Principles of Debt Restructuring and Restrictions on Initiation of Debt Restructuring Proceedings

• Author: Toomas Saarma
• Position: Trustee in Bankruptcy
• Pages: 179-187

179

JURIDICA INTERNATIONAL XX/2013

Toomas Saarma

Trustee in Bankruptcy

Principles of Debt

Restructuring and Restrictions

on Initiation of Debt

Restructuring Proceedings

The purpose of this article is to determine the basic principles of debt restructuring proceedings and the

content thereof and how these are applied and to research what the basic principles should be for debt

restructuring proceedings, alongside what the rules and restrictions should be on the initiation of debt

restructuring proceedings. The article compares the regulations enacted in other countries pertaining to

release from debt and contrasts these against the Debt Restructuring and Debt Protection Act*1 (DRDPA) in

force in Estonia and current judicial practice.

1. The basic principles of debt restructuring—

what they are and what they should be

According to the views expressed in legal literature*2, the basic principles of debt restructuring can be

encapsulated in three tenets:

1. Debt restructuring proceedings shall provide fair and equitable, effi cient and cost-effective,

accessible and transparent settlement and discharge of consumer debts.

2. They shall propose some form of ‘fresh start’ for the debtor.

3. There shall be equally available options of extra-judicial and judicial proceedings.

In the case of the second and third principle, the consumer may be offered a choice between a payment

schedule and immediate release. In both cases, an extended period of insolvency proceedings has no ben-

efi t for a debtor without a portion of income against which a claim for payment cannot be made or without

prospects for reaching a better fi nancial position within reasonable time. Legislators should offer consumer

1 Võlgade ümberkujundamise ja võlakaitse seadus [‘Debt Restructuring and Debt Protection Act’], entering into force on

5.4.2011. – RT I, 6.12.2010, 1 (in Estonian). English text available via http://www.legaltext.ee/ (most recently accessed on

30.5.2013).

2 U. Reifner, J. Niemi-Kiesiläinen, N. Huls, H. Springeneer. Overindebtedness in European Consumer Law: Principles from

15 European States. Norderstedt: Books on Demand GmbH 2010, pp. 34–47; INSOL International Consumer Debt Report—

report on fi ndings and recommendations (May 2001), pp. 1–31. Available at www.insol.org/pdf/consdebt.pdf (most recently

accessed on 30.5.2013).