LATVIA Law and Practice Contributed by: Jānis Kārkliņš, Edijs Brants, Pauls Zeņķis and Kristens Vorslavs, BERG
5.6 Release of Typical Forms of Security Generally, security interests and guarantees come to an end once the underlying obligation has been fully satisfied; however, there are some instances laid out in the Latvian Law when a pledge right is terminated despite the existence of the claim, for example when the secured creditor acquires ownership of the prop- erty pledged to it. The method of releasing security largely depends on the type of collateral/security and the register where it was registered. Mortgages A mortgage can be released by the secured creditor submitting a notarised statement to the Land Regis- ter. Accordingly, the judge examines the request and satisfies or disregards it, afterwards entering the extin- guishment of the pledge right in the Land Register. Commercial Pledges According to the Commercial Pledge Law, all informa- tion about a commercial pledge, including the deletion of the commercial pledge, shall be entered in the Com- mercial Pledge Register. A commercial pledge may be subject to deletion if a court ruling has been received or the secured creditor has submitted an application for deletion to the Commercial Pledge Register. Financial Pledges Since financial pledges are not registered in any pub- lic register, there is no necessity to submit anything to any state institution for its deletion. Therefore, the assets secured by a financial pledge are returned to the pledgee automatically upon the discharge of the obligations. 5.7 Rules Governing the Priority of Competing Security Interests According to Latvian law, the general principle is that priority is granted to mortgages and commercial pledges registered in the Land Register or the Com- mercial Pledge Register. The public register must specify the amount to which the pledge right applies, and priority is granted only to that extent. In any event, the pledge cannot exceed the value of the secured claim. As multiple pledge rights may be registered over the same asset, it is important to note that their priority
depends on the order of registration in the relevant public register. Pledge rights that are not registered in a public register do not enjoy any priority rights. Latvian law also permits contractual subordination between secured creditors; however, this action is subject to a few limitations. As set out in the Com- mercial Pledge Law, the priority right may be changed by a written agreement. This contractual subordina- tion typically is in force during the insolvency of the borrower as well; however, this does not grant the secured creditors the right to alter the waterfall of pay- ments set out in the Insolvency Law – for example, the necessity to firstly cover the costs of the insolvency proceedings (see 7.2. Waterfall of Payments ). 5.8 Priming Liens Apart from the already mentioned methods of con- tractual subordination, as well as the registration of the pledges in a public register, there are no additional mechanisms available under Latvian law by which a lender can give priority to its security interest. Never- theless, under Latvian law, when a pledged immov- able property is sold, for example, in the context of enforcement proceedings, the claims of employees regarding payment of salaries, tax payments, as well as other payments related to administration activities, are satisfied first. Additionally, if the borrower is sub- ject to insolvency proceedings, the rules set out in the Insolvency Law must be followed (see 7.2. Waterfall of Payments ). 6. Enforcement 6.1 Enforcement of Collateral by Secured Lenders Under the Civil Law and the Commercial Pledge Law, a secured lender (pledgee) is entitled to take all nec- essary steps to sell the pledged asset if the secured claim has not been satisfied within the agreed time- frame or in the event of other circumstances equivalent to non-performance. The secured lender can enforce its collateral if payments on a claim by a pledgee are divided between several time periods and there is default in regard to any of such time periods, unless agreed otherwise between the parties. Therefore, the primary circumstance necessary for the enforcement
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