Category: Estonia

Sorainen, working with Lee & Thompson, has advised Head Gear Films on financing the Last Sentinel movie in Estonia and on related IP and state aid issues.

“The drama/sci-fi/thriller tells the story of a squad of soldiers stranded on an abandoned military base on a near-future Earth, waiting for relief or the enemy, whichever comes first. Last Sentinel is written by Malachi Smyth and directed by Tanel Toom,” Sorainen announced. “After premiering in Estonian cinemas on March 17, the sci-fi thriller quickly became the most successful movie of the weekend, collecting over 5,000 visits in cinemas on its opening days.”

Head Gear Films provides production services and debt finance to media projects, with a portfolio of over 300 films, TV shows, and video games.

The Sorainen team was led by Counsel Jane Eespold and included Partner Paul Kunnap, Senior Associate Mirell Prosa, Associate Mirjam Metsik, and Assistant Lawyer Karl Oskar Pungas.

Sorainen did not respond to our inquiry on the matter.

Cobalt has successfully represented the interests of the Suislepp family against false allegations published in Postimees and Louna-Eesti Postimees relating to Ilvi Suislepp’s tenure as a school principal. 

According to Cobalt, “since the summer of 2019, more than 30 articles have been published about Ilvi Suislepp in the publications belonging to the AS Postimees Grupp. The series of articles started with the online article of the Postimees newspaper Unprecedential situation: The principal of a small school pressures teachers to give good grades to their relatives. Ilvi Suislepp worked as the principal of Kanepi Gymnasium at the time, and the articles criticized her work in the context of the title. The published articles also concerned Ilvi Suislepp’s husband and children.”

According to the firm, “the courts found that the main statements of the published articles about Ilvi Suislepp, as well as the statements about Ilvi Suislepp’s husband and children, turned out to be incorrect. As a result of the litigation, the AS Postimees Grupp was [required] to refute incorrect data, supplement, and remove articles.”

Cobalt’s team included Managing Associate Kadri Michelson, Senior Associate Kaidi Reiljan-Sihvart, and Junior Associate Anna-Riin Brett.

Finding its balance after a general election, Estonia is looking at a year of potential IT sector labor force shake-ups, a likely uptick of reorganization and bankruptcy procedures, as well as a potential real estate sector slowdown, according to Magnusson Estonia Managing Partner Jaanus Magi.

“The general elections took place quite, quite recently, so it might be a bit premature to judge the effectiveness of the new coalition, but what we can say at this point is that it will likely be a more liberal one compared to its predecessors,” Magi begins. “This presents an opportunity to finally get answers on some legislative questions that have been brewing for some time.”

Magi says that he does not expect much liberalization to come to the financial sector, however. “I believe that the old money-laundering scandals are still quite vivid to many, especially with some litigations still pending,” he says. Additionally, he reports that there have been significant tightenings of cryptocurrency regulations in Estonia. “Taking everything into account, as well as the fact that several crowdfunding frauds also happened, I do not expect there to be any reversals in this legislative approach.”

Still, Magi goes on to say that many start-ups and growth companies are registering in Estonia. “These companies are, by and large, quite data-heavy, which increases the risk of data leakages. No matter how close of a focus is kept on cybersecurity, the regulator’s approach is too soft, which means that we expect private data leak litigation to go up in Estonia, as well as Europe in general for that matter.” Moreover, he reports that there is “surprisingly strong financing activity” when it comes to start-ups and that transactions are going strong.

Still, not all is perfect, and Magi says that “several noticeable layoffs took place in the IT sector. I’m afraid we might see a restructuring of the labor force in the IT sector this year, with the industry to become more of an employer’s market,” he says. “There is a feeling that start-ups and investors are a lot more careful about boosting employment numbers and that they are trying to be more lean and prepared.”

Nevertheless, Magi says that it isn’t unemployment that’s worrying, but rather Estonia’s trade balance. “There has been quite a sharp decrease in exports – which might be attributed to the war or the energy prices – but it seems we have a problem with the overall competitiveness of some sectors of our economy,” he explains. “This might lead to reorganizations and bankruptcies this year. There is even a new institution – the Bankruptcy Ombudsman – tasked with making these proceedings more efficient.”

Finally, Magi reports a potential tempest for commercial tenants. “With the inflation numbers last year standing at 19.4%, many commercial leases were affected on account of indexing. This, coupled with the rising energy prices, might come as a real shock for tenants,” he explains. “And, with the interest rates for the landlords going up, we might see some real tension in the sector amidst an overall real estate slowdown. The banks are the real gatekeepers here,” according to him, “and they are becoming more stringent in handing out loans to real estate developers.”

