Pohla & Hallmagi has successfully represented UK company Steamship Mutual Underwriting Association in Marshall Island-registered oil tanker Advantage Pride arrest proceedings.
According to the firm, the proceedings “resulted in the immediate payment of an outstanding debt after issuing the ruling by the court.”
Steamship Mutual Underwriting Association is a UK-based insurance company.
The Pohla & Hallmagi team included Partners Martin Mannik and Asko Pohla.
Sorainen has advised HydrogenOne Capital Growth on its EUR 24 million investment in Elcogen. Gowling WLG reportedly also advised HydrogenOne.
According to Sorainen, “as a result of the transaction, HydrogenOne will gain a minority stake in Elcogen and have the right to a board seat which they are expected to take.”
“This investment will fund the expansion of Elcogen’s facilities in Tallinn to create a new, automated production line for solid oxide fuel cells, initially scaled at 25 megawatt/year, rising to 50 megawatt/year,” Elcogen announced.
Elcogen is a European manufacturer of clean energy technology. The company manufactures core components for solid oxide systems, cells, and stacks, that enable customers to produce green hydrogen.
Launched in 2021, HydrogenOne is a London Stock Exchange-listed investment company, specializing in clean hydrogen and energy storage. The company’s investment objective is to invest in a diversified portfolio of hydrogen and complementary hydrogen focussed assets.
“There is substantial demand for fuel cells as the clean hydrogen sector continues to grow at a rapid pace,” HydrogenOne Chairman Simon Hogan commented. “We look forward to supporting the company on its growth journey as it expands its solid oxide capacity for customers. HydrogenOne continues to deploy our investors’ capital into distinctive and high potential hydrogen assets.”
The Sorainen team was led by Counsel Lauri Liivat and included Senior Associate Kirsi Johanna Koistinen and Senior Practice Group Coordinator Eva-Maria Kullamae.
Sorainen has advised Reiterate on raising EUR 1.25 million in a pre-seed round led by Hummingbird Ventures. Cobalt advised Hummingbird on the deal.
According to Sorainen, Reiterate is a Tallinn-based startup “aiming to automate cost and revenue intelligence for transactional businesses. The new investment will be used to grow its global engineering and product team to further develop the calculation editor, improve client onboarding, and grow traction in the UK and across Europe.”
Sorainen’s team included Senior Associate Mirell Prosa and Associates Vladislav Leiri and Kristi Tammiku.
Cobalt’s team was led by Partner Kristel Raidla-Talur and included Senior Associate Marten Amjarv and Associate Johanna Lumiste.
A booming startup sector, unhampered by the war in the region, is the strongest suit of the Estonian market right now, while the country continues to focus on improving its regulation of FDI, crypto, and fintech businesses, according to Sorainen Senior Partner Aku Sorainen.
“The M&A market did, on average, slow down on account of the war, especially for those companies having elements of their value chain in Ukraine, Belarus, or Russia,” Sorainen begins. “Much like in the case of COVID-19 initially occurring – the market experienced a dramatic stop, but the investors then slowly began to come back.” Still, according to Sorainen, large transactions of over EUR 100 million are, by and large, on hold for now.
Turning to the real estate sector, Sorainen reports that “big-ticket real estate items have not yet picked up, in comparison to other M&A activity.” However, he reports that – “with construction materials being quite expensive and getting more so – there is no real negative impact on the pricing of the deals that are happening, especially since companies tend to be only moderately indebted, so sellers have plenty of time to wait as well.”
On the other hand, what hasn’t slowed down is the startup market, Sorainen says. “Two years ago, the Estonian startup market raised EUR 464 million. Last year, this figure was EUR 962 million, and this year – just in the first four months – this number reached EUR 1 billion,” Sorainen reports. “The war has not impacted startups in Estonia and the market is continuously picking up pace,” he says, noting that might be the case because of startups “not being truly local – they operate globally and can, honestly, relocate their headquarters if necessary, so the risk levels they incur are lower.”
