Entrepreneurs may be able to avoid bankruptcy by anticipating difficulties - if they keep a close eye on the financial situation of their business.
The provisions of the Insolvency Law are applicable to legal persons, partnerships, sole traders and foreign-registered individuals carrying on standard business in Latvia, agricultural producers and natural persons.
The court of general jurisdiction of the Republic of Latvia and the Insolvency Administration, which is a state agency, are directly involved in the insolvency process.
Coping with bankruptcy
The legal protection process is a method of restoring a business's full solvency. It applies to companies only and lasts no longer than two years from the date on which the relevant court order comes into force.
The extra-judicial legal protection process is a procedure where the legal protection process is initiated and declared immediately.
As regards legal persons there are three ways to resolve insolvency: corporate rescue, settlement or bankruptcy, the final decision on which is taken at a creditors' meeting.
Natural persons may be declared insolvent, if the person in question is unable to settle his or her debts and liabilities exceeding LVL 5,000 in total if the settlement date has passed, or LVL 10,000 if the settlement date falls within a year.
Entrepreneurs having experienced bankruptcy should not lose confidence in their ability to embark on a new business.
Creditors may apply to the court to initiate the insolvency procedure, if they are owed more than LVL 1,500. To submit an application for the insolvency procedure, you must pay a fee of LVL 100.
A copy of the court order to commence the insolvency procedure shall immediately be sent to the state agency The Insolvency Administration so that it may recommend a candidate receiver (administrator) and to the Commercial Register so that it may make the relevant entry in the insolvency register.
The company and creditors must agree on the insolvency procedures at the first creditors' meeting. The Law provides the following possibilities:
- Corporate rescue,
- Bankruptcy proceedings.
Creditors agree with the debtor on reducing the amount of the claim, waiving the contract penalty, interest or late payment fees, and on their reduction, the extension of the settlement date or on offset.
If efforts to reach agreement on the settlement procedure or corporate rescue with the creditors have been unsuccessful, bankruptcy proceedings are initiated and the deadline for their conclusion is not prescribed by law. A resolution to conclude the bankruptcy procedure shall be adopted by the final creditors' meetings no later than one month after the bankruptcy procedure has been completed. A resolution on the conclusion of thebankruptcy procedure is considered to have been adopted if more than half of the creditors entitled to vote have voted in favour. The conclusion of insolvency proceedings shall be confirmed by the court.
Debtors and creditors may agree on a corporate rescue by drawing up a corporate rescue plan to be approved by the creditors' meeting and the court.
Corporate rescue is a solution to a state of insolvency and takes the form of a body of financial, legal and organisational measures aimed at preventing a possible bankruptcy of the debtor and restoring the debtor' s solvency.
Under the Civil Procedure Law a corporate rescue is concluded when the court approves the resolution of the creditors' meeting on implementation of the corporate rescue plan and the resolution of the creditors' meeting on the completion of the corporate rescue and at the same time decides to conclude the insolvency procedure.