On 15th of October 2014 the parliament of the Republic of Latvia adopted the law “Amendments to the Insolvency law”, which is going to come into force on the 1st of January 2015. In accordance with these amendments, reforms to a natural person’s insolvency process regulation are intended by significantly reducing the term for abolition of debts, also changes in the regulation of a legal person’s insolvency are intended by limiting the possibilities to perform raiderism of auctions. However the most essential changes are expected regarding introduction of the “dropped-off keys” principle.
Along with the addition to Section 9 of the law, henceforth insolvency process administrators are going to be assimilated to officials in performing their official activities. The norm which authorized an administrator of a legal protection to continue to perform his duties during insolvency process is going to be excluded. Henceforward the professional organization of insolvency administrators is not only going to have the rights to train applicants to become administrator, to organize development of administrators’ professional qualification, to certify administrators and to cancel certificates, but also to terminate the validity of administrators’ certificate. The professional organization of insolvency administrators shall create and adopt a code of administrators’ professional ethics, which is going to be binding to all administrators.
In relation to natural persons, the amendments are directed to balance the rights, duties and procedural options. The amendments are going to ease fulfillment of liabilities for really insolvent persons with large amounts of liabilities. By amending Section 129 the minimum sum for requesting insolvency process is going to be reduced from 7114 to 5000 euro. An insolvency process of a legal person is going to be made cheaper by dividing costs which occur to the debtor after insolvency process was proclaimed, into direct and indirect costs. Direct costs are considered to be the costs that are related to the supporting of insolvency process. These costs are going to be covered from the resources gained as a result of selling the debtor’s goods. Indirect costs are considered to be the costs for supporting the debtor after the insolvency process was proclaimed. These costs are going to be covered from the goods that the debtor is entitled to keep to himself for covering supporting costs.
Amendments to Section 147 of the law are going to introduce the “dropped-off keys” principle. This principle requires that after the property which was serving as a security is sold, the secured creditor is going to lose the right of claim and all of the remaining obligations are going to be extinguished along with the acceptance of auction act. By extinguishing the basic obligations, additional obligations are going to lapse as well. This order is only referable to cases when the selling object of debtor’s insolvency process is his dwelling. As a dwelling in the concept of the law is considered a property belonging to debtor in which for the last six months before the day when an insolvency process application has been submitted to the court he has declared his residence. This principle can only be applied during a natural person’s insolvency process to the property to which a security will be established after the 1st of January 2015.
The new version of Section 129 of the law provides that during a natural person’s insolvency process the person is going to have to pay a deposit in amount of two minimum monthly wages into a special account created by insolvency administration as a reward to the administrator for his work. In its turn according to several new parts of Section 115 a higher protection for companies is going to be assured during a legal protection and insolvency process of a legal person. With these amendments it is intended to restrict so-called raiderism of auctions – possibilities for the company’s owners and managers to empty the resources of the company before insolvency process. Also in the new edition are more precisely regulated the relations between a creditor and a third party, by solving the question about actions with the third party’s given pledge, if this person itself has become insolvent and a claim against the debtor hasn’t occurred yet.
In the result of amendments the terms of insolvency process are going to become shorter. These terms are going to depend on the amount of debts and ability to pay part of the debts. According to the new edition of Section 155 it is intended that for natural persons who are going to be able to cover the monthly payment in the amount of one third from their income after insolvency process, but no less than in the amount of one third of minimum wage, terms for abolition of debts are going to be set as follows: debts up to 100 thousand euros – in one year, from 100 to 300 thousand euros – in two years, more than 300 thousand euros – in three years. By setting this reduction of terms it is attempted to support those borrowers who cannot repay their debts. Thereby after the insolvency process is going to be completed and the property is going to be sold the term for abolition of the remaining debts is going to be much shorter.
The minimum amount of the sum of debts from which an insolvency process can be applied to a person is going to be reduced. To apply insolvency process of a natural person the minimum amount of the sum of debts is going to be reduced from previous 7114 euros to 5000 euros, regarding the debts that already have to be paid. But regarding the debts that will have to be paid in the term of one year – from 14 228 euros to 10 000 euros.
A new chapter is included in the new edition of the law – chapter XII1 which regulates the liability of Board members. Board members are going to be liable with their own property for debtor’s loss in cases when accountancy documents aren’t handed to administrator or it isn’t possible to get a clear vision from the submitted documents about debtor’s transactions and financial situation during the last three years before the proclamation of insolvency process.
With amendments to Section 60 of the law an obligation is imposed for the debtor – a legal person – to immediately submit a legal person’s insolvency process application in cases if: (i) for more than two months the debtor has been unable to honour the debt obligations whose deadline has expired, (ii) in accordance with the initial financial report of liquidation the debtor has insufficient assets to satisfy all the justified claims of the creditors, or this condition is discovered during the course of liquidation, (iii) the debtor is unable to honour the obligations specified in the plan of measures of the legal protection proceedings.
By supplementing Section 37 with a new paragraph 4 the debtor, upon request of the administrator, is obliged to provide to the administrator in writing all information regarding the implementation of the plan of measures of the legal protection proceedings without delay, as well as to hand in documents that confirm the validity of creditors’ claims and to ensure the opportunity of inspecting the eco