LATVIA Law and Practice Contributed by: Jānis Kārkliņš, Edijs Brants, Pauls Zeņķis and Kristens Vorslavs, BERG
is also crucial to maintain detailed and well-organised documentation demonstrating that all terms and con- ditions of the loan – such as interest rates, repayment schedules, and other contractual provisions – are consistent with what independent, unrelated parties would reasonably agree upon, minimising the risk of adverse tax treatment.
on many different factors, for example, the value of the immovable property and the amount of the loan. Mortgages on Ships For a ship to be used as security, the ship must firstly be registered in the Latvian Ship Register. The ship or a part of it may therefore be used as security for a claim by drawing up a debt obligation on the ship. The debt obligations on ships may therefore be registered in the same order as they are presented. Since the mortgage registration depends largely on the regis- tration of the ship itself, the payable fees might be steep, and it might take a long time to establish the mortgage. Both factors, however, depend on the ship type, net tonnage of the ship and other criteria. Commercial Pledges The establishment of commercial pledges does not require their registration in the Commercial Pledge Register (held by the Enterprise Register); however, for them to become effective against third parties or for the pledgee to exercise his/her rights, registration is required. A commercial pledge can be subject to registration if it has been created on the basis of a contract or court ruling. All the documents (including an application, commercial pledge contract, the docu- ment from which the claim to be secure is derived, etc) must be submitted to the Enterprise Register, which takes five working days to review the submission. Note that certain assets, such as vehicles, require additional registration in particular public registers, therefore both the time and costs of the registration may vary from case to case. Financial Pledges Unlike mortgages and commercial pledges, financial pledges can only be established on the basis of an agreement. Generally, the establishment of finan- cial pledges requires only the conclusion a financial pledge agreement, as well as the ability to somehow be able to prove that the transfer of the collateral has happened. The amount of time spent on the estab- lishment of the financial pledge, as well as the costs, depend on the specifics of the agreement.
5. Guarantees and Security 5.1 Assets and Forms of Security
Latvian law allows different types of assets to be used as collateral. Lenders typically choose to take security over: • real estate by mortgages; • movable assets (including different intangible mov- able assets, such as rights and claims), stocks, bonds and shares by commercial pledges; and • different financial instruments, money (except banknotes and coins), credit claims by financial pledges. A general rule for the pledge to be enforced is the necessity to conclude an agreement where the secu- rity is sufficiently described and the claim on the basis of which the security is established, is specified. Even though not all pledges require registration, the estab- lishment of the most common types of pledges – mort- gage and commercial pledge – all demand registration in public registers to become effective against third parties as well and therefore will be examined further. Mortgages on Real Estate The prerequisite to establishing a mortgage is its reg- istration (corroboration) in the Land Register, based on different documents which must be submitted to the Land Register. Other formalities include the con- clusion of a mortgage agreement or a court ruling, as well as payment of state fees. The preparation of the documents and their submission to the Land Register may take from a few days to a few weeks, depending on the complexity of the case. The examination of the request for corroboration itself shall be conducted within ten days; however, the term can be extended up to one month. The cost of corroboration depends
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