Fresh changes to the Insolvency Law 

  • 2009-07-02
As of July 1, 2009, changes to the Law on Insolvency and related changes to the Civil Process Law take effect. The main thrust of the amendments is to increase access for companies that have encountered temporary financial difficulties to utilize the possibility to obtain temporary relief through a 'legal protection process', and to make the insolvency process more accessible for natural persons. 

Under the old version of section 38 of the Insolvency Law, a company wishing to avail itself of the legal protection process had to obtain approval for its legal protection process plan from those unsecured creditors whose claims exceeded two thirds of all creditor claims, provided that the unsecured creditors already had claims for violation of the terms of repayment or provided that the their respective claims were to vest during the implementation of the legal protection process plan. After the legal protection plan was approved by the unsecured creditors, it was to be sent to the administrator and secured creditors. The possibility of obtaining legal protection process approval was thought to be exceedingly low under the old version of the law requiring two-thirds approval, as only a handful of legal protection process plans were ever approved. 

For this reason, the approval process under the amended law requires a simple majority of unsecured creditors. In addition, under the amended version, unsecured creditors, secured creditors and the administrator are all able to receive the legal protection process plan at about the same time, which is thought to avoid unnecessary time lags. 

In addition,  payment penalties and interest accruals are to be frozen on application for (not approval of) the legal protection process, with the proviso the freezing of such accruals is to be lifted in the event the legal protection plan  is not fulfilled and is terminated.  
Furthermore, the maximum term of the legal protection plan has been expanded to two years from the earlier one year statutory term. 

On the natural persons' insolvency law front, there was apparently a concern the process of bankruptcy was too costly. The three minimum wage equivalent sums payable to administrators per month were thought to be unreasonably excessive (most administrators would take issue with this conclusion). Under the amendments to the law, compensation for an administrator from the date of judgment to the date of termination of the insolvency procedure is one minimum wage per month instead of three minimum wages. 

In addition, the one-time payment to an administrator which is payable from the date of his appointment to the date of the court judgment is the numeric equivalent of three minimum wages, cut back from the previously mandated  five minimum wage equivalents. Up until now, relatively few natural persons have submitted bankruptcy applications. The cut backs, at the expense of administrators' statutory compensation, is thought to be a necessary component for making personal bankruptcy procedures less costly for the individual.

Annija Melko is an associate at Kronbergs & Cukste. Kronbergs & Cukste is a founding member of the pan-Baltic legal network, BALTIC LEGAL SOLUTIONS, also including Jurevicius, Balciunas & Bartkus in Lithuania and Glikman & Partnerid in Estonia.