Short Outline of the Latvian Insolvency System According to the Insolvency Law (adopted in 01/11/2007, became into force in 01/01/2008.), insolvency is the subject’s state of insolvency established by court judgment in the process of legal protection or insolvency process. Insolvency proceedings is a complex of the measures of legal character, in order to 1) renew paying capacity of the insolvency subject and protect the interests of the body of creditors, by applying settlement or recovery; 2) protect the interests of the body of creditors, by applying bankruptcy procedure. Insolvency proceedings is commenced from the day, when the action of insolvency proceedings is brought in court, and proceeds till the day, when the court makes a decision on the termination of insolvency proceedings. The legal protection proceedings is a complex of the measures of legal character for protection of the interests of commercial company in case of limited paying capacity, in order to renew its paying capacity in full. Limited paying capacity is a state, when a commercial company is temporary short of funds for meeting the obligations, for which the due data has set in or will set in the near future. An enterprise, legal person (except entirety of property of an estate) or physical person, which is not able to meet its obligations and which has elements of insolvency can be subjected to insolvency proceedings. Insolvency proceedings of a legal person shall be applied in relation to the legal person, partnership, individual enterprise, a person registered in a foreign country performing continuous economic activity in Latvia, and special subjects stipulated in the Law. The provisions of the Insolvency Law do not apply to insolvency proceedings of credit institutions. Following persons are entitled to submit an application for insolvency proceedings: a debtor; creditor or creditors; the person specified in Paragraph "a" of Section 29 of the Council Regulation No.1346/2000. The secured creditor may not submit the application for insolvency proceedings. If the claim is not fully secured, the secured creditor may submit the application for insolvency proceedings only in the amount of the part of unsecured claim. The unsecured creditor may not submit an application for insolvency proceedings, if the legal protection proceedings is initiated or is being implemented in relation to a debtor. 2 Elements of Insolvency Proceedings of Legal Person It is possible to submit an application for insolvency proceedings in relation to a debtor, if some of the following elements of insolvency proceedings exist: 1) it has not been possible to implement the court order regarding the debt recovery from the debtor by applying compulsory implementation means; 2) a debtor has not cleared one or several debt commitments, which separately or together exceed 1000 lats and for whom the due data has set in, and if the creditor or creditors have issued or sent a warning to the legal address of the debtor regarding their intention to submit an application for insolvency proceedings and the debtor has not discharged a debt or raised justified objections against the claim within three weeks after the issue or sending of the warning; 3) a debtor has not fully disbursed the work remuneration, compensation of damage to an employee due to an accident at work or occupational disease or has not performed mandatory social insurance payments within two months from the day settled for disbursement. If the day of disbursement of work remuneration is not specified in the employment contract, it shall be considered, that the day of disbursement of work remuneration is the first working day of the next month; 4) a debtor is not able to clear the debt commitment, for which the due data has set in, and his/her debt commitment exceeds the assets; 5) pursuant to the financial statement of the beginning of liquidation, a debtor lacks the assets to satisfy all the justified creditors’ claims, or this circumstance appears within the process of liquidation; 6) a debtor is not able to meet the obligations envisaged in the plan of measures of the legal protection proceedings. Claim for opening of insolvency proceedings of legal person shall be examined by a competent district court (court of first instance) where the debtor has its registered address. The decision of the judge regarding refusal to accept a petition and returning of the petition to the submitter of the petition may be appealed. In an insolvency matter, withdrawal of or varying of the petition shall not be allowed. In the course of adjudicating the matter, the court shall determine whether any of the elements of insolvency proceeding, as set out in law, exist in regard to the debtor. In insolvency matters the judgment of the court is final and may not be appealed through appellate procedures. Administrator is a person appointed by a court on the basis of a proposal by the State agency “Insolvency administration”. The agency selects the administrator's candidate amongst certified administrators based on the randomness principle. Creditors have no influence in the process of selecting and appointing an 3 administrator. Only a natural person who has higher education in law and obtained the qualification of a lawyer, at least three years work experience in the specialty, knows the official language at the highest level; has successfully passed an examination of administrators and has obtained a certificate of insolvency proceedings administrator. Administrator’s Authority after Declaration of Insolvency Proceedings Administrator shall decide on the continuation of the debtor’s economic activity in full or limited scope, if continuation of this activity is economically justified, or on its termination. After the declaration of insolvency proceedings, an administrator shall have all the rights and obligations of administrative institutions stipulated in the regulatory enactments, as well as the debtor’s regulations or agreements. If the insolvency procedure stipulated in Paragraph 1 of Section 3 of the Council Regulation No.1346/2000 is initiated against a debtor in other member state and the liquidator involved in it, acts in Latvia, the liquidator involved in the insolvency procedure stipulated in Paragraph 1 of Section 3 of this Regulation without initiating the insolvency procedure stipulated in Paragraph 2 of Section 3 of this Regulation shall provide a duly confirmed copy of the order regarding the declaration of the insolvency proceedings and appointment of a liquidator for submission to the respective competent persons and institutions in the insolvency proceedings and a translation of this order into the official language confirmed in accordance with the established procedure. The opening of insolvency proceedings may result in: settlement – a solution of the state of insolvency proceedings, which manifests itself as an agreement of creditors and a debtor regarding fulfillment of commitments pursuant to the cases and procedure established in this Law. The methods to be applied for a settlement are as follows: 1) decrease of the amount of claims; 2) rejection of a contractual penalty, interest or delay amount, as well as their decrease; 3) suspension of the due data of commitments; 4) offset. The provisions of a settlement mentioned above may be admissible in relation to the secured creditors only by their written consent. The creditors meeting shall review the submitted draft settlement and decide on conclusion of a settlement. The concluded settlement shall be submitted to the court by the administrator for approval. Recovery - a solution of the state of insolvency proceedings, which manifests itself as a complex of concrete financial, lawful and organizational measures, the 4 purpose of which is prevention of a debtor’s potential bankruptcy and renewal of his/her paying capacity. All the methods of settlement are allowed in a recovery. The measures, which are to be performed by using the methods to be applied to a settlement stipulated only in Insolvency Law may not be acknowledged to be a recovery. Bankruptcy –a solution of the state of insolvency proceedings, which manifests itself as a concrete complex of financial, lawful and organizational measures, the purpose of which is to satisfy creditors’ claims as completely as possible and liquidate a debtor. The matter on initiation of bankruptcy procedure is reviewed by the creditors meeting, if the proposal regarding recovery has been rejected or the recovery plan not adopted or the adopted recovery plan has not been approved. An administrator shall immediately submit the decision of the creditors meeting on initiation of bankruptcy procedure for approval to the court. Termination of Insolvency Proceedings The insolvency proceedings shall be terminated, if the application for insolvency proceedings is rejected or the case of insolvency proceedings dismissed. An administrator shall submit an application to the court on dismissal of the case of insolvency proceedings, if any of such conditions exists: 1) a debtor has fulfilled all his/her commitments; 2) a settlement is concluded; 3) recovery is completed; 4) a debtor ceases to exist as a result of reorganization performed within the framework of recovery; 5) a bankruptcy procedure is completed. Employment contracts. After declaration of insolvency proceedings of a debtor, the administrator shall be entitled to give notice of termination of the employment contract with a debtor’s employee. If an employment contract is terminated, the dismissed employee shall obtain a creditor’s status in relation to the payments, which are due to him/her in compliance with the Labour Law.