Cobalt has advised BayWa r.e. Energy Ventures and EdgeCap Partners on leading the EUR 6.45 million investment round into Roofit.Solar.

According to Cobalt, “Roofit.Solar is an Estonian start-up that produces solar-panel-integrated roof solutions that enable the production of electricity without changing the appearance of the buildings. Fast-growing Roofit.Solar will use the financing to increase production capabilities, invest in product development, and expand into foreign markets.”

BayWa r.e. Energy Ventures is an independent venture capital unit of the BayWa Group, a Munich-based company that operates in 14 countries in the agriculture, building materials, and energy sectors.

EdgeCap Partners is an Estonian private equity and venture capital investment firm.

Cobalt’s team included Partner Kristel Raidla-Talur, Specialist Counsel Greete-Kristiine Kuru, and Associate Johanna Lumiste.

Cobalt did not respond to our inquiry on the matter.

Sorainen has advised Estonia-based health technology start-up Nanordica Medical on raising EUR 375,000.

According to Sorainen, the funding round was led by Estonian health and startup investors, including Founding Partner of Health Founders and Managing Partner of Verge HeathTech Fund Erki Molder, European Innovation Council IC Member Heidi Kakko, and Head of Tallinn Science Park Tehnopol Martin Gorosko, with the participation of angel investors from Estonia, Germany, Finland, Belgium, and Switzerland.

According to the firm, “Nanordica Medical is developing advanced antibacterial wound care products to avoid infection-related amputations. Nanordica Medical has invented and patented nanotechnology that provides eight times better treatment of infected wounds compared to the standard of care.”

Nanordica Medical is a spin-off from “the National Institute of Chemical Physics and Biophysics, a member of the UK P4SY Precision Medicine Accelerator, and an alumnus of the Estonian Tehnopol Startup Incubator and Health Founders Accelerator,” Sorainen reported. “The money raised in the current round will be used to conduct clinical trials to test the antibacterial wound care product and to accelerate the certification necessary for the commercialization of the product.”

Sorainen’s team included Partner Toomas Prangli, Senior Associate Mirell Prosa, and Associates Vladislav Leiri and Kevin Piho.

Sorainen did not respond to our inquiry on the matter.

Starting from 1 February of 2023, the Commercial Code of Estonia changed, and a new Commercial Register Act came into force.

Why are the changes needed?

The new act consolidates all principles related to the maintenance of the commercial register and creates a unified and clear system for maintaining the register, which the Estonian legislation lacked before.
In addition, the Commercial Code has been supplemented with several important changes, the most prominent ones outlined below.

Creation of group rules

The main purpose for such rules is to include in legislation the possibility of taking into account the group’s interests as a whole and to regulate the responsibility of a parent company in a situation in which the subsidiary has been managed pursuant to the orders of the parent. The rules also specify the responsibility of management board members in group relations and stipulate in which cases and under what conditions the management board of a subsidiary is not responsible for damages caused by the execution of orders of the parent company.

Changes in contact person regulation

Previously it was mandatory to appoint a contact person if a company’s management was not in Estonia. Starting from 1 February 2023, it is mandatory to appoint a contact person only if the company’s address is foreign, i.e., the address is outside of Estonia.
Furthermore, there now exists a requirement for an Estonian branch of a company to have an Estonian address, and the obligation to appoint a contact person due to the branch manager’s foreign place of residence has now been waived.

Moreover, it is now mandatory to include a term when appointing a contact person, which must be submitted with the application for appointing a contact person. The registrar must be notified if the term is extended. Otherwise, the contact person shall be removed from the register.

The minimum share capital requirement has been abolished

The minimum share capital requirement has remained unchanged for a long period of time. Given that the smallest nominal value of a share is one cent, it is now possible to establish private limited companies with a share capital of one cent (compared to the previous regulation, which required a share capital of at least 2 500 euros).
However, it should be noted that provisions which have been added to the Bankruptcy Act established the condition that a shareholder of a private limited company with a share capital of less than 2 500 euros is responsible for the fee and expenses of the interim bankruptcy trustee to the extent of the amount remaining between the share capital of the company and 2 500 euros (this in the event that the debtor’s assets are not sufficient to cover the fee and expenses of the interim bankruptcy trustee).

In addition to the above, new changes eliminate the possibility to establish a private limited company without making an initial share capital contribution. The corresponding changes do not affect companies which have already been established without making initial share capital contribution. However, the prohibition to set off share capital contribution obligation against a shareholder’s claim for dividends has been waived (for companies established without initial share capital contribution).

Moreover, the requirement according to which company’s net assets must be at least as significant as the minimum share capital pursuant to the law has also been abolished. The requirement according to which the amount of net assets must be at least half of the share capital of a company has remained in force.

