Limited business activity in the context of the Covid-19 pandemic has created financial difficulties for economic operators. In such cases, the assistant may be the legal safeguards process (LPP) and benefit from it: rescuing the company from bankruptcy and a successful continuation of its business by profiting.

Legal Protection Process (LPP) and Extraordinary Legal Protection Process (ELPP)

The legal protection process is a procedure allowing a true debtor who has been in financial difficulty to restore his or her solvency by means of the remedies and methods provided for in the Insolvency Act.

Unlike the insolvency proceedings, LPP is applicable only to legal persons. It can only be started by the debtor himself.

It is the debtor's responsibility to draw up a plan of measures for LPP following the initiation of the LPP case.

LPP won't help the debtor rebuild its solvency if the debtor doesn't have a clear vision and business plan for restructuring its business.

After successful implementation of the LPP, the debtor has settled its debts and is successfully pursuing business.

In accordance with Article 37 (saite) of the Law on Insolvency and when the LPP was initiated, the undertaking in difficulty shall:

  • the enforcement proceedings against the debtor shall be suspended; it shall be prohibited to require the secured creditor to request the sale of the pledged debtor's property, unless it causes material damage to the interests of that creditor (including the threat of destruction of the pledged property, a significant reduction in the value of the pledged property);
  • the creditor is prohibited from submitting an application for insolvency proceedings of a legal person;
  • it is prohibited to perform the liquidation of the debtor;
  • increase in the standstill penalty;
  • a rise in interest;
  • an increase in the amount of late payment (even if determined as a contractual penalty);
  • increase in late tax claims.

In this case, the recommendation to assess the potential of your company's demand for products or services, namely whether continuing to offer the products or services in question, will continue to be a sufficient demand for the company to be able to obtain the necessary means of operating.

We also call for an assessment of the stability of financial indicators: whether the underlying financial indicators of the company are sufficiently stable to carry out restructuring, to continue operations and to develop in the future.

An operational balance is also important, which means assessing whether a company is too dependent on a particular supplier or client, which may pose a high risk of future activity, but this will certainly not be a reason not to launch LPP, but would be directly organised within the LPP.

LPP is a host voluntary choice. When submitting an application to the court at the debtor's registered office, the initiation of LPP may be requested:

  • legal persons;
  • partnerships;
  • individual economic operators;
  • persons registered in foreign states who perform permanent economic activity in Latvia;
  • producers of agricultural products.

The application shall be accompanied by documents * confirming:

  • the payment of State fees and other court expenses in accordance with the procedures and in the amount specified in the Law;
  • the circumstances on which the application is based;
  • the payment of a legal person's insolvency proceedings deposit in case the application for legal protection is resubmitted within one year.

* the documents to be attached are specified in Section 341 of the Civil Procedure Law. (saite).

The debtor TAP is not required and is not obliged to apply for it. The TAP is a voluntary choice of the debtor if it is experiencing or is likely to develop financial difficulties in the near future and wishes to pursue a successful economic activity.

The debtor, when submitting the LPP application, is required to pay the national fee the fee of EUR 145 for carrying out the action for examining the application by the judicial authority. Information on State fees and court accounts. (saite)

The LPP shall be initiated at the time the court accepts the LPP application and shall initiate the LPP case by decision.

The debtor has an obligation to inform the bailiff in whose proceedings the cases are:

  • the recovery of amounts imposed but not recovered from the debtor;
  • cases concerning the enforcement of obligations by court;
  • on the initiation of a judicial protection proceedings.

Following the initiation of LPP, the debtor must draw up a LPP plan, bring (saite) it into line with the majority of creditors and submit it to the court for approval.

The information to be included in the LPP plan is specified in Section 40 of the Insolvency Law (saite). The LPP plan reflects the debtor's actual financial situation, planned methods and cash flow forecasts for resolving financial difficulties. 

The LPP plan shall be drawn up by the debtor himself or by a specialist hired by it. When drawing up a plan of measures for the legal protection process, the debtor has the right to call a meeting of creditors. The LPP plan shall be considered to be coherent if it is supported by both secured and unsecured creditors to the following extent:

  • in the group of secured creditors, the secured creditors whose main claims represent two-thirds of the total amount of the secured creditors' main claims,
  • in the group of unsecured creditors, those unsecured creditors whose main claims total more than half of the total amount of unsecured creditors' main claims.

The LPP plan must be drawn up within 2 months of the date on which the court has decided to initiate the LPP case. The debtor may agree with a majority of creditors on the extension of the deadline for the development of the LPP plan for a further 1 month, informing the court of the extension without delay. Following the initiation of the LPP, it is not yet known whether the majority of creditors will agree the plan drawn up by the debtor and whether it will be approved by the court.

    In addition to the creditors' consent, the administrator shall provide an opinion to the court regarding the compliance of the LPP plan with the Insolvency Law. The debtor shall submit the LPP plan drawn up and agreed with the creditors to the court for approval. If approved by the court, the debtor shall initiate the implementation of the LPP plan. The LPP plan is also binding on creditors who have not agreed to the LPP plan after approval.

    The deadline for the implementation of the LPP shall be 2 years from the date on which the court has approved the LPP plan. The deadline for the implementation of the LPP may be extended for a further period of 2 years if the majority of creditors so agree. In such a case, the plan of the LPP should be amended, agreed with the majority of creditors and submitted for approval to the court.