Providing an update on the legislative landscape of Estonia, Sorainen mentions a new draft proposal for an FDI regulation that is due to pass this fall. “The law, if passed, will prop up more stringent barriers to entry into certain sectors, like energy,” he says, though the energy sector has been “very active, especially when it comes to renewables.”
Additionally, Sorainen reports that the financial supervision authority of Estonia is “planning to increase its control over crypto business in Estonia, as well as the fintech sector in general.” As he sees it, Estonia, which has been “famous for being tech-savvy and quite liberal in its fintech regulation,” is likely to increase the regulatory overwatch primarily because of anti-money laundering reasons. “Estonia did experience massive money laundering scandals a few years ago, related to subsidiaries of certain Nordic banks,” Sorainen explains. “That was a big hit for the country’s reputation, so reducing any and all AML-related risks is a priority for the authorities.”
Lextal has advised Tuul Mobility on its EUR 3.1 million bond issuance and application for trading on the Nasdaq Baltic alternative market First North.
Tuul Mobility is an Estonian electric scooter rental service provider. The bonds were accepted for trading by Nasdaq Baltic on April 4, 2022.
According to Nasdaq Baltic, “the size of Tuul Mobility’s issue of secured bonds is EUR 3.1 million. Each bond has a nominal value of EUR 500. They have a fixed annual coupon rate of 10%, with payment twice a year. The bonds mature on March 29, 2027. The listing of the Tuul Mobility bonds follows their public offering by the company to Estonian investors. Based on demand for the bonds of EUR 4.45 million, the offering was 44% oversubscribed. A total of 1757 investors subscribed to the bonds.”
Lextal’s team included Partner Kristi Sild and Lawyer Kaisa-Maria Kubpart.
Sorainen has advised Punktid Technologies on its IPO and admission to trading on Nasdaq First North.
“Punktid Technologies is a holding company established and operating in Estonia which has two subsidiaries, Gamekeys and HVK Business,” Sorainen informed. “The Punktid group owns and develops the largest online sales environment for digital codes of video games, Nintendo, PlayStation, and Xbox in Estonia, where professional support is provided in the local language to both beginners and experienced gamers. In addition to Estonia, the online sales environment chain is also managed in Latvia, Lithuania, Finland, and Ukraine, as well as in international English and Russian-speaking sales environments.”
According to the firm, “up to 300,000 shares were publicly offered … A total of 176,378 shares were subscribed for during the offering. The proceeds from the offering amounting to approximately EUR 794,000 will be used for technical updates of the Punktid website and Punktid application development, expansion of the team and recruitment of new staff, expansion of marketing and sales activities, as well as a for maintaining a reserve to cover possible unforeseen expenses related to the expansion.”
Sorainen’s team included Partners Katlin Krisak, Paul Kunnap, and Kaido Kunnapas, Counsel Jane Eespold, Senior Associate Robin Teever, Associates Mirjam Metsik and Kamilla Alma Vilderson, and Assistant Lawyer Karl Joonas Kendla.
Sorainen did not respond to our inquiry on the matter.
TGS Baltic has successfully represented AS Tartu Agro before the Supreme Court of Estonia.
According to TGS Baltic, “in its decision made at the beginning of 2020, the European Commission found that the Estonian state had granted unlawful state aid to Tartu Agro in the form of an excessively favorable rental price and that this state aid must be recovered from the company. In connection with the decision by the Commission, Estonia ordered a legal opinion from Law Firm Derling Primus (now Walless) and decided not to challenge the Commission’s decision. The Ministry of Rural Affairs submitted a recourse claim concerning the state aid to AS Tartu Agro and the company repaid the corresponding amounts to the state.”
Furthermore, according to the firm, “Tartu Agro challenged the Commission’s decision in the Court of Justice of the European Union and the respective proceedings are still pending. But Tartu Agro was not given access to the legal opinion ordered by the state regarding the Commission’s decisions. However, according to the April 18, 2022 judgment of the Supreme Court, the state must give out the legal opinion to Tartu Agro.”
TGS Baltic’s team included Senior Associates Triin Kaurov, Triinu Jarviste, and Mari-Liis Orav and Associate Robin Luts.