The monitoring capacity of the registrar has been improved

The registrar now has the possibility to:
(a) to include a notation in the commercial register next to the legal person referencing the difficulty in contacting the person;
(b) to publish information on fine orders issued to natural persons related to legal persons if there are at least five valid fine orders for one natural person (e.g., board member);
(c) if the annual report is not submitted on time, impose a fine on shareholders of the private limited company;
(d) delete a legal person from the register if the person fails to submit the annual report, or there is no contact person appointed, if its appointment is mandatory; and
(e) refrain from making an entry for the reorganisation of a legal person if the annual report has not been submitted by any of the persons participating in the reorganization.

Obligation to submit an annual report (including an unapproved report)

A principle has been added pursuant to which the management board of a company must submit to the commercial register, with a relevant notation, an annual report which has not been approved by the shareholder’s of the company if the shareholders do not adopt a resolution to approve the annual report.

Starting from 01.09.2023, the list of shareholders shall be considered as register card data and shall be kept in the commercial register.

The changes shall apply only to companies whose shares are not registered in the securities register or which have not waived the mandatory notarial form requirement for the disposition for the share transfer.

If the shares are registered in the securities register, the list of shareholders shall be kept by the securities register. If the form requirement for the disposition for the transfer of a share has been waived, the list of shareholders shall be kept by the management board of the company.

The purpose of the changes is to make the maintenance of the commercial register similar to the land register. This means, e.g., that the transfer of title of a share shall be deemed as taken place from the moment of making the relevant entry in the commercial register. Corresponding changes allow, among others, the bona fide acquisition of a share.

Starting from 01.03.2024, it will be possible to reserve a business name for six months and request to make an entry in the commercial register on a specific date.

When reserving a business name, the field of activity for which the business name is to be used and also the legal form of the company must be specified. The reservation can be extended once for three months. The same person cannot reserve the same name a second time.

In addition to reserving a business name, there will be an option to request to make an entry in the commercial register on a specific date. There must be a compelling reason for requesting entry on a specific date, which may be, e.g., the need for the merger to take effect. This enables the possibility to make sure whether there are any deficiencies in the submitted application or whether the entry can be made on the desired date.

By Martin Nikolajev, Attorney, Lextal

Sorainen has advised the shareholders of Milrem Robotics on their sale of a majority stake in the company to the Edge Group.

Milrem Robotics is an Estonian robotics and autonomous systems developer, specializing in the development of intelligent unmanned ground vehicles, robotic warfare solutions, concept of operations, and doctrine-level warfare analysis.

The Edge Group is a UAE-based technology and defense group.

According to Sorainen, “Milrem Robotics will continue to be based in the Estonian capital Tallinn, and also operates offices in Finland, Sweden, the Netherlands, and the US, employing approximately 200 skilled personnel. After the transaction, Edge will have majority control of Milrem Robotics.”

“The addition of Edge as a new majority owner will allow Milrem to increase production, hire new people, acquire new know-how, and also significantly expand its product portfolio, thereby becoming a stronger company internationally,” Milrem Robotics Chairman of the Supervisory Board Riho Terras commented. “This in turn allows the company to significantly and more efficiently contribute to the development of Estonia’s defense capability. Edge is a leading global defense industry group with a very wide reach and impressive resources.”

“There is great potential here for both companies, and our investment in Milrem will allow it to take advantage of Edge’s considerable resources to offer our customers operating in perpetually changing operating environments a more robust portfolio of superior autonomous systems at competitive costs,” Edge Group Managing Director & CEO Mansour Al Mulla added. “A presence in Estonia also provides Edge with strategic access to Northern Europe, increasing valuable opportunities for us across the continent and further afield, and strengthens our position as a serious global player in this sector.”

The Sorainen team was led by Partner Piret Jesse and Senior Associate Robin Teever.

Sorainen did not respond to our inquiry on the matter.

The legislation concerning crypto-assets has always been fragmented between different states in the EU. Having a crypto exchange license in one EU country did not mean that it would be automatically legal to operate in another EU state as well. Whereas some countries like Estonia were the pioneers of crypto legislation, many others have been lacking behind and have further exacerbated this fragmented state.

The above is about to change. There will be a new EU regulation covering crypto-assets law in all EU Member States. The regulation is titled “MiCA” –­ Markets in Crypto-Assets Regulation.

The regulation aims to create a uniform European legal framework for cryptocurrency services, including virtual currency service providers. MiCA will apply directly and uniformly in all Member States and will have a significant impact on the crypto market, dealing with licensing, the environmental impact of the crypto industry and the issuance of crypto-assets.

What about the Estonian market?

