LATVIA Law and Practice Contributed by: Jānis Kārkliņš, Edijs Brants, Pauls Zeņķis and Kristens Vorslavs, BERG
Legal Protection Proceedings Legal protection proceedings are a procedure that allows a legal person in financial difficulty – or antici- pating difficulty – to restore its solvency through rem- edies such as postponing payments or reorganising the legal person (if included in the plan of measures). An important part of legal protection proceedings is preparing a plan of measures, which must be drafted by the legal person, agreed with the majority of credi- tors, and submitted to the court for approval after the legal protection proceedings have been initiated in court. Extrajudicial Legal Protection Proceedings Similarly to legal protection proceedings, a plan of measures must also be developed in the case of extrajudicial legal protection proceedings, except in this case the plan of measures must be developed and co-ordinated with the creditors before going to court and should therefore be submitted to the court together with the application for the commencement of proceedings. All things considered, this method is better suited to legal persons likely to reach agree- ments with most creditors without the risk of individual enforcement actions, and which face financial issues that do not require immediate intervention but allow time for planning and co-ordination. 7.5 Risk Areas for Lenders Lenders should be aware of several risks when deal - ing with parties close to insolvency. First, as stated in 7.1. Impact of Insolvency Process- es , entering into agreements with a debtor already in insolvency is generally discouraged, since indi- vidual enforcement actions are suspended. There- fore, as mentioned in 7.2. Waterfall of Payments , it is advised for lenders to secure their claim by a com- mercial pledge or mortgage over the debtor’s assets. However, even secured claims may not be fully recov- erable, as recoveries depend on collateral value and insolvency costs deducted after sale. Second, if the legal person enters legal protection pro- ceedings or extrajudicial legal protection proceedings and the court approves the plan of measures (see 7.4. Rescue or Reorganisation Procedures Other Than
Insolvency ), lenders may find repayment schedules structured unfavourably. Approval requires only a majority of creditors, not unanimity, which may dis- advantage certain lenders. Third, the insolvency administrator may challenge and annul certain agreements made shortly before insol- vency, potentially causing unprecedented losses for lenders.
8. Project Finance 8.1 Recent Project Finance Activity
As evidenced by the growing number of sectors using project finance, its role in Latvia has increased sig- nificantly in recent years. It is particularly notable in renewable energy, including solar power parks and hybrid solar initiatives, as well as in road and transport infrastructure, where Latvia is increasingly embracing public-private partnerships. 8.2 Public-Private Partnership Transactions Public-private partnerships (PPP) are still develop- ing in Latvia, so only a few transactions have taken place. A landmark project is the Ķekava Bypass – the first large-scale PPP in Baltic road construction. The European Investment Bank (EIB) and the Nordic Investment Bank (NIB) each lent EUR61.1 million to finance the project, which involved designing, build- ing, financing, and maintaining a bypass for the E67/ A7 motorway through Ķekava. The bypass was com- pleted and opened to traffic in 2023. The core legislative framework explaining the imple- mentation of PPPs in Latvia is the Law on Public- Private Partnership which was adopted in 2009 but has since undergone a few amendments. The Law on Public-Private Partnership must be read together with the Public Procurement Law. Many rules are also listed in the Cabinet Regulation No 1152 of 6 Octo- ber 2009 “Procedure for the Conduct of Financial and Economic Calculations, Determination of the Type of a Public-Private Partnership Agreement and the Provi- sion of an Opinion Regarding Financial and Economic Calculations” which prescribes the financial/economic calculations to determine the PPP type, as well as determines the criteria for accounting for PPP assets.
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