Legal advice

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?

27.01.2010 Andrejs Sviksh, lawyer

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.

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