On 6 January 2017, another package of large-scale amendments to the Insolvency Law came partly into force. The main part of the amendments to the Insolvency Law comes into force on 1 July 2017 and thereafter. In addition, on 4 January 2017 amendments to the Civil Procedure Law came into force, which affect insolvency and legal protection proceedings, amongst other matters. The following is an overview of the amendments.
Legal protection proceedings
First, the so-called “open market” principle has been introduced with regard to persons entitled to supervise legal protection proceedings (LPP) and out-of-court legal protection proceedings (OLPP). In particular, insolvency administrators (administrators) no longer have exclusive powers to supervise LPPs and OLPPs; and creditors can decide to appoint any individual with legal capacity to supervise a LPP or OLPP as long as the individual has no statutory restrictions such as a previous criminal conviction or is banned from being a company officer etc.
Second, a person who supervises a LPP or OLPP is paid by the creditors who supported the plan for legal protection proceedings, and not by the debtors.
If the creditors have objected to a LPP plan drafted by a debtor and the debtor does not take them into account, then a certified auditor provides an opinion about the objections.
Likewise, the amendments change regulation of the administrators’ profession, with the aim of ensuring that honest professionals qualified in their areas enter and stay in the profession; previously this was not always possible.
One consequence is that the Latvian Association of Certified Insolvency Proceedings Administrators has been deprived of the right to certify administrators. Instead, a new procedure has been established for appointing and releasing insolvency administrators, as well as a procedure to decide on terminating the position. Under this procedure, administrators will be appointed by the director of the Insolvency Administration, a state institution. This means that the state will take over issues related to entering the administrators’ profession, previously handled by the Latvian Association of Certified Insolvency Proceedings Administrators as the professional organisation of administrators.
The precondition for appointment to the administrator’s position, in the same way as certification previously, will be to pass the administrator’s exam. However, administrators will now have to repeat the exam every two years. While previously administrators also had to repeat certification every two years, successful certification required a certain amount of points that were granted for attending or leading qualifying events and for professional activities such as the number of proceedings administered, the number of violations established, and the like.
The administrator’s exams will be held by an examination commission appointed by the Minister of Justice. The examination commission will consist of representatives from the Ministry of Justice, the Insolvency Administration, academic personnel from universities, the association of administrators, judges, and a non-governmental organisation representative delegated by the Advisory Council in Insolvency Matters. An additional requirement has been imposed on the administrator’s position - an impeccable reputation.
The amendments prescribe disciplinary responsibility for administrators and persons who supervise LPPs/OLPPs. In particular, a commission for disciplinary matters has been established; this will review disciplinary cases against persons who supervise LPPs/OLPPs and administrators, and will impose disciplinary penalties.
A disciplinary case can be brought for:
- material violation of the law,
- material violation of professional ethical standards,
- regular violations of the law detected by the Insolvency Administration,
- abuse of powers detected by the Insolvency Administration,
- losses caused to the state, debtor or creditor, if the amount exceeds 20 minimal monthly salaries and this fact has been found in a court ruling that has come into effect.
The commission for disciplinary matters will be entitled to impose one of the following disciplinary penalties:
- remark with or without a fine not exceeding EUR 150,
- reprimand with or without a fine from EUR 150 to 15,000,
- removal from the administrator’s position (only for administrators).
In addition, creditors will be entitled to claim inspection of an administrator’s activities in particular insolvency proceedings by inviting a certified auditor.
Insolvency Administration’s powers and transparency of proceedings
From now on, the Insolvency Administration will be entitled to visit the administrator’ place of practice or the debtor’s address if a legal entity and to inspect documents related to insolvency proceedings.
In addition, the Insolvency Administration will publish data on its website regarding violations committed by administrators and persons who supervise LPPs/OLPPs, results of their activities, length of proceedings and other data that should facilitate transparency of activities by administrators and persons who supervise LPPs/OLPPs.
Under the amendments to the Civil Procedure Law, insolvency and LPP/OLPP cases will be reviewed by the court for the debtor’s address registered/declared three months before lodging the application with the court. The amendments have been introduced for the purpose of combating the practice where a debtor changes its registered or declared address shortly before lodging an application with the court, thus hampering creditors’ options to follow the case, as well as possibly choosing a more beneficial court.