EU level harmonization of the rules for the initial allocation of emission allowances to operators and market participants. Harmonization means that the allocation rules will be the same in each Member State. Auctioning is set to become the main allocation method as of 2013. Free allocation of emission allowances will continue to take place from 2013 onwards, but the free allocation will be based on product specific efficiency benchmarks. Auctioning is expected to account for about half of the total quantity of emission allowances allocated in 2013 and the share is projected to grow annually. This is due to the fact that free allocation for industrial sectors will gradually be phased out, except for industrial sectors subject to so called ‘carbon leakage’, i.e. the risk of industrial production moving overseas as a result of more lenient greenhouse gas emission legislation in countries outside the EU.
Auctions of emission allowances will take place at regular intervals. The auction format will be a single-round, sealed bid, uniform price auction. This means that there will be a bidding window during which the bidders can place any number of bids. Each bid has to specify the number of allowances to be bought at a given price. Once the bidding window has closed, the auction platform will determine and publish the clearing price at which demand for allowances equals the number of allowances offered for sale in the auction concerned. Successful bidders will be the ones who have placed bids for allowances at or above the clearing price. Since the auctions are uniform price auctions, all successful bidders will pay the same price (i.e. the clearing price), regardless of the price they specified in their bids.
For industry and heating sectors, emission allowances will be allocated for free based on benchmarks that have been set at a level reflecting the average performance of the most efficient greenhouse gas performance-based installations in the EU. A benchmark is not an emission limit value or an emission reduction target. Benchmarks are only figures used in calculating the level of free allocation to each installation. The free allocation based on benchmarks is product-based, which means that all products of the same kind are treated equally regardless of the production methods. A separate benchmark has been established where it has not been possible to set a product-based benchmark.
Calculating the actual free allocation to each installation is in short done by multiplying the applicable benchmark with the historical production data of the installation. The actual amount of free allocation of emission allowances to each installation will further depend on whether the installation operates in a sector that is deemed to be exposed to a significant risk of carbon leakage such sectors having been identified in a separate Commission decision. Only installations in sectors deemed to be exposed to a significant risk of carbon leakage will receive a full free allocation based on the applicable benchmark. The benchmark, however, effectively leads to the fact that even in these sectors only the most efficient installations will receive all emission allowances they need for free. Sectors that are not deemed to be exposed to a significant risk of carbon leakage will only receive a proportion of the calculated allocation as free, i.e. 80% in 2013 and reducing steadily to 30% in 2020.
In Finland a completely revised Emissions Trading Act (311/2011) entered into force on 1 May 2011. Currently the authorities are busy processing emission permit applications from installations that have so far not been covered by the EU ETS but will be included starting in 2013. By the end of June 2011 the Finnish authorities will have to have the decisions ready as for the permit applications. The coming fall will also mean busy times for installations and authorities alike, since installations need to submit to the Finnish authorities the data for calculating the amount of free allocation together with an allocation application by the end of August 2011. As in Finland, Sweden is currently preparing for the next trading period. In addition to processing emission permit applications, the Swedish Legislative Council has suggested several amendments to the Swedish Emissions Trading Act that are supposed to enter into force by January 2012.
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Dimitrios Himonas (CV), Partner at Roschier in Helsinki or |
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