DEALING WITH PROPERTIES IN LATVIA
The EC Regulation on Insolvency Proceedings 2000 (‘the Regulation’) (see Chapter 41) generally provides that the law applicable to the bankruptcy is that of the Member State in which the bankruptcy order was made [note 1] (see paragraph 41.51).
The Insolvency Act 1986 provides that property, wherever situated in the world, forms part of the bankruptcy estate [note 2] [note 3], and the Act gives the trustee a power of sale over the property [note 4] [note 5].
There are, however, exceptions to the general rule in the Regulation. The exceptions include special provisions relating to property. In particular, the opening of the proceedings does not affect the ‘rights in rem’ (see paragraph 43.15.8) of a creditor or third party in respect of assets belonging to the bankrupt which are situated in another Member State at the time of the opening of the proceedings, in this instance Latvia [note 6].
As outlined at paragraph 43.15.7, the Regulation provides that ‘rights in rem’ are subject to an exception to the general rule that the law of the country in which the order was made takes precedence.
Broadly speaking, ‘rights in rem’ include security rights such as a mortgage charge on a property, and the Regulation provides that it is the law of the country in which the property subject to security is located that would take precedence when considering the effect of the proceedings on those rights.
In order to comply with the regulation, the official receiver will therefore have to follow Latvian law when dealing with the rights of chargeholders – for example, the right of a chargeholder to repossess the property (see paragraph 43.15.24).
Before attempting to deal with a property in Latvia the official receiver will need to register the bankruptcy order in Latvia (see Part 1)
As with any other asset the official receiver, as trustee, should ensure that the value of the property to the estate justifies any action taken or expense incurred in relation to the protection or realisation of the property.
It is accepted that this may be something of a circular matter, in that it may be necessary to incur some expense to find out that the property has no value.
Where there is no prospect of the property achieving sufficient proceeds to make realisation worthwhile, the official receiver, as trustee, may cease to take any active steps in dealing with the property, effectively ‘abandoning’ the property to the chargeholder. If there is some onerous obligation relating to the property (the need to obtain public liability insurance, for example), the official receiver should consider if a disclaimer (see Chapter 34) would be more appropriate. If a disclaimer is issued, the notice of disclaimer served on the interested parties should be accompanied by the document at Annex I, which explains the purpose and effect of a disclaimer, in Latvian. Annex J is an English translation of Annex I.
Where this position is established prior to the process of registering his/her interest at the land registry (see paragraph 43.15.19), the official receiver may discontinue that process. The official receiver should, though, ensure that his/her interest is noted by the mortgagees in the event of a surplus arising.
In simple terms, the calculation of the value of a Latvian property to the estate involves the same process as would be required for a property in England and Wales (that is, the value of the property less any charges or third party interest). What may be more difficult is obtaining accurate information regarding the value of the property and the amount and level of any outstanding charges.
The most likely source of information regarding the value of the property will be from the information or documentation provided by the bankrupt, for example:
In Latvia, as in the UK, there are websites that give the prices of properties that are for sale and an example is given here:
It may be possible to use the information on that, or similar, web-sites to obtain an approximate value of the bankrupt’s interest in the property.
Alternatively, it is possible that a local Latvian estate agent may be willing to offer an opinion regarding value, assuming that communication in English is possible. An estate agent may be located using the following website:
Where it is necessary to obtain an accurate valuation of the property, the official receiver, as trustee, may consider appointing the Latvian equivalent of a surveyor. As this service is likely to attract a fee, the official receiver should weigh up the necessity of the need for a valuation against the likely benefit to the estate. A surveyor may be located on the following website:
It is likely that the surveyors on this database will be able to speak English.
It is likely that, as with a UK property, the official receiver, as trustee, will be able to establish what charges there are against the property from information or documentation provided by the bankrupt. Alternatively, a search of the Latvian land register (see paragraph 43.15.21) may be required.
Assuming the identity of at least one of the chargeholders is known, a letter should be sent in the normal way (see paragraph 43.15.18) to obtain details of the amount outstanding under the charge and the identity of any other chargeholders.
In addition to informing the chargeholders of the making of the bankruptcy order, it may be necessary to register the official receiver’s interest in the property at the land register office (see paragraph 43.15.19).
The official receiver should write to the chargeholder informing them of the bankruptcy order and seeking information relating to the property. Annex C is the standard letter which is sent to the mortgage company in a bankruptcy [note 7] that has been amended to be more relevant in respect of a Latvian property.
Annex D is the standard letter requesting the chargeholder to note the official receiver’s interest in the property [note 8] that has been amended to be more specific in respect of a Latvian property.
Where appropriate (see paragraph 43.15.11), the official receiver should take steps to ensure that his/her interest in the property is recorded at the relevant local land registry (see paragraph 43.15.20). This is provided for in the Regulation [note 9] and in Latvian law [note 10].
Before applying for registration of interest in a property, the official receiver will need to arrange for the registration of the bankruptcy order at the Latvian Register of Enterprises (see Part 1).
