Debt Recovery in Latvia: case study view on issues and solutions Jurijs Adamovičs, Chief Operating Officer

Transcription

1 : case study view on issues and solutions, Chief Operating Officer Reverta. Visas tiesības aizsargātas.

2 Content 1. About the Company 2. Damage of Mortgaged Property 3. Fictitious Tenancy Agreements 4. Fictitious Employment Agreements 5. Corporate Bankruptcy: non-recognition of creditors claims

3 About the Company Reverta is one of the leading managers of distressed assets in Central and Eastern Europe

4 Reverta History 1 August, 2010 May, 2012

5 Reverta Competences Loan Restructuring Debt Recovery Real Estate

6 Damage of Mortgaged Property Issue Time period of a minimum of three months before the new owner is entitled to enter the property acquired at the court bailiff s auction Outcome When the property rights are established/title received, your new real estate is not in the same condition it was at the day of the auction Frequently during this period some debtors demolish pledged real estate by removing doors, floors, built in kitchens, bathroom equipment, pipes, etc.

7 Damage of Mortgaged Property Example Before demolition

8 Damage of Mortgaged Property After demolition Reconstruction costs in excess of EUR

9 Damage of Mortgaged Property Solution 1. Review, streamline and reduce processes and procedural deadlines for judicial decision-making and court bailiff activities 2. Amend the Criminal Law of the Republic of Latvia and introduce criminal liability for such offences 3. Amend the Civil Procedures Law of the Republic of Latvia and introduce possibility for the court bailifs to enter the property and to fix the situation before the auction

10 Fictitious Tenancy Agreements Issue 1. Some debtors conclude fictitious tenancy agreements with their relatives or acquaintances and continue to live in apartments/houses even after the sale of real estate trough court bailiffs auction 2. According to the Residential Tenancy Law, tenancy agreements concluded by the previous owner are binding to the new owner

11 Fictitious Tenancy agreements Example

12 Fictitious Tenancy Agreements Situation Debtor formerly sworn solicitor Real estate private house in Jurmala Market value is approximately EUR Agreement is concluded for 20 years Rental price of EUR 50`000 paid in advance for 10 years (no evidence of real transaction) The debtor has the rights to use part of the house Solution Amend the Law On Residential Tenancy and provide that only the Land Book registered tenancy agreements are legally binding to the new owners

13 Fictitious Employment Agreements Issue According to the Civil Procedures Law, claims on employee wages related to real estate management have priority over the claims of mortgage lenders. Debtors are using this condition by concluding false employment agreements with their relatives or acquaintances Example

14 Fictitious Employment Agreements Situation Sea-front house in the city of Jurmala Property acquired at the auction for EUR Court satisfied the claim on recovery of housekeeper s wage in the amount of EUR Criminal process is initiated and enforcement of the court s decision is suspended Solution Amend the Civil Procedures Law in order to exclude opportunity for such claims

15 Corporate Bankruptcy: non-recognition of creditors claims Issue Some bancruptcy administrators contrary the law do not recognize claims of the secured creditors Example

16 Corporate Bankruptcy: non-recognition of creditors claims Situation Premium class residential development in Jurmala Exposure of circa EUR First rank mortgages on: - Unfinished development in Jurmala valued at EUR Land plot in Riga valued at EUR Administrator does not recognize any secured claims against the mortgagors despite pledges being registered in the state registries Litigation on-going for more than 2 years Solution Amend the Law on Insolvency to provide that the bankruptcy administrators are obliged to recognize creditors claims that are secured with pledges registered in public registries and if the creditor has provided account statements proving issuance of the loan

17 Conclusion 1. Drawbacks in the enforcement system create significant unforeseen losses for the creditors 2. Several «grey areas» in existing legislation that create opportunities for debtors to delay and some times even avoid legal recovery processes 3. Better policy dialogue needed to introduce best international practices

18 Thank you for attention! 2012 Reverta. Visas tiesības aizsargātas.