How to liquidate a Latvian company

Nov 11, 2015 | Law

Different situations occur and you might need to liquidate a company in Latvia. It is a complicated issue so we have decided to create a separate article to describe the procedure, ins and out you will face.

What is the liquidation of a company?

Liquidation of a company is the process of legal entity existence termination by entering a special note to Latvian Republic Companies’ Register Commercial Register.

Main reason to liquidate a company in Latvia

Sometimes the priority of company owner’s activities changes and they decide to liquidate a business. This is a normal procedure and it is a decency and a European approach to business.

The full liquidation procedure proves that businessperson has no debts before budget or private creditors. If a company is not liquidated and is just abandoned, it can become a black spot on businessperson’s reputation.

Main procedure of Latvian company liquidation

Here are the steps that you will have to take to terminate a company.

Step 1. Make a decision to liquidate a company

Shareholders of a company vote and decide that a company should be liquidated. The liquidator is appointed and the term of creditors’ demands application are set. Who is a liquidator? You will find out a little bit later in our article.

Step 2. Initiation of the liquidation process via Companies Register

The liquidator puts in an application to the Commercial Register of Companies Register, requesting to register the initiation of a company liquidation.

Commercial Register checks the documents handed in, orders to liquidate a company, sets the term of creditors’ demands application and publishes the information on the started liquidation in Latvian newspaper “Latvijas Vēstnesis”.

Step 3. Assets and creditors’ demands determination

The company prepares a Statement of Financial Position and accounts receivable and payable debts backlog on a date of liquidation. After creditor’s demands are received, the liquidator assesses the demands received and settles the issue with company’s creditors.

Step 4. Finalization.

The liquidator calls a meeting of shareholders and reports on the work done. He/she informs if the company activity can be terminated and if the company can apply for the withdrawal from the list of Commercial Register.

The board makes a decision to pay the liquidation quota (money or property) and approves the final Statement of Financial Position of the company.

Thanks to the clear regulated process, the liquidation of a company in Latvia is done without any complications, if there are no conflicts defined during the check.

Liquidator’s responsibilities

We have already mentioned that the process of liquidation is supported by the officially appointed liquidator. It can be either the owner or someone from the management, or a third party, who was hired to perform these duties.

Liquidator’s task is to administer the process of liquidation, solving issues with debtors, paying debts to creditors, supporting active assets selling and liquidation quota definition. Liquidator, as any other management board member, bears civil, criminal and legal responsibility.

Limitation of deals during liquidation

You should take into account, that the liquidation procedure can be launched only after the commercial activity of the company was actually stopped. After the decision to terminate a company was made, the company is prohibited to have any business activity. From this moment only things that lead to company’s liquidation can be performed – selling of active assets, collection of debts, after settlements with creditors.

Two types of liquidation procedures

There are two types of liquidation procedures according to Latvian Legislation. They are quick and standard.

1. Quick procedure

If a company has no activity when the decision to liquidate it is made, and if there was no activity after the last yearly report, the quick procedure can be used.

The main peculiarity of the quick procedure is the term of creditors’ demands, which is shortened up to 1 month from the beginning of the liquidation process publication. If there are no creditors or they can be paid from the money the company has, the whole procedure takes about three months.

2. Standard procedure.

If a company stops its’ activity only after the decision on the liquidation is made, the minimal term of creditors’ demands application is 3 months after the information on the liquidation process start is published. Debts payment is performed with working capital of the company.

If a company has not enough money, part of the property or the whole property can be sold so creditors can be paid out of this money.

If this money is still not enough, the founders can increase statutory capital in order to pay creditors. Otherwise the procedure of bankruptcy is started, which will be described below.

Procedure of liquidation quota to shareholders payment

After the Statement of Financial Position of the company is closed (all creditors are paid) and the corresponding report is presented during the management board, the decision on assets division between shareholders is made.

If there is a sole owner or if all active assets have been sold and converted into currency equivalent, the procedure is simple. All the money is transferred from the company’s balance to the personal usage of owners in full (if we have a sole owner) or according to quota (if we have shareholders).

If a board decides to divide actives without their conversion into money equivalent, shareholders, who do not agree to this case, can go to court in 2 months period in order to appeal such a decision.

When this term is over and if there were no appeals, the final decision on the liquidation is made and the company is withdrawn from the Register.

Initiation of bankruptcy procedure

If a company does not have money to pay back all creditors after all the property of the company has been sold and if the owners do not want to increase statutory capital to make payments, the bankruptcy procedure is envisaged in the legislation.

The issue is that creditors cannot waive a debt because it will be considered as a gift and the tax of 15% should be applied in this case.

Consequently, if a company cannot pay back its debts it must initiate bankruptcy procedure according to legislation. There is a criminal responsibility envisaged for those who try to avoid bankruptcy in such cases.

Owners cannot control bankruptcy initiation. To support the process, the state administrator is appointed. He/She takes management into his/her hands, tries to understand why is the company in such a complicated situation and perform all necessary actions to declare bankruptcy.

As the administrator is paid by the government, he/she does not depend on shareholders or creditors; he/she is determined to finish the procedure as fast as it is possible.

His/her main task is to push debtors, sell all property, satisfy creditors and terminate a company.

How to arrange a process of company liquidation as soon as possible without wasting time and energy

BBCRiga helps its clients during the liquidation process including the liquidator’s role. We can both consult and take the process into our hands.

We are ready to provide you with a free consultation in the process of company termination taking into account your situation. To receive a consultation please contact our professionals.

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