The letter to the land registry should be accompanied by a notarised (certified as being correct) translation of the bankruptcy order and the notice of no meeting [note 11] [note 12]. The Service’s translation agents (see paragraph 32.3.39) can provide a notarised translation.
The system of land registration in Latvia is two-pronged – one register (called the Kadastr) records information regarding the size, description and boundaries of the property. It is possible to conduct an on-line search of this register (https://www.kadastrs.lv/#) but this is unlikely to be of any practical use to the official receiver as the Kadastr does not record details of ownership or charges.
The other system (called the Landbook) records details of ownership, registered rights (such as charges) relating to the property, along with any restrictions or rights relating to the ownership of the property. The landbook is maintained by the State Unified Computerised Land Register (Valsts Vienotās Datorizētās Zemesgrāmatas).
It may be necessary to conduct a search of the Latvian Landbook (see paragraph 43.15.20) where, for example, the nature of the bankrupt’s interest in the property is uncertain.
This is achieved on the following web-page - https://www.zemesgramata.lv/db/show_db.htm?ln=en. To conduct a search, select the ‘address’ option and complete the information fields. Payment can be made with the official receiver’s ‘corporate card’.
It is likely that the form of joint ownership in Latvia is one where each owner holds the property in separate (not necessarily equal) shares.
The key difference from how property is held in England and Wales (which is normally held on the basis of a joint tenancy) is that each share may be dealt with separately – there would be no concept of the legal title and beneficial interest being separate things.
It is not possible for a foreign national to own land in Latvia. Any property interest that incorporates land would, therefore, have to be purchased using a Latvian company. Where the official receiver encounters a bankrupt that owns property in Latvia through a company he/she should consult Technical Section as it is likely that the company will have to be wound-up in order to realise the property interest.
Any profit on the sale of a property owned by a foreign national for more than one year or less than five is subject to capital gains tax at a rate of 25%.
The general method of realisation of a mortgage charge is through the voluntary sale of the property. On application to the court, setting out the conditions for the sale, it will effected through an auction process, regulated by law. The auction is conducted by a bailiff of the court [note 13] [note 14].
If the mortgage agreement does not allow the property to be sold through the auction process, the lender can apply to court for the recovery of the property – which appears to be a system similar to the repossession process in England wand Wales.
As with a property in England and Wales, the official receiver should seek to transfer dealings in relation to the property to the appropriate LTAU as soon as possible after his/her interest in the property has been protected (see paragraph 43.15.17).
As outlined in paragraph 43.15.7, the Act gives the official receiver, as trustee, the power to take possession of and sell a property that forms part of a bankrupt’s estate. Under the provisions of the Regulation [note 15] [note 16], however, the official receiver must have respect for domestic (Latvian) law when taking steps to realise the interest in the property. In particular, he/she must follow rules in Latvian law when taking steps to realise the interest in the property. In particular, he/she must follow rules in Latvian law in regards to the conveyance of the property (see paragraphs 43.15.27 to 43.4.29).
Whilst the following paragraphs give an overview of the procedures and processes for dealing with a bankrupt’s property in Latvia, it is not expected that the official receiver should enter into such a procedure without expert guidance from a lawyer (probably based in Latvia) well versed in Latvian law (see paragraph 43.15.30).
The first stage in the conveyancing process is for the purchaser and vendor to agree a pre-sales contract, at which time the purchaser will pay a 10% deposit to the notary (see paragraph 43.15.29).
The notary will then obtain all the relevant searches and property reports, before the conveyance proceeds to the next stage, which is completion. The notary will draw up the deed of sale to be signed in front of him/her by the parties involved in the transaction. VAT is payable on the purchase of property in Latvia – generally, this is 18% of the purchase price.
It is not expected that the official receiver would be required to travel to Latvia to undertake the procedure required to complete a sale (see paragraph 43.15.27). Instead, it is envisaged that the local legal representation (see paragraph 43.15.30) would deal with this part of the process. For this to happen, the local representation would need to be given a power of attorney by the official receiver. The local representation should lead the official receiver in this process.
The notary is a government appointed official whose role it is to oversee the property conveyancing process. He/she does not act for either side and is interested only to see that the sale proceeds in line with the process set down by the law of Latvia.
It is not envisaged that official receivers should attempt to deal with the sale of a property in Latvia directly, and it is recommended that local legal representation is obtained to deal with the particular aspects of Latvia conveyancing and insolvency procedures – not least the need to be personally present at the signing of sales contracts (see paragraph 43.15.27).
Solicitors engaged by the official receiver in this country may be able to recommend a solicitor in Latvia with which they have some connection or arrangement.
The website of the Law Society has a database of lawyers that may be searched by location and specialism:
The British Embassy in Riga also keeps a list:
Alternatively, the official receiver can use commercial databases to find a suitable lawyer, such as the following database:
[Back to Part 1 – Registration of the bankruptcy order in Latvia]