Debt collection in Latvia

Debt collection in Latvia begins with verification of the legal basis of the claim, the debtor’s status and the real prospects of payment. For Latvian companies, it is important to check registration data, legal address, authorized representatives, possible insolvency proceedings, legal protection proceedings, court cases and enforcement actions. This preliminary assessment helps to choose the appropriate route: out-of-court settlement, court proceedings, simplified procedure, payment warning procedure, enforcement proceedings or an application for the debtor’s insolvency.

If the Latvian debtor continues business activity, has a verifiable address and is not subject to insolvency proceedings, it is usually reasonable to start with the out-of-court stage. However, the creditor should not rely only on correspondence: it is important to check public records to determine whether insolvency, legal protection or another procedure has already started, because this may change the debt recovery strategy.

At the out-of-court stage, the creditor may send a written payment demand, propose a repayment schedule, obtain confirmation of the debt, agree on the return of goods, set-off of mutual claims or another commercially acceptable solution. In Latvia, it is especially important to document the basis of the debt, the payment due date, the correspondence between the parties and the debtor’s response, because these materials may later be used to choose the most suitable court or accelerated recovery procedure.

Communication with the debtor may be carried out by post, email, telephone, messaging tools or other agreed channels, but its purpose should be to record the parties’ positions in a legally reliable way. It is important to identify the persons authorized to make decisions on behalf of the debtor, obtain a substantive response to the payment demand, record confirmation of the debt or refusal to pay, and prepare evidence for the next stage.

The duration of the out-of-court stage depends on the debtor’s conduct, the quality of documents, the amount of the debt, the existence of a dispute over goods or services, and the parties’ willingness to reach a settlement. If the debtor does not respond, denies a documented debt, delays negotiations or shows signs of financial difficulty, the creditor should move to court proceedings or another recovery method provided by law without losing time in relation to the limitation period.

Before initiating court recovery, the creditor must check the limitation period. As a general rule in Latvia, contractual claims may expire if the creditor does not exercise them within 10 years, unless the law provides for a shorter period. For claims arising from commercial transactions, Latvian commercial law provides a special limitation period of 3 years, unless another period is established by law.

After the limitation period expires, not only the right to sue may be affected, but also the underlying claim itself. The running of the limitation period may be interrupted by filing a claim with a court or arbitration, by sending a reminder to the debtor, or by any action of the debtor confirming the claim. After interruption, the time already elapsed is not counted and the limitation period starts again.

A mandatory pre-trial demand procedure before filing a monetary claim in Latvia does not apply as a universal rule; it depends on the contract and the nature of the dispute. If the parties agreed in the contract to negotiations, mediation or another method of dispute resolution, the creditor should document the proposal, the debtor’s response and the result of the settlement attempt. This helps to show that the creditor acted properly and followed the dispute resolution order agreed by the parties.

Depending on the amount of the debt, the documentary evidence, the debtor’s objections and the presence of a cross-border element, Latvian law provides several types of court debt recovery.

Alternative recovery methods may be used when the claim is monetary, supported by documents and meets the conditions of a special procedure. Latvia provides a payment warning procedure for documented payment obligations. This procedure is not available if the debtor’s address is unknown, if the debtor’s declared residence, place of residence, location or legal address is outside Latvia, if the debt exceeds 15,000 euros, if the claim is connected with an unperformed counter-obligation, if the contractual penalty exceeds 10 percent of the principal debt, if the claimed interest exceeds the principal debt, or if the obligation is joint and several. After the warning is served, the debtor may pay or object within the statutory period; if no objection is filed, the judge’s decision may serve as an enforcement document.

In certain cases, uncontested enforcement of documented obligations may also be available. This route does not replace ordinary court proceedings where the debt is disputed, but it may be useful if the obligation is properly documented and the debtor does not actually dispute the basis of payment.

Ordinary court proceedings apply when the debt is disputed, when the amount of the claim does not allow the use of a simplified procedure, or when a full review of evidence is required. After accepting the claim, the court sends the claim materials to the defendant and sets a period for written explanations, usually from 15 to 30 days from the date of sending. In certain cases, the period may be calculated from the date when the claim materials are served on the defendant.

After receiving the defendant’s written explanations or after the deadline for submitting them has expired, the court proceeds to preparation of the case. At this stage, the claims and objections may be clarified, evidence may be assessed, procedural issues may be resolved, and the possibility of settlement may be discussed. If the case cannot be examined in writing, the court hearing is held with the participation of the parties. Latvian law does not set one fixed duration for all debt recovery cases, so the timing depends on the complexity of the dispute, the conduct of the parties, the amount of evidence and the court’s workload.

After examining the case, the court issues a judgment. If the judgment concerns recovery of a monetary amount or court expenses, the court sets a deadline for voluntary performance, except in cases of immediate enforcement. This deadline may not exceed 10 days from the date when the judgment enters into legal force. If the debtor does not comply voluntarily, the creditor may obtain an enforcement document and submit it for enforcement proceedings.

A party that disagrees with the judgment of the court of first instance may appeal it within the period and in the manner provided by procedural law. The appeal is usually filed through the court of first instance, which forwards the relevant materials to the participants in the case and sets a period for written explanations.

