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COVID-19 impairs creditor’s rights

Temporary
suspension of rights to file for insolvency

As
of 22 March 2020 the Law
on the Prevention and
Management of Posed Threats and Effects
on the State due to the spread of Covid-19 has entered into effect.
It
implements certain measures
to limit the threats posed by Covid-19 and lays down state
aid mechanisms in the fight against the pandemic, as well as attempts to
stabilize the business environment.

The
Law suspends creditors’ rights
to file for insolvency proceedings by 1
September 2020 in the following cases:

  • it has not been possible to enforce
    court award on debt recovery from a debtor;
  • the debtor, limited liability
    company or joint stock company, has not settled the principal debt exceeding
    EUR 4268 within three weeks following the creditor’s warning or has not objected
    the claim;
  • the debtor, a partnership, an
    individual merchant or another entity, has not settled the principal debt exceeding
    EUR 2134 within three weeks following the creditor’s warning or has not objected
    the claim;
  • the debtor has not fully paid
    employees’ salaries, covered damages due to an accident at work place or due to
    occupational disease, or has not made compulsory social security contributions
    within two months from the due date.

Evidently, the above restrictions are enforced with a prospect
of protecting companies operating in the wake of the Covid-19 caused crisis and
thus to avoid, at least temporarily, that creditors may push such companies towards
insolvency. It is clear, however, that in any event there will be companies in
the midst of this crisis that will actually become insolvent. In this regard, the Law of 22 March
2020 does not affect in any way the right of a company itself to file
insolvency petition under the cases provided by the Law on Insolvency.

Encroachment of the
right to exercise a commercial pledge

The
Law of 22 March 2020 extends the time limits thus making it more time consuming
for creditors to enforcement commercial
pledge rights compared to the procedures laid down by the Commercial Pledge Law.

In
the past, the Commercial Pledge Law provided for a 30-day deadline for the holder of the Commercial Pledge Register
to take a decision on enforcement of commercial pledge. This period
has now been extended to 60 days.

Besides,
new statutory regulation has been introduced that pledgor
and pledgee may challenge the enforcement of the commercial pledge in courts if
extraordinary circumstances prevent the enforcement of commercial pledge. Given
that the concept of “extraordinary circumstances” is not defined in more detail,
it practically will allow for the widest interpretations, thus providing pledgors
with a new tool for defense.

Extended
procedural time limits

In accordance
with the Law of 22 March 2020, courts now are entitled in
civil proceedings to render a period of maximum 60 days for voluntary
enforcement of judgment, except where the judgment is to be enforced
immediately, in cases of debt recovery, the return of property, the eviction of
persons and property. Earlier the period for the voluntary execution of the
judgment provided for in the Civil Procedure Law could not exceed 10 days from
the date of the entry into force of the judgment.

          There is
now extended period within which the creditor or the provider of the debt
recovery service notifies the debtor on commencement of the debt recovery and
calls for the obligation to voluntarily discharge the outstanding debt. If
previously, under the Out-of-court Recovery Law, this time limit was not less
than 21 days, it now is extended to minimum 60 days from the date of receipt of
the notification.

The statutory regulation contained in the Law on Public Notaries has now been amended. A creditor may submit an act issued by the Notary Public for enforcement within 1 year from the due date of the respective obligation to be enforced. Now a new condition is introduced that the aforementioned submission of an act issued by the Notary Public for enforcement may take place only after 60 days from the due date of the respective obligation to be enforced.

Read more in Latvian