Dear clients and cooperation partners,
As we recently reported, amendments have been drafted to the National Security Law. These will significantly burden transactions with companies significant for national security, also impacting on transaction timelines. Material changes were implemented in the draft amendments for the final reading, so we are sending you this updated summary with the main provisions of the amendments. Please note that the amendments entered into force as of 29 March 2017. The amendments prohibit specific acts by companies that are significant for national security. The aim of the amendments is to preclude threats or potential threats to state security, governance or society.
The prohibitions apply to the following companies:
- electronic communications providers with significant influence in the market on which tariff regulation and expense calculation obligations are imposed under the Law on Electronic Communications;
- audio electronic mass media, under a broadcasting permit issued by the National Electronic Mass Media Council, whose programme coverage area via terrestrial technical means is Latvia (or at least 60 percent of its territory), or audio-visual electronic media whose programme coverage area via terrestrial technical means is Latvia (or at least 95 percent of its territory);
- companies that hold a licence for transmission, distribution or preservation of natural gas or that own natural gas equipment connected to the distribution system;
- producers of electricity or thermal energy whose installed capacity exceeds 50 megawatts;
- thermal energy transmission and distribution operators owning at least 100 km of thermal energy network;
- companies that hold a licence for transmission of electricity.
Consent from the Cabinet of Ministers will be required before the following acts by limited liability companies that are significant for national security:
- acquiring significant participation (10% or more of shares);
- acquiring a decisive influence (majority of shares);
- performing business transfer;
- retaining shareholder status or rights to use indirect interest (voting rights) in the event of change of the ultimate beneficiary.
Consent from the Cabinet of Ministers is also required before becoming a member in a partnership that is significant to national security or before acquiring significant participation or decisive influence in a limited liability company that is already a member of such a partnership.
A person who wants to acquire shares in a limited liability company significant for national security must file a request for consent. The specific rules for the procedure will be set by the Cabinet of Ministers, but the regulations have not yet been drafted.
In the event of a change of the ultimate beneficiary of a company or partnership that is significant to national security, a shareholder in the company or member of the partnership must apply for the consent of the Cabinet of Ministers to retain the shares or member status in the partnership. A person disregarding a decision of the Cabinet of Ministers on the duty to dispose of shares, terminate an indirect shareholding or withdraw from the partnership will lose the right to use voting rights in the company or to represent the partnership.
Consent from the Cabinet of Ministers is also necessary when another person acquires the business of a company that is significant for national security that contains assets that are being used for the activity of the company. A request to the Cabinet of Ministers should be filed by a company which is considered significant for national security.
The Cabinet of Ministers will have one month to issue decisions in these cases. However, if necessary, it will be allowed to extend this term to four months. It will be possible to file a complaint regarding a decision by the Cabinet of Ministers with the administrative district court that will review the case in a composition of three judges. A cassation complaint can be filed regarding the judgement of the administrative district court.
The amendments provide that an transaction or action not covered by the required permit will be deemed void as of the date it was concluded or performed. Making changes in the shareholders’ register without the consent of the Cabinet of Ministers is forbidden.
A company that has obtained the status of a company significant for national security is required:
- to file notification regarding its status to the Company Register;
- to notify the shareholders or members of the partnership and
- to ensure that notification is sent to shareholders, persons with indirect shareholding or members of the partnership;
- to inform the institution appointed by the Cabinet of Ministers as to who are its shareholders, persons having an indirect shareholding, or members, as well as ultimate beneficiaries.
Companies conforming to the status of a company significant to national security on the day when the amendments entered into force must fulfil the obligations mentioned above on or before 1 June 2017.
Starting from 15 June 2017 the Company Register will publish information on companies that are significant for national security on its web page.
The amendments state that the Cabinet of Ministers will, eg, appoint the institution to whom an application for a permit must be submitted, the amount of information to be submitted, and procedures for decision making. Currently, the Cabinet of Ministers regulations have not yet been drafted. This means that, although the amendments entered into force already on 29 March 2017, companies may face difficulties because of ambiguity as to practical application of the amendments.