Stabilising a business
Businesses that experience financial difficulties may prepare an application for legal protection procedures to be decreed by the court. In such an event the business must have been registered in the Enterprise Register for at least three years and the value of its assets should exceed its liabilities to creditors.
Legal protection procedures cannot be initiated where:
- an application has been submitted to commence the insolvency procedure ;
- where a company member wielding decisive influence has a creditor's claim against the company and the settlement date with respect to all or part of that creditor’s claims occurs as part of the legal protection procedure;
- where another company in which the company in question wields decisive influence is undergoing an insolvency procedure that has yet to be concluded;
- where a winding-up of the company has been initiated as prescribed by law;
- where the company has within the last five years commenced and concluded a legal protection procedure.
The legal protection procedure does not apply to insurers, insurance-broker companies, stockbroker companies and depositaries, or investment companies, credit unions, credit institutions and private pension funds.
A court order for the legal protection procedure will have the following consequences:
- arrest of judgment for cases on amounts that have been awarded but not yet obtained and for cases involving enforcement of liabilities;
- secured creditors will be prohibited from demanding the sale of the company's pledged property with the exceptions provided in this Law;
- unsecured creditors will be prohibited from applying for the commencement of the insolvency procedure;
- the company may not be wound up;
- increases in financial penalties are suspended;
- increases in interest exceeding the legally prescribed amount;
- late payment fees suspended;
- penalties for late payment calculation tax are suspended.
Government policy in matters of insolvency is implemented by the Insolvency Administration, which is a state agency that also monitors insolvency administrators.
Access to different sources of finance can help overcome financial difficulties.
When filing for bankruptcy is the only option left for a business owner, it pays to cut your losses, initiate proceedings sooner rather than later, and move on to a new project.
Deferment of payment
If a company’s management determines that the company may have difficulties paying tax and also has trouble in accessing credit to solve a short-term liquidity problem, it should contact the local State Revenue Service (VID) office in order to get advice on possible further action.
If the company is unable to settle its regular tax liabilities in the expected amount, it may apply to the local VID office for an extension of its payment deadline extension for up to three months.
The application for an extension of the tax payment deadline may be considered as justified where the company already has or is facing financial difficulties.
An application and proof of the company's current financial state for the period up to the first day of the month when the application is made must be submitted three days prior to the current tax payment deadline.
The VID may grant a further extension of the tax payment deadline, if the company has paid at least 20% of the tax due before the end of the previous extended deadline.
If a company cannot settle a late tax payment, it may apply to the local VID office requesting an extension of the tax payment deadline for up to one year starting from the application date.
A taxpayer shall submit a substantiated application to the tax authorities no later than one month after the payment deadline.
The VID may repeatedly set several deadlines for payment of the belated tax in instalments or defer the payment for up to six months where the taxpayer has met the statutory requirements.
If as a result of an audit the VID has assessed the company to tax, late-payment penalties and surcharges, the company may apply to pay these in instalments or to defer the payment for up to a year.
In cases where the tax payment deadline is extended, deferred or is payable in instalments, except where the deadline has been missed due to force majeure, late-payment penalties are imposed.
Enterprise reorganisations are regulated by the Commercial Law.
If two or more existing companies are involved in the reorganisation, they shall sign a reorganisation agreement. This should be a written agreement.
Each company involved in the reorganisation shall prepare a written reorganisation prospectus, where it states and explains:
- terms of the draft agreement;
- the legal and economic aspects of the reorganisation;
- the share exchange ratio and the amount of premiums;
- the methods used to determine the share exchange ratio and the amount of premiums, as well as problems arising from the use of these methods.
The draft agreement between the companies involved in the reorganisation shall be reviewed by an auditor included on the list approved by the office of the Commercial Register. Companies involved in the reorganisation may appoint a joint auditor.
The auditor shall draft a written opinion following the examination of the draft agreement and shall submit it to the company. If the same auditor is appointed for all the companies, he or she shall submit the opinion to all those companies.
The board of directors of the acquired or dividing company has a duty to inform the general meeting and the acquiring company regarding all substantial changes in the material situation of the acquired or dividing company which have occurred up to the date of expiry of the powers of the board of directors or up to the time that the reorganisation comes into effect.
Within fifteen days of the date on which the reorganisation resolution is adopted, each of the companies involved in the reorganisation shall give notice in writing to all of its known creditors who have claims against the company up to the date on which the reorganisation resolution is adopted.
On the basis of a request from a shareholder, a member of the executive or supervisory board of a company involved in the reorganisation, the court may declare the resolution regarding reorganisation as void, if it was taken in breach of the law, the company’s articles of association or a partnership agreement, and it is not possible to rectify these breaches or they are not rectified within the time period specified by the court.
Each of the companies involved in the reorganisation shall, not earlier than three months after the day when the notice is published, submit an application to the office of the Commercial Register in order that the reorganisation be recorded in the Commercial Register.
Shareholders of the acquired, dividing or restructured company, who did not agree to the reorganisation, are entitled, within two months of the date on which the reorganisation takes effect, to request the acquiring company to redeem their shares for cash.
The Labour Law provides two variants depending on the number of employees to be made redundant - a reduction in employee numbers and collective redundancy.
In the case of a reduction in employee numbers, the employer shall give one month’s notice to the State Employment Agency (NVA) of the number and occupation of employees to be made redundant, and also serve notice on the employees.
In the case of collective redundancy the first step would be to start negotiations in the course of which the employer shall consult the employee representatives.
Following the negotiations the employer shall give notice in writing to the employee representatives of the reasons for the collective redundancy and of the procedure for calculating the redundancy benefit.
The employer must give at least 60 days’ notice in writing to the local authority and the NVA of the planned collective redundancy.
Collective redundancy is a variant of a reduction in employee numbers whereby the number of employees to be made redundant within 30 days is:
- at least five employees, if the employer usually employs more than 20 but fewer than 50 employees in the company;
- at least 10 employees, if the employer usually employs at least 50 but fewer than 100 employees in the company;
- at least 10% of the total payroll, if the employer usually employs at least 100 but fewer than 300 employees in the company;
- at least 30 employees, if the employer usually employs 300 or more employees in the company.
When calculating the number of employees to be made redundant the cases where the legal employment relationship was terminated, but the employer did not terminate the contract of employment shall be taken into account, where the legal employment relationship was terminated based on considerations other than the employee’s conduct or skills and where the termination was caused by the employer.
The aid programme developed by the Ministry of Finance offers a support mechanism - loans for obtaining investment and working capital. Loans are also available to businesses that find it difficult to obtain finance from commercial banks. The aid programme is run by the Latvijas Hipotēku un zemes banka (The Mortgage and Land Bank of Latvia).
ALTUM is a division of Mortgage and Loan Bank of Latvia, which is a state-owned joint-stock company providing credit to companies within the framework of European Union aid programmes. ALTUM was founded according to European Commission requirements to separate state aid functions from the traditional banking services offered by the bank and by other Latvian commercial banks.
The Latvian Guarantee Agency is a government agency that supports SMEs registered in Latvia and helps businesses attract investment for expansion by providing loans and guarantees for financial and industrial leasing.