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Fixed-term changes in the enforcement of civil liabilities due to expansion of the Covid-19

On 12 March 2020, the Cabinet of Ministers of the Republic of Latvia declared emergency situation in the territory of the Republic of Latvia until 12 May 2020 to restrict spread of COVID-19 over the validity period of emergency situation.

To reduce the negative consequences which will be caused by COVID-19 to the national economy, the Law On Measures for the Prevention and Suppression of Threat to the State and Its Consequences Due to the Spread of COVID-19 was passed. In a situation where general decline of economic activity is anticipated, the goal of the legislator was to reduce additional negative consequences for those subjects to the law who will face difficulties to settle their civil liabilities. The goal of the Law is to ensure recovery of economic activity as fast as possible balancing the impact of losses on the subjects to the law who will face difficulties to settle their liabilities.

The Law, inter alia, provides fixed-term changes in the area of delayed settlement of liabilities, observing legal balance between the legitimate interests of debtors and creditors. Lawyers of Leinonen SIA have prepared a summary of the fixed-term changes.

Settlement of Liability

Calculation of Delay Interest

From 1 April 2020 to 1 September 2020, delay interest for delay of civil liability settlement (contractual interest) cannot exceed the statutory interest.

Statutory interest, pursuant to the Civil Law, is six per cent a year. The amount of statutory interest for the delay of payment that has been provided as remuneration in a contract on delivery of goods, on purchase or provision of service, is eight per cent points above the basic annual interest rate.

Prescriptive Period

From 12 March 2020 to 1 July 2020, the statutory prescriptive period of liabilities is suspended and this period shall be deduced from the calculation of the prescriptive period.

The prescriptive period depends on the type of liabilities.

All liabilities which have not been clearly excluded from the impact of prescription and for the settlement of which the Law does not provide shorter periods, cease, if the entitled person does not exercise them within 10 years. Shorter prescriptive periods have been stipulated for the following types of liabilities, for example:

·         Prescriptive period of commercial transactions is 3 years;

·         Claims arising from insurance contracts expire after 3 years;

·         All claims arising from the legal employment relations expire after 2 years, unless the Labour Law provides a shorter prescriptive period.

Debt Collection

During the period of emergency situation the term provided to debtors to settle their delayed payment liabilities voluntarily has been extended to 60 days (before the emergency situation, it was 21 days); term to submit justified written objections against the existence of debt, its amount and payment term has been extended, along with the term to submit objections to creditor or debt collection service providers.

Debt Liabilities Secured by Pledge or Public Deed

Commercial Pledges

During the period of emergency situation, the term when the holder of register of commercial pledges decides on the use of commercial pledge has been extended to 60 days (before the emergency situation, it was 30 days).

The commercial pledgor and commercial pledgees can appeal the notification on the use of the commercial pledge at the court even in cases when emergency conditions prohibit use of commercial pledge.

Undisputed Compulsory Enforcement of Liabilities or Voluntary Sales of Immovable Property at Auction

During the period of emergency situation, application on undisputed compulsory enforcement of liabilities or voluntary sales of immovable property at auction at the court, in line with the procedure stipulated in the Civil Law, can be submitted only if warning to the debtor has been issued not later than 60 days before submission of application.

Before the emergency situation, provisions on issuance of warning to debtor were governed by contracts concluded between the parties that are subject to undisputed compulsory enforcement of liabilities and by other laws and regulations.

Compulsory Enforcement of Notarial Deed

During the emergency situation, creditor is entitled to submit notarial deed to Sworn Notary to be submitted for compulsory enforcement within one year from the enforcement date of the respective liability, but not earlier than 60 days from the enforcement date of liability.

Before the emergency situation, the provision on the term of 60 days from the enforcement date of liabilities was not applied.

Amendments to Insolvency and Legal Protection Proceedings

Restrictions to Initiate Insolvency Proceedings

Until 1 September 2020, creditors are not allowed to submit an application to initiate insolvency proceedings of a legal entity, based on any of the features referred to in Section 57 Paragraph One Clause 1 to 4 of the Insolvency Law:

-       when applying compulsory execution means it has not been possible to execute the court adjudication regarding the recovery of debt from the debtor;

-       the debtor - a limited liability company or a joint stock company - has not honoured one or more debt obligations from which the principal debt amount separately or in total exceeds 4268 euros and which are past due;

-       the debtor — another subject referred to in the Insolvency Law — has not honoured one or more debt obligations from which the principal debt amount separately or in total exceeds 2134 euros and which are past due;

-       the debtor has not paid an employee the work remuneration in full, compensation for damages in connection with an accident at work or an occupational disease or has not made the mandatory social insurance payments within two months after the day specified for payment.

However, the conditions referred to in the Insolvency Law on issuance of warning to debtor are applicable.

Convening Creditors’ Meeting in Insolvency Proceedings

During emergency situation, creditors’ meeting in insolvency proceedings can be held remotely.

When convening a creditors’ meeting, the insolvency administrator provides one of the following types of participation:

-       Participants of the meeting participate and vote in the meeting in person;

-       Participants of the meeting participate and vote in the meeting via electronic communication means;

-       Participants of the meeting vote in writing about the matters in the agenda of the meeting and submit their votes at least on the previous day before the creditors’ meeting.

Term of Implementation of the Legal Protection Proceedings

During the emergency situation and 6 months after it has ended, if application has been submitted requesting to confirm the plan of measures of legal protection proceedings or amendments to the plan, the term of implementation of the legal protection proceedings is determined not longer than 4 years (before the emergency situation, the term was not longer than 2 years) from the date then the court ruling on implementation of legal protection proceedings has become effective

In this case, in legal protection proceedings, the implementation term of the legal protection proceedings cannot be extended.


22.04.20


Author:   

Antons Zagdajs

Legal Advisor

Mobile: +37124229113

Email: antons.zagdajs(at)leinonen.lv

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