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Bankruptcy - Latvia

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TABLE OF CONTENTS

1. What are the different types and aims of insolvency proceedings? 1.
2. What are the conditions for opening each type of insolvency proceedings? 2.
3. What is the role of the various participants in each type of proceedings? 3.
4. What are the effects of the opening of proceedings? 4.
5. What are the specific rules related to certain categories of claims? 5.
6. What are the rules relating to detrimental acts? 6.
7. What are the conditions for the lodgement and admission of claims? 7.
8. What are the rules relating to reorganisation proceedings? 8.
9. What are the rules relating to the winding-up proceeding? 9.
10. What are the conditions for the closure of the proceeding? 10.

 

1. What are the different types and aims of insolvency proceedings?

According to the national laws in solvency is a state of a debtor, in which it is unable to settle its debt obligations. The insolvency is determined by a judgment of a court.

The opening of insolvency proceedings may result in:

  1. restoration – resolution of a state of insolvency carrying out planned measures with the purpose to prevent a possible bankruptcy of a debtor and to, restore its solvency and ability to satisfy the claims of creditors;

    Particularly in the case when a decision on restoration is taken the secured creditors are forbidden to exercise their rights in respect to the debtor’s property which serves as security for their claims, until rejection of a restoration plan, but, if the restoration plan is adopted and approved, - until the end of the restoration or its termination.
  2. settlement – resolution of a state of insolvency by an agreement between the creditors and the debtor regarding the fulfilment of the debtor’s obligations.

    Particularly creditors in the case of settlement are bound by the terms and conditions of the settlement and they must also comply with the settlement notwithstanding whether they have voted against the settlement or have not participated in the voting. Furthermore the creditors meeting may not decide on restoration or the initiation of bankruptcy proceedings as long as a settlement is in effect.
  3. bankruptcy – resolution of a state of insolvency liquidating the debtor and satisfying the claims of creditors from resources which have been obtained during the liquidation proceedings.

    There are no preventive measures for improving solvency before the opening of insolvency proceedings as well as informal restructurings and reorganisations in Latvia.

2. What are the conditions for opening each type of insolvency proceedings?

Following categories of persons can be subjected to insolvency proceedings:

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  1. all undertakings and companies registered in the Register of Enterprises;
  2. undertakings of the State and municipalities and companies in the transitional period.

Natural persons cannot be subjected to insolvency proceedings.

Following persons may request a court to open insolvency proceedings, submitting respective application (insolvency application):

  1. debtor or liquidators of debtors (liquidation commissions);
  2. creditors or group of creditors;
  3. administrator of respective insolvency case;
  4. competent State and municipality authorities.

After debtor is declared insolvent, the administrator shall perform following activities:

  1. within three days after debtor is declared insolvent, the administrator shall send a notification and a transcription of the court judgment to the Register of Enterprises and the Land Registry Office, where immovable property is located, indicating in the attached document his or her given name and surname, place of business and telephone number.

    The Register of Enterprises shall record the submitted information in accordance with the procedures prescribed in the Law On the Register of Enterprises. It is the duty of the Land Registry Office to make an entry in the relevant section of the land register in accordance with the Land Registry Law that the owner is declared insolvent;
  2. within three days after debtor is declared insolvent the administrator shall submit respective notice for publication in the official gazette “Latvijas Vēstnesis” latviešu valoda. The administrator is also entitled to submit the notice of insolvency for publication in other newspapers.

3. What is the role of the various participants in each type of proceedings?

Claim for opening of insolvency proceedings against the debtor shall be examined by a competent regional court where the debtor has its registered address.

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Administrator is a person appointed by a court on the basis of a proposal by the State agency “Insolvency administration”.

Only a natural person who has higher legal education or higher education in the field of economics, management or finance, or not less than three years work experience in undertaking or company’s supervisory institutions and executive authorities, who has successfully completed the requirements for certification in the administrator specialisation and to whom the State agency “Insolvency administration” has issued a certificate, may be an administrator.

Administrator shall ensure the lawfulness and effectiveness of the insolvency proceedings; shall administer and ensure preservation of the debtor’s property until the closure of the insolvency proceedings.

Administrator has following rights after the debtor is declared insolvent:

  1. to decide whether the debtor continues operating in full or partial extent;
  2. to enjoy all the rights and powers of the administrative institutions conferred by law, debtor's statutes or contracts.

