The Insolvency Control Service has compiled data for 2023, which is marked by a decrease in the number of complaints and admitted violations. Several improvements have been made in the protection of employees of insolvent companies. Progress in the digitalization of the insolvency sector is also commendable.
Inese Steina, Director of the Insolvency Control Service: "Latvia's success in digitalization the insolvency sector has been recognised internationally for several years. Electronic insolvency accounting system (hereinafter – EMUS) serves as a model of how to move from Excel spreadsheets to a modern information system. Also, the Insolvency Control Service is increasingly rarely confronted with cases where administrators have deliberately committed significant breaches of the regulatory enactments. However, despite the significant reduction in the number of complaints about the administrator's performance, in 2023 we found that three administrators abused their powers when handling the debtor's funds entrusted to them. Three criminal proceedings were opened last year. I would still like to highlight risk-based monitoring and clarification of regulatory requirements for administrators and parties involved in insolvency proceedings as an essential tool to prevent and reduce violations."
Complaints about the performance of administrators and legal protection proceedings (hereinafter – LPP) supervisory persons has decreased by 57% since 2017, and the number of admitted breaches - by 86%. When assessing the nature of the violations detected in the actions of the administrators, it can be concluded that the violations detected are mainly related to the failure to ensure transparency in the insolvency proceedings. In five out of seven decisions finding that the administrators had infringed the regulatory enactments, it was found that the persons involved in the insolvency proceedings had not been provided with information on the conduct of the insolvency proceedings. In such cases, information/documents have not been provided, an extended reply/information has not been provided, a plan for the sale of the debtor's property has not been sent or the administrator's activity reports have not been sent.
Protection of employees in the event of insolvency of the employer
Last year, the time taken to process employee claims decreased by 60% compared to 2021, so employees who lost their jobs due to their employer's insolvency received their unpaid wages from the Employee Claims Guarantee Fund within 19 days on average. In 2023, significant changes were made to the laws and regulations governing employee protection, which resulted in:
- employees whose employer (the natural person) has been declared insolvent will also be eligible for a payment from the Employee Claims Guarantee Fund;
- enhanced protection for employees from the Employee Claims Guarantee Fund in the event of a lawsuit by an employee against his or her employer for unpaid wages, where insolvency proceedings have been declared on the basis of an application by the employee, and where there has been a switch to the LPP but the LPP is terminated;
- simplified procedure for employee claims - no longer requiring employees to fill in a form, employees can now freely provide details of unpaid wages;
- automated data processing and reduced manual work to ensure that employees' claims are dealt with as quickly as possible.
Digitalization of the insolvency sector
The Insolvency Control Service has set as one of its main tasks for 2023 the maintenance and improvement of EMUS, improving the working environment for EMUS users and complementing it with the introduction of digital solutions. For example:
- functionality is developed to enable the administrator to check in EMUS whether a person involved in the insolvency proceedings (e.g. a creditor) is included in one of the sanctions lists;
- a bank queue or credit institution queue has also been introduced, providing an electronic and random system for selecting an administrator in credit institution insolvency proceedings. It should be underlined that, following the introduction of the bank queue, Insolvency Control Service carried out an audit which concluded that no non-compliance was found and the procedure for selecting a candidate for the office of administrator is robust, transparent and allows an independent third party to verify its legality;
- EMUS has also undergone adjustments due to changes in the insolvency legal framework: a new type of insolvency proceedings has been created where the debtor, a natural person, is at the same time a sole proprietorship or owner of an individual (family) undertaking, farm, or fishing enterprise, changes have been made to the conduct of LPP (the supervisor is appointed and starts work from the moment the case is opened), simplification of the employee claims process.
2024 priorities
The Insolvency Control Service together with the Ministry of Justice, we have put the issue of access to insolvency proceedings high on the agenda of the insolvency sector. Financially and administratively accessible insolvency procedures are the key to ensuring that citizens and businesses resolve their financial difficulties in a timely manner. We need to reduce the number of companies that are emptied of their assets in insolvency proceedings to improve both the return to creditors from insolvency proceedings and the business environment as a whole.
To ensure the transparency of the Insolvency Control Service's activities and to promote uniform practice in the application of insolvency law, the Service will start publishing its decisions on its website in 2024. In compliance with data protection requirements, anonymised decisions taken by the Insolvency Service during its supervision and complaint handling, as well as decisions taken by the Disciplinary Board, will be published.
The 6th evaluation round of the Moneyval will be carried out, which will provide an opportunity to demonstrate internationally that Latvia has significantly improved its anti-money laundering performance. The Insolvency Control Service, as a supervisory and control institution in the insolvency sector, will ensure the preparation and submission of the necessary information, the representation of compliance in the field during the on-site visit, as well as other tasks to be performed by Latvia in accordance with the provisions of the Moneyval and FATF assessment procedure.
The Insolvency Service plans to join the International Association of Insolvency Regulators in 2024, which brings together national insolvency regulators from around the world. Membership in this organisation will provide an opportunity to exchange best practices and the latest trends in insolvency regulation and supervision and will be a valuable contribution to the development of the Latvian insolvency sector.