    As from 1 July 2017, LPP shall be supervised by a person supervising LPP - any natural person of the capacity to act who has the right to reside and be employed in Latvia, if the majority of creditors agree on such person. The exception is the persons to whom the restrictions specified in Section 12.3, Paragraphs two and three of the Law on Insolvency apply(saite). This framework shall apply to judicial and nonjudicial redress proceedings initiated after 1 July 2017. Legal protection proceedings initiated by 30 June 2017 shall be subject to the provisions of the Law on Insolvency which were in force on the date of the initiation of the proceedings concerned.

    In accordance with Section 24.2, Paragraph one of the Law On Taxes and Fees, if a taxpayer is required to obtain the written consent of the tax administration for the implementation of a plan of measures of the legal protection process or amendment thereof, within a period of 10 days from the date on which the judicial proceedings have been initiated, the taxpayer shall submit to the tax administration an application specifying the following information:

    • the name, registration number and legal address of the merchant;
    • the circumstances in which the commercial company is not able to fulfil its obligations;
    • total amount of all the assets of the commercial company.

    The taxpayer shall add to the submission:

    • a plan of legal protection process measures prepared in accordance with the Law on Insolvency;
    • the balance sheet and the profit or loss account with explanations for each item containing information from the beginning of the year, drawn up not later than one month before the application for legal protection to the court.

    If the plan of the legal protection process measures has been specified or expressed in a new version after the notification of the decision of the tax administration prior to its approval in court, the tax administration shall re-examine it in accordance with the procedures specified in Section 24.1 of the Law On Taxes and Fees.

    The methods to be applied by the LPP may be extended to claims for remuneration of the employee, provided that the worker concerned agrees. This means that in the absence of an employee's agreement to postpone the payment of the unpaid salary, to split the payment within time limits or to reduce the amount of the claim, the LPP plan should provide that the unpaid remuneration should be paid to the employees immediately after the implementation of the LPP. The debtor's employee is not subject to the status of the creditor in the legal protection process.

    The debtor shall, after approval of the LPP plan and during the implementation of the LPP, have the following obligations:

    • to fulfil the plan of the LPP;
    • directing all profits to LPP implementation;
    • to cover the costs of LPP;
    • report to the administrator in writing at least once a month on the implementation of the LPP plan;
    • at the request of the administrator, provide him or her without delay in writing with any information regarding the implementation of the LPP plan and ensure that the debtor's economic activities and documents are verified on the spot;
    • notify the administrator without delay of any circumstances in which the debtor will not be able to comply with the LPP plan;
    • notify the administrator of the change of his or her registered office and any other changes to be entered in public registers;
    • report to the administrator any significant event in the debtor's activity.

    LPP shall be terminated by the court on its own initiative or at the request of the debtor, if:

    • The LPP plan has not been agreed within 2 months of the date of initiation of the LPP with a majority of creditors;
    • The LPP plan does not comply with the requirements of the Insolvency Law.


    Court terminates LPP and declares legal person insolvency proceedings, if the debtor has been proposed for a second time during the year, but it has not been declared. The debtor shall apply to the court for termination of LPP if the LPP plan has been fulfilled. The debtor shall submit an application for insolvency proceedings to the court, while requesting the termination of the LPP if he is unable to settle the obligations set out in the LPP plan.

    If the LPP plan is completed and the LPP is terminated, the restrictions on action imposed on the debtor and its creditors are removed and the debtor continues to operate in full civil law as before the LPP. If it is necessary to obtain the consent of the SRS for the implementation or amendment of the plan of measures of the legal protection process, the special conditions specified in Sections 24.1 and 24.2 of the Law On Taxes and Fees shall be observed.

    Good Practice Guidelines

    The Ministry of Justice has developed guidelines for good practice in the decision-making process for companies in financial difficulties, which aim to help companies in Latvia, which are experiencing or may soon face financial difficulties, to address these difficulties in a timely and proactive manner, using the most effective action plan.

    Vebinar. Guidelines: How to solve business debt problems successfully?

    One of the keys to success in dealing with business debt-related problems is timely identification of financial difficulties. In supporting entrepreneurs, a group of experts from the Ministry of Justice, the European Bank for Reconstruction and Development and representatives of the financial sector has developed guidelines for business-to-day assessment of the financial situation and the use of restructuring techniques to address debt-related problems.

    These guidelines and advice can be particularly topical in the current global uncertainty, where entrepreneurs need to protect their business and ensure its sustainable development. During the online workshop, let us share practical advice on how to identify timely financial difficulties and how to deal with debt problems by preventing the company from entering into insolvency.

    Out-of-court legal protection process (ELPP)

    The out-of-court legal protection process is a form of legal protection process and can be used by a commercial company with good prospects for reaching an agreement with a majority of creditors and there is no threat that individual creditors with individual recourse to a commercial company could seriously threaten the development, harmonisation and further implementation of the legal protection plan.

    In this case, the debtor shall draw up and co-ordinate a plan of measures with creditors before the court is referred to. The debtor shall submit the plan agreed with the creditors to the court at the same time as the application to initiate the proceedings.

    The commencement of proceedings may be requested by legal persons, partnerships, individual merchant, a person registered in a foreign state who performs permanent economic activity in Latvia, and a producer of agricultural products.

    This process is suitable for undertakings whose financial problems do not require an immediate solution, and it is sufficient time to prepare a plan of procedural measures and to align it with creditors before going to court.

    If an agreement has been reached through negotiations with a majority of creditors, the approval of the plan of out-of-court redress measures in the court allows it to be made binding on minority creditors as well as to obtain the protection provided for in the legal protection process.

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