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FIC: insolvency field in Latvia is close to the level of organized crime

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUContinued lack of supervision over the insolvency processes in the country has resulted to this field coming close to the level of organized crime. Insolvency processes are often abused and many schemes also show signs of relation to law enforcement institutions, judges and even political forces, which is demonstrated by generous donations of insolvency administrators’ to political parties.

On top of that, there are signs of cover-up of crimes by officials on state administration level, notes Executive Director of the Foreign Investors Council in Latvia Girts Greiskalns.

As noted by Greiskalns, abuse of insolvency processes and weak supervision are not considered major problems. ‘The European Commission, foreign investors and the former Finance Minister of Latvia have all pointed to problems in poor administration of insolvency processes. OECD will talk about it as well once Latvia joins this organization. Unfortunately, Latvia’s politicians have not been able to sort out this field even though the topic has been discussed multiple times over the years.’

He also adds that the situation with supervision over insolvency processes is equal to putting out a fire by carrying water in thumbnails. «A good example is Justice Ministry’s April proposal to entrust insolvency processes to the Insolvency Administration. This support had no support from the Saeima committee that viewed it. This shows that there is no desire to fix existing problems on a political level.» Although legislation has been improved, problems with supervision over insolvency processes have not been resolved.

According to Greiskalns, the recent decision to provide official’s status to insolvency administrators is not likely to improve the quality of supervision over insolvency processes. Considering that officials’ declarations are not currently analysed, compared and controlled, the expected changes will not improve the situation by a whole lot.

«The current situation reduces Latvia’s attractiveness in the eyes of investors. This is also demonstrated by statistical data – the volume of investments into companies is in decline. Investors carefully consider Latvia’s business and investment environment. Upon noticing that problems remain unresolved for long periods of time, investors choose other countries. The most common reasons for the decline of investments include the distrust of businessmen and investors towards state institutions, court system, major bureaucratic burden and overall uncertainty with responsibility of involved sides. This not only scares off investors, but also makes businessmen consider relocating production to other countries,» – adds the executive producer.

According to results of a study carried out by the Foreign Investors Council in Latvia over the course between 2008 and 2014, abuse of insolvency processes cost Latvia’s national economy EUR 665 million. The total volume of unrecoverable claims of creditors is estimated at EUR 6.6 billion. If the established insolvency process is not improved, Latvia’s losses will continue to grow, reaching EUR 852 million in the next 10 years.

Inese Libina-Egnere, associate of Saeima Speaker Inara Murniece, mentioned in her opening speech to the discussion on rule of law in insolvency processes and company-saving culture that there are major problems with Latvia’s insolvency system, adding that «the quality of the insolvency system affects the finances of the private sector as well. It also affects the public sector – the state budget loses funds that are no recovered in insolvency processes. This is why a successfully functioning system plays a major role in state economic growth and its sustainability. On top of that, its quality has an effect on the development of the business environment’s development dynamic and the country’s attractiveness in the eyes of investors.»

In response to a report by the State Audit, European Commission’s recommendations to Latvia and multiple studies about the country’s insolvency process, Libina-Egnere noted that attempts to strengthen public supervision of insolvency administrators face certain difficulties.

«Latvia is behind other countries when it comes to asset recovery from insolvent companies. According to this year’s Doing Business report by the World Bank, creditors in Latvia can expect to recover less than half of the capital previously invested in companies in comparison with other OECD countries,» – she said.

Libina-Egnere emphasized that Saeima’s Legal Affairs Committee’s Court Policy sub-committee actualized insolvency regulation matters in response to the worrying conclusions from the study. In her speech, Libina-Egnere expressed gratitude that Saeima, the Foreign Investors Council in Latvia and Latvia’s Chamber for Commerce and Industry have managed to put together representatives of all three state power segments – legislation, executive power and judicial power – and businessmen to find the most effective solutions to resolve the problems of the insolvency sector.

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