After the appeal period and the period for written explanations have expired, the court of first instance transfers the case to the appellate court. The appeal may be examined at a hearing or in writing, depending on procedural rules and the circumstances of the case. The judgment of the appellate court enters into force according to the rules established by law.

The judgment of the appellate court may be challenged before the Supreme Court of Latvia within the statutory period. As a general rule, this period is 30 days from the date of pronouncement of the judgment; if the judgment is prepared later or adopted in written proceedings, the period is calculated according to the procedural rules on preparation or service of the judgment. Depending on the circumstances, the Supreme Court may examine the case in writing or at a hearing, and its decision is final.

The simplified procedure applies to claims for recovery of money if the principal debt does not exceed 3,000 euros on the date when the claim is filed. The case is initiated on the basis of a written claim; the defendant receives a form for written explanations and has 30 days to submit a written position. The court also explains to the defendant that failure to submit explanations does not prevent the court from deciding the case, and that the defendant may request a court hearing.

After examining the case, the court issues a judgment in the simplified procedure. Such a judgment may be appealed if the grounds provided by law exist. The appeal period is usually 20 days from the date when the judgment is prepared or, in cases provided by procedural law, from the date when it is served on the participant in the case.

After the judgment enters into legal force and the debtor fails to comply voluntarily, the creditor obtains an enforcement document and submits it for enforcement proceedings. Enforcement documents may generally be submitted for forced enforcement within 10 years from the date when the ruling of a court or judge enters into force, unless another limitation period is provided by law. Submission of the enforcement document interrupts the running of this period.

During enforcement proceedings, the creditor’s claim may be satisfied from funds in the debtor’s accounts, movable and immovable property, funds or property held by third parties, and shares or other participation rights owned by the debtor in a company. If the debtor is a legal entity, enforcement is first directed against funds held by banks or other payment service providers; if those funds are insufficient, enforcement is directed against the legal entity’s property.

If the debtor shows signs of insolvency, the creditor may consider the debtor’s insolvency or restructuring. A creditor may file an application for insolvency proceedings against a legal entity if enforcement of the court judgment did not result in recovery of the debt, or if a limited liability company or joint stock company has not paid a principal debt of at least 4,268 euros and the creditor has warned the debtor in advance of the intention to file an insolvency application. For other legal entities, the official source indicates a principal debt threshold of 2,134 euros, also subject to a prior warning by the creditor.

When filing an application for insolvency proceedings against a legal entity, the creditor must pay the state fee and the procedural deposit. The official Latvian source states that the state fee for a creditor’s application is 355 euros, and the procedural deposit is equal to two minimum monthly wages. The deposit is used to finance the procedure if the debtor has no assets or if the assets are insufficient to cover the costs of the proceedings.

After the declaration of insolvency is entered in the register, the creditor must submit its claim to the administrator within one month. If the claim is submitted within that period and recognized, the creditor obtains voting rights at the creditors’ meeting in proportion to the recognized amount of the claim. If the one-month period is missed, the claim may still be submitted within six months from the entry in the register, but not later than the date when the plan for satisfying creditors’ claims is prepared; if this period is also missed, the creditor loses the right to assert the claim in the procedure.

In insolvency proceedings, joint and several liability of the debtor’s management may arise if the company’s accounting documents are not handed over to the administrator, or if the documents are in such a condition that they do not allow a clear understanding of the debtor’s transactions and property status during the last three years before the declaration of insolvency. For the creditor, this is important where the debtor has insufficient assets, but there are signs of asset transfers, accounting irregularities or misconduct by the persons controlling the company.

In insolvency proceedings, the administrator also reviews the debtor’s transactions and may request that transactions causing losses to the debtor or creditors be declared invalid. Particular attention is given to transactions concluded after the declaration of insolvency and to transactions concluded within four months before that declaration if they caused losses. Transactions concluded within three years before the declaration of insolvency may also be challenged if the other party knew or should have known that the transaction caused losses to the debtor. If the transaction was concluded with a related person or for that person’s benefit, that person is presumed to have known about the losses unless the opposite is proven.

If the debtor’s transaction is successfully challenged, the property or its value may return to the debtor’s estate. This may increase the chances of full or partial satisfaction of creditors’ claims and may be especially important where ordinary enforcement proceedings have not identified sufficient assets.

If the dispute is connected with another European Union country, the creditor may use not only Latvian national procedures, but also European mechanisms. Court judgments issued in civil and commercial matters in one member state are recognized in other member states without a special procedure, and an enforceable judgment may be enforced in another member state without a separate declaration of enforceability.

For uncontested cross-border monetary claims, a European payment order may be used. This procedure is based on standard forms: the court issues the order, the debtor may object, and if no objection is filed, the order becomes enforceable. If there is a risk that the debtor may transfer money from an account in another European Union country, a European bank account preservation order may be used to freeze funds in the debtor’s bank account in another member state, except Denmark.

If you need to recover a debt from a debtor in Latvia, it is important to assess the legal basis of the claim, the limitation period, the available documents, the debtor’s financial situation and the most suitable recovery procedure in advance. Grandliga can assist with document analysis, strategy selection, negotiations, court recovery, enforcement proceedings and cross-border debt matters connected with Latvia.

# DEBT COLLECTION AGENCY LATVIA

17.06.2024

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