Debtor is an undertaking or a company unable to settle its debt obligations. The debtor’s representatives are shareholders of the capital of the debtor, members and officials of administrative institutions of the debtor, who are entitled, to take decisions with respect to the debtor or to represent the debtor in accordance with the debtors’ statutes or contracts.

The debtor’s representatives have following obligations:

  1. attend all creditors’ meetings and court sessions of which they are notified, as well as to provide necessary information;
  2. notify the administrator, within three days, of the address of the new place of residence in the event of the change of his/her place of residence during the insolvency proceedings;
  3. provide information requested by an administrator and creditors meeting within fifteen days from the date the request is sent;
  4. submit an insolvency application to the court.

Creditor is a State, a municipality, a legal person, a natural person or a group of natural persons bound by a contract, which has the claim against the debtor. There are two categories of the creditors:

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  1. unsecured creditor – a creditor whose claim is not secured by a pledge;
  2. secured creditor – a creditor whose claim is secured by a possessory pledge, a commercial pledge or a mortgage recorded in the Land Register or the Shipping Register.

The creditor has following rights:

  1. participate in a creditors meeting;
  2. submit an insolvency application to a court;
  3. submit to the administrator reasoned objections on admissibility of the claims of other creditors, except claims settled by the court decisions that have come into effect;
  4. appeal to a court the decision of a creditors meeting in part on admissibility of a claim of other creditor or rejection of his/her claim;
  5. request to convene regular creditors’ meetings;
  6. a secured creditor may commence sale of debtor’s property serving as security for his/her claim (pledged property) afterwards a decision on resolution of a state of insolvency (settlement, restoration or bankruptcy) is made;
  7. receive the satisfaction of claims.

The creditors’ meeting is organized, collective operation of the creditors. It is entitled to:

  1. elect the committee of creditors;
  2. choose a resolution of the state of insolvency and determine the basic provisions thereof;
  3. examine and adopt or reject the submitted proposals for resolution of the state of insolvency (a draft settlement, a restoration plan, a decision regarding bankruptcy) and the procedures for discharging debts in the priority order determined by the Law On the Insolvency of Undertakings and Companies;
  4. decide on the amount of expenses for the administrator and procedures for the settlement of debts, as well as determine the end for the period for resolution of the state of insolvency.

Jurisdiction in the examination of complaints

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  1. Complaints regarding the decisions or activities of an administrator shall be examined by the State agency „Insolvency administration”, which shall ascertain the points of view of the complainant and the administrator, its conformity to laws and shall try to resolve a conflict, which has arisen, or reconcile the parties to the conflict. The court, in which the insolvency proceedings have been initiated, shall adjudicate complaints regarding the decisions or activities of administrators, referring to the complaint materials regarding the examination of the complaint in the State agency “Insolvency administration”.
  2. Complaints regarding the decisions or activities of other persons involved in the insolvency proceedings shall be adjudicated by the court in which the insolvency proceedings have been initiated.
  3. Each creditor has the right to appeal to a court the decision of a creditors’ meeting in part of admissibility of a claim of other creditor or rejection of his/her claim. The appeal may be submitted within two weeks from the day of the creditors’ meeting, but if the creditor has not participated in the meeting, from the day when the creditor is notified of the decision of the creditors meeting.
  4. A creditor or a group of creditors may request a court to revoke the decision of a creditors meeting on restoration if such decision has been achieved by fraud or duress, or as a result of a mistake.

4. What are the effects of the opening of proceedings?

Upon commencement of the insolvency proceedings, a creditor is prohibited from performing individual actions by which damages can be inflicted upon the interests of the creditors as a whole. Property rights acquired by the creditors or third persons as a result of the actions of creditors shall be declared as null and void by a court on the basis of a claim by the administrator, debtor, another creditor or a group of creditors.

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Upon opening of the insolvency proceedings an administrator shall ensure that the phrase “maksātnespējīgais” (“insolvent”) is used in all the requisites of the debtor.

Upon opening of the insolvency proceedings the debtor:

  • loses the right to dispose its property;
  • the operation of the administrative institutions of the debtor is suspended;
  • the increase of penalty payments for late payment and the increase of the interest payments in relation to claims against the debtor terminate;
  • the civil proceedings commenced against the debtor are stayed;
  • the enforcement proceedings of judgements for recovery of arrears are terminated.