Editor’s Note: On July 14, 2022, TGS Baltic announced that, in its July 13, 2022, decision, the General Court of the European Union confirmed that “the unlawful state aid decision made against AS Tartu Agro was unlawful. In a long-awaited decision, the General Court of the European Union completely annulled the decision of the European Commission according to which, AS Tartu Agro has received unlawful state aid from the Estonian state.”
TGS has successfully represented Marcel Vichmann’s Best Idea OU in filing a bankruptcy petition against Oliver Kruuda.
According to TGS Baltic, “in October 2021, Tartu County Court declared the bankruptcy of Oliver Kruuda. The petition for the declaration of bankruptcy was filed by Marcel Vichmann’s company OU Best Idea as Kruuda had failed to pay the debt of EUR 15 million he had been ordered to pay under a final court judgment. In January 2022, Tartu Circuit Court upheld the county court order by agreeing with TGS Baltic attorneys that although Oliver Kruuda has left for Ireland, his essential interests are still related to Estonia and it is justified to conduct Kruuda’s bankruptcy proceedings in Estonia. Tartu Circuit Court also agreed that Kruuda had left Estonia secretly to conceal himself from his creditors and evade the performance of his obligations. The circuit court found that Kruuda failed to provide any plausible explanation concerning the fact that the reason behind his move to Ireland could be anything other than seeking a more favorable location for conducting bankruptcy proceedings.”
According to the firm, “although the law does not provide for the possibility to submit an appeal against a bankruptcy order to the Supreme Court, Kruuda still filed an appeal against the court order with the Supreme Court. On Monday, April 18, 2022, the Supreme Court issued an order not to accept Kruuda’s appeal against the court order. By now, the order declaring Kruuda bankrupt has become final in Estonia. This means that despite Kruuda’s efforts to have his bankruptcy proceedings conducted in a more favorable country, i.e. Ireland, Kruuda’s bankruptcy proceedings are taking place in Estonia, which is in the interests of Kruuda’s creditors.”
Finally, the firm reported that “this is a precedent-setting case in Estonian judicial practice, where Kruuda failed to avoid bankruptcy in Estonia even though he had started to conceal himself in Estonia to avoid bankruptcy proceedings and he managed to achieve the declaration of bankruptcy in Ireland before the declaration of bankruptcy in Estonia. The situation is unique because proceedings are taking place in Estonia and Ireland at the same time, and Estonian courts have found that an earlier bankruptcy order rendered in Ireland does not impede the conducting of Oliver Kruuda’s bankruptcy proceedings in Estonia.”
TGS Baltic’s team included Senior Associates Kedli Anvelt and Paul Varul.
On March 9, 2022, four leading Estonian lawyers sat down for a virtual round table moderated by CEE Legal Matters Managing Editor Radu Cotarcea to discuss the current state of the startup environment in Estonia and analyze its main drivers, the local startup ecosystem, and the regulatory environment shaping it.
Participants:
You can also listen to the conversation as a podcast below.
CEELM: Estonia has the most unicorns per capita in Europe, and Estonian startups have raised more than a billion dollars in 2021. Is this performance reflective of the strength of local companies or structural market support?
Galitskihh: You are right, there are a lot of startups in Estonia that are unicorns already. There were six of them last year and seven already this year. The number of startups is growing, mainly because of the structural market support and the opportunity to raise money. The general environment in Estonia is also supporting it with a lot of young people focused on technology and the internet. IT companies are the future for them, and for the state as well. Because of that, the number of unicorns is growing rapidly. People around the world are seeing Estonia as a good place to invest money and these local companies end up infusing capital into the market as well. I don’t know many other countries in the world with similar conditions – maybe Israel is up there as well. There is considerable support from the state as well – already in the 90s, the government had a policy of supporting IT companies to be present in the country and to grow.
CEELM: Do you agree with what has been mentioned above, and as a follow-up, what nurtured investors’ trust in the market?
