From the first signs of insolvency to company liquidation
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Your debtor says they are “experiencing temporary difficulties” – do you know how to distinguish temporary difficulties from the beginning of insolvency proceedings?
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At what stage of bankruptcy can you still get something back, and at what stage are your chances practically zero?
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What are the signs that a debtor is heading toward bankruptcy—and what should be done at this point?
Two creditors of the same company. The first noticed signs of trouble—several late payments, a change in director, and the sale of equipment. He immediately filed a lawsuit and received a ruling. He initiated enforcement proceedings. He received 80% of the debt before declaring bankruptcy.
The second one waited for promises and hoped for the best. When bankruptcy was declared, he filed a claim during the process and received 12%.
The difference lies in understanding the stages and taking timely actions.
Stage One: Financial Difficulties (Before the Procedure)
Signs: payment delays, deferral requests, change of suppliers, sale of non-core assets. The company is still operating and legally solvent.
What should the creditor do? This is the best time to act. File a lawsuit. Obtain a judgment. Initiate enforcement proceedings while the debtor still has assets. Consider securing the claim.
Stage two: TAP - tesiskās aizsardzības process
What is it: a financial recovery procedure. The company files an application. The court imposes a protected period of up to 2-4 years. Enforcement proceedings are suspended.
What should a creditor do? File a claim in arbitration—TAP is not an obstacle. Obtain a judgment. Obtain a writ of execution—TAP does not prevent its receipt, only enforcement. Once TAP is completed, collection will resume immediately. Register as a creditor in the TAP process and vote on the plan.
Stage three: declaration of insolvency
What it is: The court declares the company insolvent. An administrator is appointed. All collections are suspended. An inventory of assets begins.
What the creditor should do: Submit a claim to the administrator within one month of publication in “Latvijas Vēstnesis.” Attach all documents. If there is a court decision, attach it. Monitor the progress of the process.
Stage Four: Asset Disposal
What it is: The administrator sells the debtor’s assets at auction. The proceeds are distributed among creditors in order of priority.
What a creditor should do: attend creditor meetings, vote on sale matters, and monitor the administrator’s actions. If violations are suspected, file complaints.
Stage Five: Liquidation
What it is: After all assets are sold and funds are distributed, the company is liquidated and removed from the Register of Enterprises.
What should a creditor do? If the claim is not repaid, obtain a document detailing the remaining debt. For tax purposes, declare the debt uncollectible and write it off. For individuals, this is the only recourse if they were guarantors or if the director is subsidiarily liable.
Signs of impending bankruptcy: what to check
Public indicators available free of charge: the company is included in the VID list of tax debtors, a record of TAP or the commencement of insolvency proceedings has appeared in the insolvency register, debt announcements have been published in “Latvijas Vēstnesis”, encumbrances on the company’s real estate have appeared in the land register, the company’s management changes frequently.
Three steps to take now
First: introduce monthly audits of major debtors through the insolvency register and VID.
Second: at the first sign of trouble, don’t wait. File a lawsuit. Every week of delay means potential loss of assets for the debtor.
Third: if the debtor is already in court, file a claim immediately. Even 12% is better than zero.
Bankruptcy is a race. Those who act first win.
This article is for informational purposes only and does not constitute legal advice.