Legal Advice

We’ve been told in a bank that member of the board of our company has to renew his representation rights in the Register of Enterprises since the term of his representation right has expired. What documents shall we submit to the Register of Enterprises and how long will it take to renew his representation rights? 05.05.2010

According to the Commercial Law, the board of directors is the executive body of the company, which manages and represents the company. All members of the board of directors have representation rights. Members of the board of directors shall represent the company jointly if the articles of association do not specify otherwise. A member of the board of directors shall be elected for a period of three years, if the articles of association do not specify a shorter term. In case the term of representation rights has expired, the meeting of shareholders can take a decision to elect the member of the board for a new period.

The following documents shall be submitted to the Register of Enterprises for the renewal of the representation rights:
-    application (Form No.18), which can be found on the website of the Register of Enterprises;
-    the minutes of the meeting of shareholders or an extract of the minutes (if there are two or more shareholders in a company), or the decision of the sole shareholder;
-    power of attorney issued to the person that will submit and receive the documents in the Register of Enterprises (if member of the board is not the person submitting the documents);
-    Receipt for payment of the state fee in amount of LVL 10,- and receipt for publication in the newspaper Latvijas Vēstnesis in amount of LVL 8,-.

The Register of Enterprises shall examine the documents within 4 working days. If necessary the representation rights can be renewed also within 2 days, however, in this case the state fee shall be paid in amount of LVL 30,- (the payment for publication in Latvijas Vestnesis remains the same).

Irina Papakule
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Is it true that a company can be protected from claims of the creditors for a period of one year upon court order? In what cases the procedure can be initiated? 05.05.2010

Lately many entrepreneurs face problems with financial solvency. Often the financial difficulties are temporary and a company simply needs some time to overcome the problems. For such cases there’s a special procedure provided for by the Law on Insolvency that can protect a company from the claims of the creditors. According to Section 32 of the Law on Insolvency, a company has the right to submit a legal protection petition subject to the following conditions: the solvency of the company is limited, the company has been registered in the Register of Enterprises for not less than three years and company’s annual accounts for the last three years have been submitted to the relevant institutions.

Subject to the aforementioned conditions a company is entitled to submit a petition of legal protection process to the court. In case the court satisfies the petition of the company then the creditors will be unable to bring actions or to submit insolvency petitions against the company due to the initiation of the legal protection process. The decision of the court regarding the initiation of the legal protection process is also the reason for the augmentation of late charges and interest to be discontinued. According to Section 42 of Law on Insolvency the period of legal protection process shall not exceed two years from the date, when judgment of the court regarding the initiation of the legal protection process has come into lawful effect.

Andrejs Sviksh
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We would like to give an apartment as a gift to our daughter, who is 16 and wants to start living independently. According to the Land Register my husband is the only owner of the apartment. Is it true that a permission of the Orphan’s court is needed before we proceed with signing the gift agreement at a notary? 05.05.2010

It’s true. Orphan’s court is a guardianship and trusteeship institution established by a local government, which ensures the protection of rights and legal interests of children. One of the main duties of an Orphan’s court is to defend the personal and property interests of children, which also applies in cases when a child is to receive immovable property as a gift. An Orphan’s court shall ascertain whether there’s no encumbrances, pledges or debts of the immovable property.

Therefore, you should turn to the Orphan’s court of your place of residence first and bring the following documents with you:
1) Land Register certificate;
2) Passports;
3) Your daughter’s birth certificate;
4) Extract from the Land Register proving that the apartment is not encumbered with anything;
5) Statement about declared residence place;
6) Statement from house administration proving there are no debts for public services;

Your husband, as the owner of the apartment, will have to submit an application that he wants to give the apartment as a gift to his daughter. The written consent of the other parent is also necessary. Moreover, the Orphan’s court will have to find out the opinion of the child regarding the acceptance of the gift (the views of the child shall be ascertained considering the age when a child is able to formulate such).

You and your husband shall decide who will be the guardian of your daughter. The guardian is a person who accepts the gift on behalf of the child and administers the immovable property until child has reached the age of majority. Usually the parent, who doesn’t own the property, is appointed as the guardian.

The case hearing will be determined within a month from the date the aforementioned documents were submitted. The Orphan’s court will take a decision regarding the acceptance/denial of the gift by the child. The services of the Orphan’s court are free of charge.