5. What are the specific rules related to certain categories of claims?

Rights of the third parties are protected in following manner:

  1. the list of debtor’s property subjected to the claims of creditors shall not include property in the possession of or held by the debtor, belonging to third persons;
  2. the administrator shall ensure preservation of property belonging to third persons until its transfer to the owner. The administrator is entitled to recover from third persons such expenses as have arisen in connection with the maintenance of their property;
  3. if property belonging to third persons has been disposed before the term for the submission of the claims of creditors has expired, and the owners of the property have submitted their claims within the specified term, the value of such property shall be reimbursed in full amount before the satisfaction of other claims. The amount paid out shall be recovered from the person responsible for the wrongful disposal of the property of the third person.

Full or partial discharge of obligations regarding a debtor (claims or debts) by set-off is not allowed.

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Compensation of damages:

  1. administrator is fully liable for damages caused to the creditors due to his or her fault;
  2. administrator is liable for the damages caused by the specialists and assistants invited by the administrator, acting on the basis of such authority;
  3. if a competent State or municipality institution has submitted an unfounded or intentionally false insolvency application, the damages inflicted upon the debtor shall be compensated respectively from the State or municipality budget;
  4. in case of restoration a restoration plan shall indicate a compensation for secured creditors regarding the restriction of their rights during the restoration and the procedures for the payment of such compensation;
  5. if the pledged property is destroyed, or its value decreases during the restoration, the claim of the secured creditor shall be covered, according to the value of the pledged property or to the extent of its reduction, from the administrative expenses of the insolvency proceedings. The reduction of the value of the pledged property, as indicated herein, is not applicable to natural wear and tear of the property.

Termination of employment contracts:

After the debtors is declared insolvent, the administrator may terminate the employment contracts with the employees of the debtor.

In the case of termination of an employment contracts, the dismissed employees shall acquire the status of creditors:

  1. to the extent of unpaid salary and related payments that have not been received;
  2. to the extent of reimbursement of damages in respect of an occupational accident or disease for the whole unpaid period, and to the extent of such payments as are to be made three years in advance to the special budget in respect of State social insurance, if the occupational accident has occurred or the occupational disease has been contracted prior to 1 January 1997.

Obligations of the creditors:

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  1. the secured creditor shall co-ordinate with the administrator the provisions regarding voluntary auction of the pledged movable property of the debtor and the initial price;
  2. comply with the terms and conditions of the settlement notwithstanding the fact whether the creditor voted against the settlement or did not participated in the voting;
  3. in the case of restoration the secured creditor may not exercise his (her) rights with respect to the property of the debtor which serves as security for their claims, until rejection of a restoration plan, but, if the restoration plan is adopted and approved, until the end of the restoration or its termination.

Rules on priorities of the creditors:

  1. firstly the administrative expenses of the insolvency proceedings shall be fully covered;
  2. after the covering of the administrative expenses, the remaining funds shall be distributed, firstly, for the satisfaction of claims of priority creditors (only the principal debt amounts without interest) in the following groups:
    1. claims of employees;
    2. payments to farms, individual producers, co-operatives and incorporated companies for agricultural products supplied to processing undertakings;
    3. claims regarding the payment of debts of social tax for one year prior to the initiation of the insolvency proceedings;
    4. State claims regarding repayment of State-guaranteed credit;
    5. claims regarding repayment of debts of other taxes and fees, including the remaining social tax debts, except deferred payments;
  3. after satisfaction of the claims of the priority creditors as provided for, the remaining funds shall be distributed, secondly, for the satisfaction of claims of the remaining creditors;
  4. the claims of each subsequent group of creditors shall be satisfied only after complete satisfaction of claims of the prior group of creditors. If monetary funds of the debtor are not sufficient to completely satisfy all the claims of one group of creditors, such claims shall be satisfied in proportion to the amount that is due to each creditor within such group.