Kinkar: I agree with what Vitali said. At this point, we have the highest number of unicorns and startups per capita. A combination of factors contributed to that, including a digital governance system, e-residency, ID card, and the opportunity to establish and run a company online. In addition, decisions that were made by the government 20 years ago regarding investing in IT education contributed to that. The Tiger Leap program, which was launched in schools seems pretty basic right now. In contrast, at the time it was definitely not basic and led to us having very good IT specialists now leading the ecosystem of startups. The good political decisions that date way back, a good e-governance system, a favorable tax regime in terms of not having a corporate income tax, and easy access to startup visas have definitely played the role in the process.
CEELM: Since you mentioned digital governance, is it a result of people being pushed towards IT, or did IT directly incentivize startups?
Kinkar: I would say it is a combination of both. It is similar to a “chicken and egg” situation. The government saw a business opportunity in the IT sector and aimed to address hinders to foreign investors to enter the Estonian market. At the same time, once there was an effective system, people made more investments, validating the system in the first place. I guess it shows good insight from the policy maker’s side. I’m not sure whether they foresaw that the effect would be this profound or if they were throwing a dart in the dark, hoping it would land, but it did.
Pent: I agree that the environment plays a big part in Estonian startups’ success, but I also think that the environment has changed. Estonia might have been a front-runner in terms of licensing cryptocurrency companies, but recently, we are regulating more. We have some specific sectors where we might have a better reputation than it actually is. However, in general, the environment is very helpful for startup companies. We have specific legislation also targeting immigration issues, such as startup visas for founders. The past success of the unicorns is also a factor that contributes to current startups being able to raise funds.
Galitskihh: I disagree that e-residency laws have a huge impact on this, as people who get e-residency are usually not part of unicorns. Mostly, our unicorns are from Estonia, run by local people. The government’s policy and worldwide marketing had a rather big part to play.
CEELM: As mentioned, past successes have played a role. What was the impact of Estonia’s original “golden child” – Skype?
Tulvik: Skype was such a long time ago, we have a whole generation after it. This created a very common attitude in Estonia, that “if we could do this back in 1997, then what is it that we cannot do in 2021.” There is also a bigger picture, that is not related just to the government and startups. First of all, Estonian children have historically been quite good at science, as the PISA test showed, meaning that Estonians are not afraid of numbers or technology. Secondly, Estonian society is very horizontal, from the grassroots to the very top levels of the government. In such a small country, even if people are not related, they know each other, therefore, the lines of communication are short and extremely transparent. That, in turn, is a great asset for the VCs to see where they are investing money. Investments are quite secure, and if there is a doubt, it is usually a matter of a maximum of two phone calls to figure things out. This culture has been cultivated in the past 30 years since Estonia’s independence, and we have had at least two generations for whom it is natural to be in this state.
Pent: I agree that a go-getter attitude is a contributing factor. In addition, Skype had a very direct impact on the Estonian startup community, as its founders sold it and used the proceeds to launch VC funds, which now are investing in other startups. It is possible that even the third generation of startups are using money that Skype generated. They are also mentoring other founders, as well as in terms of financing startups, Skype contributed directly.
CEELM: How is the local VC landscape? Would you assess it as more mature than most of CEE, for example, and if yes, why?
Kinkar: I think it would be a stretch to say that the VC landscape is more mature compared to most CEE countries, considering the size of the market. Compared to other CEE countries, our market is extremely small. However, I think that the success of startups had an inherent looping effect. The market analysis shows that the funds generated by those successful startups tend to end up back in the flow of new ventures. Having those 7 unicorns have directly led to stronger VCs in Estonia and having their funds at disposal. Despite the fact that the market is fairly small, the VCs are extremely successful in that regard.
Tulvik: When we talk about the size of the market and VC investments, it is quite common to see the Baltics as a single market. If we separate Estonia from the Baltics statistics, we see that with regards to VC involvement, it tends to be the smallest of the three. This is a beauty and a tragedy of being a small market, as even though it is very transparent and horizontal, investment opportunities are still limited due to its size. In addition, it is a common trend that as soon as a unicorn emerges, or a startup scales up to a certain level, they tend to move out and go to London, Luxembourg, Silicon Valley, etc., as they do not fit in the market anymore. We lose the most successful startups fairly easily.