Karina Katz
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My wallet containing cash and payment cards was stolen. Unfortunately thief managed to withdraw some money from the card before it was blocked. I heard that a bank has to compensate all losses in such cases. Is it really so and what should I do in order to receive my money back? 05.05.2010

It is important to know when exactly the card was utilised by the thief, was it before you reported to the bank or after. However, even if the thief managed to utilize your card before you were able to report to the bank, it is still possible to receive compensation.

In this case the possibility of receiving compensation depends on the way thief used your credit card or charge card. The bank, which issued the card, is not liable for losses if the card was utilised with help of identification code. However, if a thief used your card in a shop where payments are verified by the buyer’s signature instead of the identification code, and representative of the shop didn’t verify signatures on the card and on the receipt, or simply didn’t give meaning to the difference between the signatures, then you are entitled to receive compensation from the bank.

According to Section 311, Paragraph 1 of the Consumer Rights Protection Law, “If a consumer’s charge card has been illegally utilised, he or she has the right to request the credit institution, which has issued the charge card to the consumer, to revoke the relevant charge or repayment of the illegally debited amount.” According to Section Section 311, Paragraph 2 of the Consumer Rights Protection Law, “If the consumer asserts that his or her charge card has been illegally utilised, and if the credit institution, which has issued the charge card to the consumer cannot prove that the relevant charge was verified with an identification code or any other proof of identification or that the consumer has acted negligently or in bad faith, it shall repay the illegally debited amount.”

Jevgenijs Belajevs
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There was an attachment placed on my immovable property prior to bringing a court action. Therefore I’m unable to act with my property until the dispute won’t be finally settled in the court, which may take a lot of time. The claim of the plaintiff is absolutely unfounded. What can be done in this case? 05.05.2010

According to Section 140 of the Civil Procedure Law, you have the right to submit an application to the court, which rendered the decision regarding securing the claim, requesting to remove the attachment. However, the application shall be reasonable. Securing of a claim may be used in case, if there is a reason to believe that the execution of a court judgment in a matter may become impossible. Therefore you need to prove that you will be able to execute the judgment, and this can be done by arguing against the reasons of the plaintiff for securing the claim, etc. Your application will be considered at a court sitting, where you will have the opportunity to explain your position in detail.

Andrejs Sviksh
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I would like to buy a company in Latvia. The seller, who owns 100% of the equity capital shares, wants to receive the purchase price at the time of signing purchase contract and other documents. But I’m worried about the transfer of ownership rights after the purchase price is paid. What if for some reason I won’t be registered in the Register of Enterprises as the new owner or the previous member of the board won’t be recalled? Is there a way to avoid such risks when buying a company? 21.04.2010

In order to reduce risks the parties may open an escrow account in a bank – a service, which is widely used for immovable property transactions. In this case the procedure will be as following:

 

Step 1. The parties sign a purchase contract, specifying all the essential elements, that is, the subject-matter of the purchase, the procedure of the transaction, as well as the procedure of paying the price, the order for recalling the seller from the position of member of the board and terms for fulfilling obligations of the parties.

 

Nevertheless the buyer shall also draw attention to financial obligations and the condition of the company he wishes to buy, (i.e. creditors, debtors, off-balance sheet liabilities, fixed assets, clients, etc.), as well as the liability of the seller for the nonconformity of the provided guarantees.

 

Step 2. On the basis of the concluded purchase contract the parties and the bank sign a tripartite agreement in which they agree on the necessay documents and terms and conditions, as well as the procedure for the submission of such documents and the order for making the payment of the purchase price.

 

Step 3. The buyer puts the purchase price into an escrow account and presents a document to the seller in order to prove that he made the payment.

 

Step 4. The parties sign necessary documents, which are needed for the registration of the buyer’s ownership rights and other changes (recall of the seller from the position of member of the board, etc.).

 

Step 5. The seller or the buyer shall carry out the registration of the relevant changes in the Register of Enterprises (this duty can be entrusted to the seller so that the buyer wouldn’t be accused of violating the contract in case if the Register of Enterprises will refuse to register the changes due to some reasons, however, the buyer also can carry out the registration if he wants to control the process himself).

 

Step 6. After the registration of the changes the seller submits the proof of registration and other necessary documents to the bank on the basis of delivery and acceptance deed, whereafter the bank transfers the purchase price to the seller’s account.

Alexander Lenkovsky
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Why is it forbidden to carry a weapon to concerts in Latvia if I have the right to carry a weapon according to the law? 21.04.2010

A security company, which is liable for maintaining security at the public events, is entitled to forbid the visitors to carry a weapon at a concert in accordance with the law on safety of the public entertainments and festive events. According to the law a security company is an entity that has acquired a special permit (licence) to perform security guard activities and is entitled to maintain public order at the relevant event on the basis of the contract concluded with the event organizer.

