LATVIA Law and Practice Contributed by: Jānis Kārkliņš, Edijs Brants, Pauls Zeņķis and Kristens Vorslavs, BERG
7.2 Waterfall of Payments The Insolvency Law provides that the waterfall of pay- ments regards settling the claims of creditors of a legal person is the following: • the costs of insolvency proceedings, including the fees of insolvency administrators and other expenses (these costs are paid before any of the creditors’ claims are addressed); • the claims of the legal person’s employees, for example work remuneration and reimbursement for annual paid leave (despite being unsecured creditors, they are a part of a specific category and therefore receive priority); • the tax claims of the tax administration (creditor) which have been submitted within the time limit for submission of claims of creditors listed in the Insolvency Law; and • the claims of unsecured creditors, as well as the non-secured part of the claims of secured creditors which were not covered in the claims of secured creditors. Secured creditors benefit from stronger protection and follow a separate settlement procedure. The insolvency administrator sells the pledged asset at the highest possible price, and secured creditors are paid from its value with priority over all others. The rest of the claim which was not settled by the sale of the pledged asset remains unsecured and therefore joins the pool of other unsecured creditors, subject to the waterfall of payments listed above. 7.3 Length of Insolvency Process and Recoveries The duration of insolvency proceedings varies depending on their complexity and other factors, but it is not unusual for the process to last two years or longer. Recovery levels for creditors are typically low, with unsecured creditors in particular often receiving minimal returns. 7.4 Rescue or Reorganisation Procedures Other Than Insolvency The Insolvency Law provides two restructuring tools to support early intervention and help viable legal persons reach agreements with creditors, as outlined below.
applies, stipulating that the judgment will be recog- nised if none of the grounds for non-recognition are present. Arbitral Awards Similarly, enforcement of arbitral awards issued by a foreign court is made possible because Latvia is a party to the United Nations Convention on the Rec- ognition and Enforcement of Foreign Arbitral Awards (New York Convention). Under this Convention the judgment is enforceable without a retrial on the merits. It is significant to note that there are some excep- tions when the judgment or arbitral award cannot be enforced without reviewing the substance of the case. For instance, the enforcement of a judgment or an arbitral award can be refused if it is manifestly contrary to the public policy of Latvia. 6.4 A Foreign Lender’s Ability to Enforce Its Rights Generally, there are no special restrictions or provi- sions a foreign lender should follow other than the rules that apply to domestic lenders as well. The suc- cess of a foreign lender’s ability to enforce its rights under a loan or security agreement depends, among other things, on compliance with formalities and awareness of public policy constraints. Under Latvian law, once insolvency is declared by a court, all individual enforcement actions are suspend- ed. Nevertheless, the Insolvency Law allows secured creditors – whose claims are backed by a commercial pledge or mortgage – to enforce their loans, for exam- ple by requesting the sale of the debtor’s pledged property two months after the start of insolvency proceedings. Secured creditors also have a stronger position in legal protection proceedings, as they can review and approve or reject the proposed measures included in the plan of measures before they take effect. Whether a lender can enforce its loan ultimately depends on the order in which creditors and other parties are paid (see 7.2. Waterfall of Payments ). 7. Bankruptcy and Insolvency 7.1 Impact of Insolvency Processes
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