For the Estonian crypto market, MiCA may be the bearer of bad but also good news. On the one hand, the licenses issued so far will lose their validity, and a new so-called MiCA license must be applied for to continue business. On the other hand, the new license is passportable, i.e., based on the MiCA license issued in Estonia, it is easy to provide services in other member states.

Also, as Estonia has made its crypto regulation significantly stricter in recent years, the transition due to MiCA will most probably go smoothly. The current regulation in Estonia (which will expire with MiCA) is so strict that the “new” MiCA requirements are largely already met, if not exceeded, by Estonian license holders.

Nevertheless, the new framework and another re-tuning may initially cause headaches for crypto companies. However, from the perspective of market stability and transparency the MiCA

Regulation is the best thing that has happened to this field in recent years. A harmonized crypto market across the European Union is safer, more stable, more attractive and significantly promotes the development of the crypto industry. The MiCA Regulation gives a clear message to the world – the European Union understands that crypto-assets are here to stay and, as an important part of the economy, their market must be transparently and uniformly regulated.

So, what will actually change?

The main changes that MiCA brings to the Estonian crypto market are as follows:

• Existing licenses will lose validity, and a new “MiCA license” needs to be applied for;
• In Estonia, the issuing of licenses and supervision moves from the Financial Intelligence Unit (FIU) to the competence of the Financial Supervision Authority (FSA) – the latter also deals with other financial market participants like payment service providers, banks, etc.;
• New types of services related to crypto-assets will be added, such as advisory and portfolio management service – such business activities will also require a license, and each type of service will be subject to its own special provisions in the regulation;
• Crypto-assets are divided into four: asset-referenced tokens, e-money tokens, utility tokens and other crypto-assets. Issuers of asset-referenced tokens and e-money tokens are subject to stricter requirements than other crypto-assets;
• Issuers of crypto-assets must prepare, coordinate and publish their crypto-asset whitepaper. Providing false information in the whitepaper can be a basis for a claim for compensation for damage;
• Issuers of crypto-assets must enable a 14-day right of withdrawal for consumers;
• A public register managed by the European Securities and Markets Authority (ESMA) will be created, where the whitepapers of issued crypto-assets and licensed crypto service providers will be entered;
• There will be GDPR-like administrative fines, which can be domestically replaced by criminal punishments;The content of the own funds requirement changes partially;
• Anti-Money Laundering Directives (AMLD) remain in force.

When do I have to comply?

The proposal text of MiCA was already published in October 2022 – this can be found here.

MiCA is expected to enter force in Q2 of 2023 and will be implemented 18 months later. This means that service providers can presumably start applying for new business licenses in the fall of 2024. All service providers must meet the requirements of MiCA no later than spring of 2026.

By Rauno Kinkar, Partner, Henri Ratnik, Attorney at Law and Dan-Erik Roosve, Attorney, Lextal

Sorainen, working with Dentons, has advised Deutsche Bank on a EUR 600 million syndicated loan agreement with Eesti Energia to refinance its 2016 bond issuance and support investments.

Eesti Energia is an international energy company whose home markets are the Baltic States, Finland, and Poland. The group is engaged in energy production and sales, as well as offering energy solutions to customers.

According to Sorainen, the agreement was signed on February 15, 2023. “The purpose of the term loan is to refinance the company’s bond and continue with the investments planned in customer solutions, the growth of micro-producers’ connection opportunities in the electricity grid, and the development of the carbon-neutral chemical industry.”

“The loan will refinance a EUR 500 million bond listed on the London Stock Exchange, expiring in September 2023,” the firm announced. “The loan agreement was concluded for five years on the basis of a partial repayment schedule.”

CEE Legal Matters covered the original Eesti Energia bond issuance back in November 2016. A 2017 CEELM interview with Ivar Kurvits – General Counsel at Eesti Energia at the time of the transaction – is available here. 

Sorainen’s team included Partners Katlin Krisak and Kaido Kunnapas, Counsels Jane Eespold and Kaspar Endrikson, Senior Associates Mari Agarmaa, Robin Teever, and Verner Slim, and Associates Kamilla Alma Vilderson and Raul Kartsep.

Sorainen did not respond to our inquiry on the matter.

Ellex, working with Norway’s Thommessen, has advised InfraVia on its acquisition of a stake in wind farm developer Vindr Group.

InfraVia Capital is a European private equity firm specializing in infrastructure and technology investments.

The Vindr Group, a renewable energy company, develops wind farms in Norway, Sweden, and Estonia.

Ellex’s team included Partner Martin Kaerdi, Counsels Triin Frosch and Jaanus Ikla, Associates Liisbeth Lillo and Kevin Gerretz, and Lawyer Alan Paas.

Ellex did not respond to our inquiry on the matter.