 

According to Section 13 of the Law on safety of the public entertainments and festive events, a security company is obliged to control and prevent people that carry fire-arms (as well as explosive materials, flammable and toxic substances, psychotropic substances, drugs, etc.) from attending the event.

 

Moreover the aforementioned law prescribes obligations also for the guests of the relevant event. According to Section 14 of the law, the visitors of the public event shall obey the instructions of the security company in regard to safety and public order. If the visitors of the public event fail to fulfil this obligation they shall be brought to liability.

 

Therefore, it is allowed to carry a weapon if the relevant permit is received, it is also allowed to use it, however, it is strictly forbidden to carry one at a concert.

Aleksandr Koposov
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I’m not able to perform the obligations of the mortgage loan agreement due to financial difficulties for about 6 months now. The bank (in Latvia) is ready to extend the loan repayment period only in case of my consent to the amendments of the loan agreement, which prescribe the rise of the interest rate. Otherwise my property will be sold through auction. Is there any way to solve this problem? 14.04.2010

The borrower, who acknowledges that he won’t be able to fulfill his obligations in the nearest time, should start looking for a solution immediately. Even a short delay might lead to negative consequences. However, it doesn’t mean a borrower shall inform bank of his problems right away. First of all a borrower shall turn to relevant experts in order to find out possible ways of solving the problem, as well as to obtain information about the rights and obligations of both bank and the borrower. The negotiations with bank shall be commenced only after the borrower is fully prepared.

 

There are different options how the decrease of the borrower’s monthly payments can be reached. For example, a borrower can ask the bank for the extension of loan repayment period, change of interest rate’s type, postponement of the principal repayments, loan currency change, etc. The bank, of course, might refuse from satisfying the requests of the borrower, but nevertheless it’s worth a try.

 

People sometimes make a lot of mistakes when try to negotiate with bank on their own and as a result the situation may become even more complicated. Besides borrowers shouldn’t forget that actions of the bank are always aimed at protection of its own interests only, still some people are way too trustful. Therefore, the temporary relief from the amendments of the loan agreement may have negative consequences in the long term. Which is why experts shall be involved in the process of debt restructuring.

 

It stands to mention that a borrower who started looking for a solution timely has a lot more options to reach an agreement with a bank on more favorable conditions rather than a borrower, who has stopped performing his obligations half a year ago. Still the solution shall be searched for and can be found regardless of the stage.

Jevgenijs Beļajevs
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I’m not satisfied with judgment of the court regarding the recovery of losses. How to file for an appeal? 14.04.2010

The judgment of the court of first instance may be appealed in the higher court with an appellate complaint. An appellate complaint shall be submitted within 20 days from the date of pronouncement of the judgment. If an abridged judgment has been pronounced at a court sitting, the time period for appeal shall be calculated from the date, which the court has announced for drawing up of a full judgment. An appellate complaint shall contain the following information: the court which rendered the judgment, the extent to which the judgment is being appealed, how the error in the judgment is manifested, etc. The complaint shall be addressed to the appellate instance court, but shall be submitted to the court which rendered the judgment. The State fee for an appeal is 50 per cent of the rate calculated in accordance with the disputed amount.

 

The court may leave an appellate complaint not proceeded with and set a time period to rectify deficiencies, if the State fee has not been paid or the complaint doesn’t contain all the required particulars or the complaint is not accompanied by all required true copies. If the deficiencies are rectified within the time period set, the appellate complaint shall be deemed to have been submitted on the date when it was first submitted. Otherwise, the complaint shall be returned to the submitter.

Dmitrijs Shustovs
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I’ve given immovable property (an apartment) to my relative as a gift in 2005, but prior to that received a mortgage loan, which was secured by husband’s property. At the moment I’m unable to pay the loan, so probably the bank will sell the pledged property of my husband through auction. I’m afraid the money received from the sale of the pledged property won’t suffice to fully satisfy the debt, and the bank, knowing about the gift I made, will demand satisfaction of the debt from the apartment gifted to my relative. 14.04.2010

Most likely the creditor refers to Section 1927 of the Civil Law, according to which, a property is considered to be donated only insofar as the donor’s debts have been deducted from it. In cases where a donor is unable to pay the debts outstanding at the time of making the gift, not only may the creditors demand satisfaction from the donor’s gift, but also the donor may himself or herself demand from the donee the return of the portion of the gift necessary for the payment of these debts. An agreement between the donor and the donee that the latter is not liable for the debts of the former is only in effect as against the creditors if the creditors have consented to it. Therefore the actions of the bank might be considered legal. However, the abovementioned Section is included in the “Gift of entire property”, a sub-chapter in the Civil Law, as a result there’s also a completely different view of the situation. Some lawyers insist that a creditor is unable to demand satisfaction if the gift consists only of one particular property, i.e. not the entire property of the donor. Considering aforementioned, resolution of this situation is within the competence of the court only.

