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COVID-19 in Latvia: Corporate legal issues

2020-03-27

1. How to handle situations where the manager of the company cannot be physically present in Latvia due to imposed movement restrictions?

Although nowadays a growing number of activities can be performed remotely by use of electronic means of communication or electronic signatures, majority of business operations still require physical presence. Recent movement restrictions imposed by the Latvian government can create a number of unforeseen complications when it comes to acting on company’s behalf vis-a-vis suppliers, customers, public authorities or courts.

The authority to act on behalf of the company is ultimately vested in its management. In case the managers of the company are not able to be physically present in Latvia, representation rights should be delegated to another person who can take over these functions.

In majority of situations a power of attorney may be issued without any formalities. It is sufficient that the manager executes the power of attorney privately and delivers it by mail.

However, in cases where the identity of the person issuing the power of attorney needs to be certified (e.g. for transactions involving Land Registry or Commercial Registry), the company’s management will need to execute the respective document in front of a notary. On some occasions, where the respective manager is in the possession of a secure electronic signature issued in a EU Member State, the power of attorney can be executed upon an electronic signature.

If neither of above options are available, it is possible to expand the company's management with a temporary management board member. In some cases, an equivalent result can be achieved by issuing a procura to a person present in Latvia. Both options can be implemented for a limited time period and the temporary management board member or procura holder can be removed from their positions as soon as the particular need expires.

2. How to handle situations where the Management Board and the Supervisory Board cannot hold a board meeting in person?

Commercial Law allows absent Supervisory Board members to participate in a meeting via telephone, through other means of communication (e.g. Skype, Microsoft Teams, Zoom) or by using prior written voting. In any such event the form of participation must be mentioned in the minutes of the meeting. Although the law provides this option only for the Supervisory Board meetings, there are no obvious reasons not to extend these provisions also to the meetings of the Management Board.

As of 22 March 2020 the minutes of the Supervisory Board and Management Board meetings can be signed only by the Chairman and at least one other participant of the meeting.

3. How to handle situations where the General Meeting cannot be held in person?

Recent amendments to the Commercial Law allow shareholders to participate in a General Meeting via electronic means or to vote prior to the General Meeting.

In case the notice of the General Meeting indicates the right of the shareholders to vote prior the meeting, any shareholder can render his or her vote in writing and dispatch it to the company’s Management Board. All such votes must be received by the Management Board no later than one day ahead of the meeting or otherwise will be deemed void. All shareholders rendering their votes in writing prior to the meeting must be identified. For this reason we advise confirming the vote in writing either upon a secure electronic signature or in the presence of a notary.

If a shareholder represents at least 20 percent of the share capital, he or she may also request the company to allow the shareholder participating in the General Meeting via electronic means of communication. In such event the company must ensure the requisite technical equipment that enables the shareholder to participate in discussions with other shareholders and the company’s management, as well as ensures the recording of the meeting.

4. How to handle situations where the company must register changes with the Register of Enterprises?

Due to COVID-19 the Register of Enterprises has suspended onsite receipt of corporate documents. It means that all documents now need to be submitted to the Register of Enterprises via mail. In case the documents are signed with a secure electronic signature, such documents can also be submitted electronically.

5. How to handle situations where the company cannot meet its obligations?

The State of Emergency has increased the likelihood of business failure to unprecedented levels. The ability to manage this distress situation often depends on the ability to take timely and educated decisions.

At the moment, a number of service providers have introduced specific provisions that alleviate the fulfilment of obligations during the State of Emergency. The companies may also obtain financial support from Development Finance Institution Altum that provides guarantees for bank loan holidays and current asset loans. Furthermore, on 22 March 2020 the Parliament has passed a special law that on several occasions delays the enforcement of creditor claims by 60 days. The same law also prohibits the creditors to file a bankruptcy petition against the company until 1 September 2020.

Under the provisions of Commercial Law the management board must summon a general meeting in case the company’s loss reaches at least half of the share capital or if the company has difficulties in fulfilling its obligations. During the meeting the management must propose to the shareholders solutions how to resolve these difficulties. In case the company has failed to reach a settlement with the company’s creditors, the management should consider commencing a legal protection process (LPP).

An LPP gives the company an opportunity to address the causes of its financial difficulties while being protected from creditors. At the beginning of this process creditors are restricted to enforce their claims against the company for a period of two months while the company is working on a restructuring plan and is coordinating the plan with creditors. If within this deadline the company succeeds in coordinating the plan with a majority of creditors, the plan needs to be presented to the court for a final approval. In result of court approval, the company will be able to continue its business, while relations with creditors will be regulated by the approved restructuring plan.  

Regarding related corporate issues please contact COBALT Latvia Partner Gatis Flinters.