The Commercial Register’s printing press has snapped into action

For a large share of companies, their financial year is the same as the calendar year. Since by law the deadline for submitting annual reports is six months after the end of the financial year, the date for these companies to file was 1 July (30 June fell on a weekend this year).

Pursuant to amendments that entered into force last year, the Commercial Register can fine or compulsorily dissolve those who are late filing an annual report. Compulsory dissolution can be done if the company lacks registered assets (i.e. no assets evident in the land register, ship register, Commercial Register or Estonian securities register), is not a party to any current judicial proceedings, criminal enforcement proceedings or tax disputes.

The goal of the regulation is to clear the Commercial Register system of companies who fail to comply with the obligation under law. The goal is also to improve the Estonian economic environment.

The latest statistics show that as of 6 August, the automated system at the Commercial Register has issued the following for failure to file an annual report:

1) 16,727 fine warning notices that state that if the company does not file its annual report within 30 days of receiving the ruling, the court can fine the company and all persons obliged to submit the annual report, i.e. management board members, 200 to 3200 euros;

2) 35,347 deletion warning notices, which state that the company must file its annual report during a period of 30 days to three months and if it fails to do so, the court may compulsorily dissolve the company. It is difficult to understand what time period depends on.

Under the Commercial Register’s current practices, a company is deleted on the day after the deadline specified in the warning notice if the company has not filed its report.

Since the spring, we have attempted to draw the Ministry of Justice’s attention to the fact that they should put their heads together to resolve the shortcomings discovered in the deletion process. It seems that the government does not see it as a problem. What do we mean? We’re talking about actual going concerns with large numbers of employees who generate tax revenue for the state (income tax, social tax and VAT). It seems like an unimportant consideration in contrast to cleaning the business environment – how else to explain the fact that a company with more than 190 employees gets a deletion warning from the registry? 

Not that we would want in any way to condone companies who fail to file reports on time. Action must be taken if there is a systematic violation. The question is whether the measure applied is appropriate – how does it ensure a better environment if companies with turnover and employees and who pay taxes to the state every month are deleted. It strikes the bystander as especially short-sighted when we hear that the state’s tax revenue is modest and the budget is strained. After all, we know that the other option for taking violators to task is a fine warning.

The government should show responsible attitude in choosing its measures to enforce compliance when the company in question is actively involved in the economy and has a considerable number of employees on whose salaries taxes are paid. In such a case, it is incomprehensible that an automated approach is taken and that there is a deliberate worsening of the business environment, because people who become unemployed overnight become an administrative burden for the state. 

The state has forgotten that the employee is the weaker party in an employment relationship and, as a rule, does not vocally go to court to defend its rights. If our employer disappears from the registry overnight, we would have a lot of questions: should I show up at work the next day if there is no more employer and how to get the unreceived part of my salary, whom to file a claim against, where to file it... Many questions, but no answers from the state.

The same question would occur for creditors if a debtor has suddenly been deleted from the register in one fell swoop, because if a payment order has not yet reached the bailiff’s desk, a company that owes money is not yet officially a party to enforcement proceedings. In essence, this has created a way to more easily get rid of debts.