Santa Garšniece
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I’m a guarantor for the mortgage loan of my friend. Recently I received a decision from the court stating that the sum of the loan and interest was recovered from me. I didn’t know anything about any court hearing and never received any requests for summons. Are the actions of the bank and court lawful? 29.03.2010

Most likely, there was used a so-called procedure of undisputed compulsory execution of obligations against you. According to Section 400, Paragraph 1, Clause 1 of the Civil Procedure Law, undisputed compulsory execution of obligations is permitted pursuant to agreements regarding obligations which are secured with a public mortgage or a commercial pledge.

The main point of this procedure is that a mortgage creditor submits an application to the court with request to perform the undisputed compulsory execution of obligations regarding the loan, but the judge, without informing the debtor and creditor, examines the application within 7 days and takes the adjudication. At this stage the court is not adjudicating the matter on the merits (whether the loan was paid off or not, in what amount was the loan paid off, were the payments delayed or not, etc.), but only considers the procedural issues and the correctness of the documents. After considering that the submitted application is well-founded and recognizing that it shall be satisfied, the judge takes an adjudication which specifies what obligation and in what amount it shall be executed in the undisputed compulsory way.

The bank is entitled to submit application for undisputable compulsory execution of obligations against principal debtor, as well as against the guarantor in case if he has undertaken obligations as a principal debtor (Section 402 of the Civil Procedure Law).

Therefore, if in the contract of guarantee you have taken the obligation to be liable for the loan as principal debtor, then the court has the right to use the procedure of undisputed compulsory execution of obligations against you. The adjudication for allowing the executing of the procedure may not be appealed and comes into force immediately. However, according to Section 1704 of the Civil Law the guarantor has the right to bring a subrogation action against the principal debtor.

Dmitriy Shustov
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I would like to start my own business. Please could you tell me what type of the following business entities would be the most suitable for starting a business: Individual merchant, Limited Liability company or Joint-stock company? 24.03.2010

The answer to this question is unambiguous: the most convenient form of business entity is limited liability company. Many consider that if a person starts its business without partners then it will be easier for him or her to register as an individual merchant because there’s no need to pay the equity capital and the procedure of establishing such form is easier, but still I don’t recommend choosing this form. Some people simply don’t know that it is possible to be the sole owner of the business also in case of a limited liability company or a joint-stock company. The main problem is that if a person is registered as an individual merchant then he or she shall be liable for obligations of individual merchant with the whole of personal property. In case of a limited liability company or a joint-stock company a person is liable for the obligations of the company only with the invested funds and in the worst case with the company, but shareholder’s private property (such as real estate, cars, shares in other legal entities) is not subject to liability.

The next type of business entity is a joint-stock company. Joint-stock company acts publicly, if necessary its stocks are put up for sale and can be bought by any person. For example, in Russia there are open joint-stock companies and closed joint-stock companies. Situation in Latvia is slightly different. According to legislation of Latvia, a joint-stock company can be established as open joint-stock company, whose stocks are quoted on the stock exchange, and as closed joint-stock company, whose stocks are distributed among a limited number of stockholders or not distributed at all. I believe that in the course of time all joint-stock companies will be defined as open by the law.

Therefore, usually I recommend choosing the third type of business entity – a limited liability company. A limited liability company can be set up with just one person involved. Such person can be both sole shareholder, who owns 100% of the shares of the company, and member of the board of directors with representation rights. In spite of the fact that in a joint-stock company a stockholder and member of the board also can be the same person, it is still mandatory to form the council of the joint-stock company with the minimum number of three members. The equity capital of a joint-stock company may not be less than 25 000 lats. Moreover, a lot of additional documentation is needed in order to form a joint-stock company. It is necessary to convene meetings of the stockholders and publish information about the meetings in press. Therefore, I believe that if a person is not interested in the public sale of the stocks then he or she should choose a limited liability company as business entity. Nevertheless, if your business will start to prosper and the company will need additional money for expansion and further development, or you will simply decide to work at another level, it is always possible to restructure a limited liability company into a joint-stock company.

Alexander Lenkovsky
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