6. What are the rules relating to detrimental acts?

The court may declare null and void transactions relating immovable property between the debtor and the third persons in following circumstances:

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  1. they have been entered into after the day when the insolvency application was submitted and the debtor has thereby knowingly caused damages to creditors – regardless of fact whether the person with whom or on behalf of whom the transaction was entered into knew or did not know about causing of damages to creditors;
  2. they have been entered into within five years prior to the day when the insolvency came into effect, the debtor has thereby knowingly caused damages to creditors and the person with whom or on behalf of whom the transaction was entered into knew of the causing of such damages;
  3. they have been entered into within five years prior to the day when the insolvency came into effect, and it has been determined by a court seized with the criminal proceedings that the debtor was brought to insolvency through a criminal offence and the person, with whom or on behalf of whom the transaction was entered into, was aware of such offence.

If the debtor has entered into transactions with interested persons in respect to the debtor or for the benefit of such persons and if due to such transactions damages have been caused to creditors, it shall be presumed that such persons have known about the causing of damages, unless they prove otherwise.

If the transactions due to which damages have been caused to the creditors have been entered into after the day when the insolvency came into effect or within a month prior to the day when the insolvency came into effect, it shall be considered that the debtor has knowingly harmed the interests of the creditors, unless it proves otherwise.

7. What are the conditions for the lodgement and admission of claims?

The administrator submits for publication notice to the official gazette “Latvijas Vēstnesis.” latviešu valoda The notice includes an invitation for the creditors to submit their claims against a debtor, the place and time in which such submissions are to be received and consequences for delays.

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The claims of creditors against a debtor shall be submitted to the administrator within three months from the day notification on insolvency of the debtor is published in the official gazette “Latvijas Vēstnesis” if a court has not specified a shorter time period. Persons who obtain the status of creditors after the termination of such time period shall submit their claims to the administrator prior to the determination of the procedures for settlement of administrative expenses and debts.

An administrator shall compile claims of the creditors submitted and reflected in the debtors accountancy, and prepare a list of claims of secured creditors, a list of claims of unsecured creditors, indicating the amount of each claim. In the list of claims of unsecured creditors, the administrator shall indicate the number of votes of each unsecured creditor corresponding to the amount of claim for the first creditors meeting.

The administrator shall group the claims of creditors in respective sequence for settlement of debts, examine their compliance with the requirements of law and, if necessary, request additional information and documents from the claimant. The administrator decides on the admissibility or rejection of the claim of creditor. The administrator cannot reject creditors’ claims recognized by a court decision that has come into effect.

After verifying the basis for the claims of secured creditors, the administrator shall exclude property that is pledged for the security of such claims from the list of property for recovery of the claims of creditors.

8. What are the rules relating to reorganisation proceedings?

There are no pre–insolvency reorganisation proceedings in Latvia.

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9. What are the rules relating to the winding-up proceeding?

The principal purpose of bankruptcy proceedings is to satisfy as far as possible the claims of creditors by obtaining maximum income from the realisation of the property of the debtor. Sale of the assets of the debtor shall take place in open auctions, which shall be organised by the administrator. In individual cases the administrator with the consent of a creditors’ meeting may utilise other forms of alienation of the moveable property of the debtor.

10. What are the conditions for the closure of the proceeding?

A court shall terminate insolvency proceedings on the basis of an application submitted by the administrator if one of the following circumstances exists:

  1. the debtor has fulfilled all its obligations;
  2. the debtor has fulfilled all such obligations for which the term has fallen due, and following the performance of these obligations the assets of the debtor exceeds the remaining amount of debts;
  3. no creditor has applied by the end of the advertised time period;
  4. bankruptcy proceedings are completed.

Consequences of the termination of insolvency proceedings:

  1. if insolvency proceedings are terminated because of the renewal of actual solvency of a debtor, the powers of an administrator terminate in the relevant insolvency proceedings, the rights of the debtor to possess and administer its property renews, as well as the functioning of the administrative bodies of the debtor;
  2. if insolvency proceedings are terminated due to the bankruptcy of a debtor, the powers of an administrator terminate when a court has delivered a decision on termination of the bankruptcy proceedings.

Further information

  • Latvia Courts Portal latviešu valoda
  • Latvia Law Guide English
  • Tulkošanas un terminoloğijas centrs English - latviešu valoda
  • Latvijas Republikas Tieslietu Ministrija English - latviešu valoda
  • Maksātnespējas administrācija English - latviešu valoda
  • Latvijas Republikas uznēmumu Registrs English - latviešu valoda
  • Zemesgramata English - latviešu valoda
  • Latvijas Vēstnesis latviešu valoda

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Last update: 07-02-2007

 
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