Advanced debt collection claims

It is often heard that creditors refuse to attempt to collect debts, justifying their decision by stating that it has been discovered that the debtor no longer has any money and has managed to dispose of all their assets by selling them or otherwise transferring them to third parties.

Although in some cases such creditor behavior is understandable and economically justified, in certain cases such premature surrender is based on the assumption that if the debtor no longer owns anything, debt recovery is impossible.

In this regard, it should be noted that there is a reason to believe that this assumption is becoming less and less true. On the contrary, according to the latest Latvian case law  in debt recovery cases, as well as in cases involving claims for the recovery of transferred assets or the enforcement of claims against property held by third parties, it must be concluded that courts are increasingly granting claims that could be referred to as “advanced debt recovery claims.” 

In the author's opinion, at a time when unscrupulous debtors are becoming more sophisticated and many actions aimed at asset concealment can be carried out more quickly (if only because of the rapid electronic circulation of documents), creditors' representatives should also become more creative and look for new opportunities to recover money.

The creditor's right to recover debts from property that the debtor has gifted to another person, as set out in Article 1927 of the Latvian Civil Law, hereinafter referred to as CL, has long been provided for in the CL, and several rulings have been made in connection with the exercise of this right. Recent practice shows that creditors' rights to recover gifted property are being recognized to an increasingly wide extent . 

Namely, although a gift is a type of contract regulated by the CL, Article 1927 of the CL stipulates that property shall be recognized as gifted only to the extent that the donor's debts have been deducted from it. Consequently, Article 1927 of the CL stipulates that in the event that the donor is unable to pay the debts he had at the time of the gift, not only can his creditors demand satisfaction from his gift, but he himself can also demand that the recipient return the part of the gifted property necessary to pay off the debt.

As can be seen, the aforementioned article stipulates two conditions that must be met in order for a creditor to bring a claim for recovery of the gifted property: 1) the donor's inability to pay the debt has been established; 2) the debt existed at the time of the gift.

It is also important to understand that the aforementioned article does not grant the right to recover the debt from the donee, but only the right to enforce recovery against the specific gifted property (e.g., real estate, capital shares, etc.).

As already mentioned, Article 1927 of the CL and the characteristics contained therein have been assessed several times in court practice in search of answers to questions such as: Is a debt that has not yet fallen due considered to have existed at the time of the gift? Is the creditor entitled to claim late payment interest on the gifted property? What criteria must be met in order to recognize that the debtor is unable to pay?

It is important to note that, according to court practice, the answers to these questions are becoming increasingly favorable to the creditor.

For example, courts recognize the creditor's right to claim the donated property not only for the recovery of the principal debt, but also for interest and litigation costs. Similarly, in its 2025 judgment No. SKC-12/2025, the Senate recognized the creditor's right to bring the claim referred to in Article 1927 of the CL within 10 years of the date of the gift, even in cases where the dispute involves merchants and it would appear prima facie that the three-year limitation period specified in the Commercial Law would apply.

In summary, it can be concluded that in Latvia the creditor's right to enforce recovery against the gifted property is recognized and protected more than ever before.

However, the claim for compensation for losses discussed below, which is brought on the basis of the provisions of the Group of Companies Law, hereinafter referred to as Group Law, can be used specifically in circumstances where the debtor is a legal entity. 

When such circumstances are identified, it is advisable to verify whether: 

1) this  company (debtor) has a parent company, 

2) there is evidence to suggest that this parent company (referred to as a “controlling company” in the Group Law) has, with the help of its legal representatives, transferred the aforementioned assets to another person or otherwise created a situation in which the dependent company is unable to settle its debts with its creditors. 

If such facts are established, it is worth considering filing a claim based on the provisions of the Group Law.

Namely, in accordance with the first part of Article 33 of the Group Law: “If the controlling company induces a dependent company [..] to enter into a disadvantageous transaction or to take other disadvantageous measures and, by the end of the reporting year, does not actually compensate for the losses incurred as a result of such transaction or measures, or does not grant an appropriate claim for compensation for such losses, the controlling company shall be obliged to compensate the dependent company for the losses incurred as a result of such actions.”

In accordance with the provisions of the Group Law, such a claim for compensation for losses may be brought by a creditor of the dependent company to the extent that he cannot obtain satisfaction of his claim from the dependent company. The same right applies to a shareholder of the dependent company.

It is important to note that, unlike classic debt recovery claims, claims for compensation for losses based on the Group Law are essentially brought on behalf of the dependent company (debtor), requesting the court to recover losses from those persons who have brought the dependent company into a situation where it is unable to pay its creditor.

Consequently, the purpose of this claim is to restore the previous financial position of the dependent company . 

It should be noted that by choosing to bring a claim for compensation for losses based on the provisions of the Group Law, the creditor gains access to a very wide range of defendants. Namely, in accordance with the provisions of the Group Law, not only the controlling company is liable for concluding a transaction that is disadvantageous to the dependent company or for implementing other disadvantageous measures that have caused losses, but also the legal representatives of the controlling company who encouraged the dependent company to conclude a disadvantageous transaction or take a disadvantageous measure are jointly and severally liable as co-debtors. Similarly, the representatives of the dependent company who encouraged the dependent company to perform the aforementioned actions also have the status of defendants in the case.

It should be noted that the validity of such claims must be assessed by carefully reviewing the financial data of the dependent company and compiling information on the actions taken by the persons involved and their status at the time of those actions. It should also be noted that such claims have a limitation period of five years, contrary to the 10-year limitation period specified in the CL.

Claims aimed at “advanced” debt collection and recovery of funds are not limited to the types of claims mentioned above. In court practice, claims are also brought that are aimed at lifting the corporate veil or waiving the principle of limited liability of a capital company. Namely, although according to the procedure established in the Commercial Law, shareholders are not liable for the debts of a commercial company, there are examples of court practice in which the court has recognized that the inability of a company to fulfill its financial obligations is not a commercial failure, but rather an unauthorized action against creditors, and the shareholder is obliged to compensate for the losses caused.

Even in cases where the debtor has entered into fictitious transactions in order to avoid paying the debt, the creditor's rights are protected. For example, on October 20, 2025, the Senate of the Supreme Court ruled in case No. SKC-805/2025 that if it can be established that the debtor has entered into a fictitious transaction whereby he has transferred real estate to a third party, the creditor is entitled to enforce recovery against this property as if it belonged to the debtor, i.e., without requesting changes to the land register entries.

The above types of claims are not exhaustive and may be combined in various ways in certain cases.

​​Author​: Aija Tuvikene​​, ​Attorney-at-law​