CEELM: Startup flight might not be a new story in CEE, but what are the main elements influencing the Estonian players?
Galitskihh: This is an important question, as startups are not connected to local markets. These companies work in Europe or worldwide. They tend to move to London or the US, as they can raise a lot of money there. We also have a shortage of people who can create such companies, as they tend to move to other countries. Huge companies, such as Microsoft, are in other countries, but Estonia is a great country for startups.
CEELM: You mentioned the Tiger Leap program, initiated by the government a decade ago, or more. What is the government doing now to support the ecosystem of startups?
Pent: There have been some legislative changes in recent years, targeting, for example, the lack of a workforce. Immigration is a tricky question in this part of the world in general. There is specific legislation for startups, including providing visas for those who are outside of the EU. A couple of years ago commercial law changed to provide convertible instruments for startups. The government also has a body called “Startup Estonia” to support the community, which defines, inter alia, which startups are eligible for founders visas. However, certain players, such as fintech companies rather have issues with the ever-changing laws. The regulator is maybe not as open to discussing some new business model. However, there have been improvements in the last year, and in general, the government is rather helpful with the startups.
CEELM: Earlier you mentioned a backtrack with regards to legislation. Is that what you were referring to?
Pent: That is very specific for cryptocurrency companies. It has been suggested that 40% of all crypto companies are registered in Estonia. After some time, it was considered a major AML risk. Regulators received quite a lot of tips from other countries in the EU. In a way, it seems that the political approach has changed, however, companies are still interested to operate in Estonia. Especially, in light of the war that broke out in Europe, the Estonian Prime Minister has said that we need to look at crypto regulations to close the loopholes so that the funding won’t go through them to sanctioned countries. In some sectors, regulations are amended frequently, which does not contribute to the stability of the system.
Tulvik: AML, in a bit of a wider sense, has been a problem in many ways over the past several years, ever since the famous Danske Bank money-laundering scandal. Of course, there is a very direct link to crypto-related sectors. We have also seen that the banking sector crunched down and remained immobile by the establishment of draconian AML requirements. At this point, it is virtually impossible for non-residents to open a bank account here. This has been a huge hamper for business, investments, and other aspects. This relates to general government involvement, as we have seen a lot of moving around two poles, instead of finding a middle ground. On the one hand, the financial supervisor is extremely passive, but on the other hand, we have overnight draft legislation allowing the shutting down of 80% of the businesses based on alleged involvement in money laundering. Philosophically, both of those approaches are correct, but I would like to see the government finding a middle ground by combating money laundering and striving for transparency without putting a hamper on any sort of finance movement in this area. This has been somewhat lacking, but of course, there’s always something else on the table – the first COVID-19 and now the war and elections.
Kinkar: It’s not just about crypto, but web3 in general. The startup scene in that field is growing. The economic opportunities in the Estonian startup scene are quite obvious. At the same time, the Estonian government is changing regulations very quickly, in a very strict manner. The direction in which it is evolving, in my opinion, is a good one. The first of two draft laws was passed a week ago, coming into force on March 15. That will impose new and clear regulations for web3 and crypto companies operating in Estonia, and establish share capital and licensing requirements to adhere to. This might lead to stabilization and create a lot of opportunities. The field will become more respected, as there will be real companies operating in Estonia, investing real money. I believe, that the direction we are moving toward is correct, and the only challenge is to stop at the right moment and not impose regulations until everyone is out of the market. Especially given the situation we are in now, the economic sanctions on Russia among other things, have shown that there is a place for an alternative financial system, that can be used in the context of conflict. I think that web3 is not going away from Estonia, and there is a potential, that the government regulations will become more strict. We are still frontrunners in CEE, setting up a stable legal environment, where you can safely invest capital and set up a company knowing that I can do business here for a long time. More generally, when we talk about what the government can or should do with regard to the startup community, it ties to the web3 matter. The government needs to provide a clear understanding of what the AML regulations are and provide clear guidelines.
