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An insolvency claim was submitted to the court by local resident Vasilijs Salajevs, who purchased a 368 lat ($579) debt from a farmer who had supplied milk to Rezekne PKK. The company management and its administrator admitted the company was insolvent and unable to pay its debts.
The next step to decide the company's fate is a creditors meeting.
"The insolvency law provides three future options: settlement, rehabilitation or bankruptcy. But this is only the last option," Rezekne PKK Board Chairman Andrejs Jermolajevs told The Baltic Times.
He was reluctant to talk to the press, but said that the management would "do everything to achieve something constructive."
Total Rezekne PKK liabilities amounted to 3.84 million lats as of July 1. Of that, 2.75 million lats are owed to Latvijas Unibanka bank.
Unibanka is the secured creditor for Rezekne PKK as all the company's property, registered capital and profits were mortgaged to secure credit.
Unibanka spokesman Haralds Burkovskis said that the bank was not in favor of Rezekne PKK's insolvency.
"As secured creditors, we were not even allowed to ask for it." Burkovskis stressed that the bank supported shoring up the cannery's production.
The company's creditors have to submit their claims within two months.
Rezekne PKK, whose canned milk and cocoa were popular during the Soviet era just over 10 years ago and still top the list of Latvia's exported goods, has tried to overcome its economic burdens since Russia's financial crisis in 1998.
The company's operational capital on July 1 stood at 1.39 million lats. In the first half of this year the company operated with losses of 152,000 lats, while last year's losses reached 3.12 million lats. Last year the company posted 6.7 million lats in turnover.
However, in June 2001 Rezekne PKK operated at a small profit of 1,500 lats, its second consecutive profitable month. It was the first time it had happened for three years.
To improve its financial situation the company began last year to sell assets not needed for production, including administrative buildings, a hotel, farmland with pigs, a cultural center and a thermoelectric station. The thermoelectric station, which supplies heating to a neighborhood in the town of Rezekne, could fetch some $2.25 million on the market. Its potential buyers are the municipality of Rezekne, the oil trading company Dinaz and the gas firm Itera.
At the beginning of 2000 the company employed 609 people, but currently has a staff of 259.
The company produces only canned milk and exports to Russia, Uzbekistan, Turkmenistan and Kazakhstan, Jermolajevs said. However, attempts to attract a strategic investor from Russia have failed so far.
Rezekne PKK shares are listed on the free list of the Riga Stock Exchange.