Taking counsel

  • 2005-08-24
  • Agnese Jauntirane-Barkane [ LOZE, GRUNTE & CERS ]
Reorganizing a company in Latvia

Given the high level of competition, it has become ever more important for merchants to optimize operations. One of the best ways to accomplish this is to reorganize one's company.

1. Types of reorganization

According to the Latvian Commercial Law, commercial companies involved in the reorganization process may be companies of the same type or various types. There are three types of reorganization: 1) merging 's it may take the form of either (i) acquisition or (ii) consolidation; 2) division - either (i) splitting up or (ii) divestiture; 3) and restructuring.

2. Reorganization procedure

To ensure that the reorganization is successful and is recorded in the commercial register, it is important to follow precisely the reorganization procedure defined in the commercial law without missing a single stage. The entire reorganization procedure is divided into the following stages: 1) preparation of the reorganization agreement and the reorganization prospectus; 2) submission of a notice to the commercial register; 3) audit examination; 4) taking of a decision on reorganization and signing of the reorganization agreement; 5) measures for the protection of creditors; 6) submission of the application to the commercial register regarding registration of reorganization.

One of the most important stages of reorganization is the measures of protection of creditors. Thus after deciding on reorganization, each of the companies involved in the process has a duty to publish a relevant notice in the newspaper Latvijas Vestnesis. The notice, besides other information stipulated in the commercial law, must specify the place and time period for creditors to submit their claims, which may not be less than one month from the day when the notice is published.

Within 15 days from the time a decision on reorganization is taken, each of the companies involved in the reorganization process must inform, in writing, all of its known creditors that have had claim rights against the company before the reorganization decision.

Each of the companies involved in the reorganization process must submit an application to the Commercial Register Office, not earlier than three months after the day when the notice is published, so that the reorganization is recorded in the register. In its application, the company certifies that the claims of those creditors who have submitted their claims within the time period specified have been secured or satisfied, and that the decision on reorganization has not been disputed in court or that the relevant action has not been satisfied.

3. Legal meaning of the recording regarding reorganization

A reorganization is considered to be in effect from the moment when the recordings have been made in the commercial register for all the companies involved in the process, including any newly founded ones.

From the time when a reorganization comes into effect, the shareholders of the acquired, divided or restructured company become shareholders of the acquiring company, and their shares are exchanged for the shares of the acquiring company in proportion to the shares owned by them. The rights of third persons to the shares of the acquired, divided or restructured company are preserved in relation to the shares of the acquiring company.

The shares of the acquired or divided company, which were owned by the acquiring company or the acquired or divided company itself, or by a person who acted in his or her own name but for the benefit of the relevant acquired, divided or acquiring company, are not exchanged and are extinguished, except for cases when the divided company as a result of apportionment becomes the sole shareholder of the acquiring company.

After it has gone into effect, a reorganization may not be disputed.

Taking into account the description given above regarding the reorganization procedures in Latvia, it is important to remember that this is a relatively new procedure for commercial companies, and a process of stable implementation is not in place yet. Some time will have to pass before all the stages of reorganization are verified and introduced in the regular commercial activities of companies and the actual reorganization does not cause complications.