Suspension of creditors’ right to file for insolvency
- Under the Latvian Covid-19 Law, any creditor (including an employee or the tax administration) is precluded from filing an insolvency application against a debtor (legal person) until 1 September 2020.
- The moratorium applies to any creditor-debtor relationship and hence is not limited to any industry or to debtors facing financial difficulties specifically due to the outbreak of the COVID-19 virus.
- Creditor cannot cause a debtor to be declared insolvent prior to 1 September 2020, even if the debtor fails to meet its debt obligations towards the creditor.
Possibility to file for insolvency electronically and hold remote creditors’ meetings
- During the state of emergency (from 12 March 2020 till 9 June 2020, unless further extended) related to the spread of COVID-19 virus, an application for legal protection (restructuring) proceedings, insolvency proceedings of a legal person and insolvency proceedings of a natural person may be submitted electronically by signing it with an electronic signature.
- Creditors’ meetings can he held remotely both in insolvency and legal protection (restructuring) proceedings, with creditors participating and voting at the meeting through electronic means
Extended terms in restructuring proceedings
- During the state of emergency related to the spread of COVID-19 virus and for six months afterwards, in cases where an application for approval of a plan of measures of legal protection (restructuring) or for amending such a plan has been filed with the court, the length of the restructuring proceedings may be set at up to four years (as opposed to the pre-emergency maximum term of two years, with a possibility of further extension for two years).
- If the deadline for implementing legal protection proceedings has already been extended and adverse effects which have arisen due to the spread of COVID-19 prevent a debtor from implementing the plan of measures of legal protection, during the state of emergency related to the spread of COVID-19 the deadline for implementing legal protection proceedings may be further extended by another year, if the required majority of the creditors agrees.
Under the Latvian Covid-19 Law, debt recovery has become more debtor-friendly, mainly via the:
- introduction of a minimum term of 60 days for warning a debtor before commencing out-of-court debt recovery (in the case of debtors-natural persons, the warning term of 21 days has been extended to 60 days);
- introduction or extension of a minimum term of 60 days for certain types of special enforcement proceedings such as, most importantly, commercial pledge enforcement without court involvement and undisputed enforcement of obligations, which is the typical way of enforcing mortgages in Latvia; and
- extension of the minimum term from 10 to 60 days when a debtor may voluntarily comply with a court judgement on debt recovery.
Limitation of late payment interest and pause on limitation periods
- From 1 April 2020 to 1 September 2020, interest for delay in the performance of a civil law (contractual law) obligation may not exceed statutory interest 6%. This does not apply to other types of contractual penalty.
- From 12 March 2020 to 1 July 2020, the limitation period for civil law (obligations law) obligations is suspended, and this period is deductible from the calculation of the limitation period.
On 22 March 2020, the Latvian Law on the threat to the state related to the spread of COVID-19 and measures for prevention and remedying its consequences (the “Latvian Covid-19 Law”), as later amended on 3 April and 23 April 2020, came into force.