Galitskihh: I agree with my colleagues. The government was neutral maybe 20-25 years ago. These are new regulations and as a result, crypto companies are moving to Lithuania or other countries. We still don’t have any solutions to banking problems, as in Estonia it is not possible to run a business without it. We have had this problem for 4-5 years now, but the government did not address it, therefore, I feel very pessimistic. I hope new regulations on cryptocurrencies will be more clear in general.
CEELM: You mentioned a supportive tax regime for startups in the country. Can you elaborate?
Tulvik: When we talk about both tax incentives for startups and the general influence of the Estonian tax system on startups for years, it is crucial to mention that Estonia usually sells itself to foreign investors as having a great tax system. It is indeed wonderful, as it is quite simple and transparent. The way it works is that companies’ profits are taxed at the moment of their distribution, not the moment they are earned. It supports entrepreneurship, but when it comes to startups, it really does not help them. On average, the question of profit does not even arise in the first 3-5 years of startups’ existence. Startups are not worried about profit distribution, but about payroll taxes. Here we lose big, as payrolls are taxed heavily. The employer is paying 33% social tax on top of everything, including income tax. There is absolutely no special tax regime for startups. Accordingly, the big picture regarding taxes is wonderful, however, the startup regime is disadvantaged. There’s another aspect to it, if we look at the worldwide BEPS initiative, there is an ongoing fight against profit shifting, which is right in its philosophy. However, the fact is that BEPS will be adopted one way or another in the coming years, and it is not clear how or whether the Estonian tax system will going to survive. There is this uncertainty on top of everything, on what our tax system will look like three years from now. I understand the limitations placed on the government as well, as they have as much information we have now, but there is a shoutout to them to actually start planning for businesses and emerging startups, on how they are going to deal with that.
CEELM: To wind down the conversation, what would be one element you would like to see a change to better support the startup scene?
Pent: As I mentioned, Estonian AML legislation needs to be improved. The difficulty here is a risk-based approach, meaning that the obliged entity needs to define its own risk appetite and the features that go with it. It is ultimately the task of the regulator, considering the scandals that we had recently. Unfortunately, I am not very optimistic about more leniency in the future, but we would wish that the regulation would at least become more clearly defined and the regulator’s expectations would be more obvious.
Kinkar: My wish list is probably less realistic and most likely could not be solved by the Estonian side. Especially with regards to startups, the tax exemptions mechanisms allowing stock options are rather limited. They become extremely expensive and convoluted, as startups usually employ a number of people living in different jurisdictions. In that case, companies would need local counsel in every country and to apply for tax residency in each of them. This shows up in statics as well, as compared to the US, the percentage of employees getting option programs across the borders, the number is much lower in the EU, as it is rather complicated and expensive to do so. Some Estonian startups, for instance, SaltoX, are operating in the field of tokens. It is hard to solve from the Estonian side, as it involves amending legislation at the EU level. However, I think if we want to have a favorable regime for employees, the regime should be different.
Galitskihh: As I mentioned, I feel very pessimistic right now. I hope that the government resolves the bank account-related problems. This seems to be the main problem right now, as if you don’t have a bank account, you don’t have a business.
Tulvik: If I had a list of ten things that I could improve, eight of them would be related to AML, and the remaining amendments would relate to immigration and the conflict between the requirement of local presence and the fact that startups are online and global. I would also add tax-related issues. As mentioned before, with regards to option plans and payrolls, there could be an improvement.
Walless has advised Turnit on its agreement with Samtrafiken to transfer a part of Sweden’s bus, train, and urban multi-modal transport ticketing to the Turnit Ride platform.
Turnit is an Estonian travel technology company providing Turnit Ride reservation and inventory management solutions. Samtrafiken is an organization formed by Swedish local authorities and major passenger transport companies.
According to Walless, “Turnit will process tickets from approximately 50 rail and bus operators in Sweden, including the country’s 21 independent regional Public Transport Authorities. The contract is worth SEK 2 billion (about EUR 2 million) in ticket sales annually.”
The Walless team included Partner Rolan Jankelevitsh and Senior Associate Margot Arnus.
Walless could not provide additional information on the matter.