Insolvencies cost state hundreds of millions – Auditor General

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State institutions, agencies, and companies run by the government have lost a total of €434 million in insolvency processes over the past two years, announced the State Audit Office Thursday in its detailed report criticizing the government’s insolvency policy.

The amount was calculated for the period from January 1, 2013 to September 30, 2014, Auditor General Elita Krumina told LTV news program Panorāma. Of the total amount, €402 million is what the State Revenue Service (VID) had to write off in unpaid debts, and €15 million was spent by ministries and their subordinated institutions.

The total amount of claims in ongoing insolvency processes totaled at least €603 million as of October 1 last year, the Audit Office said.

"I believe this is very bad news for the national economy of Latvia," said Krumina, adding that the Justice Ministry has not deemed it necessary to draw up any insolvency policy development planning document. As a result, the public has lost faith in the system of administering bankruptcies in general. Meanwhile the state has no effective way of ensuring a consistent and sequential policy.

According to the Audit Office's conclusions, the foremost priority of insolvency processes is for them to be completed as soon as possible, whereas preserving and recovering the value of an insolvent company is far from being the main objective. This is also shown by the low amount of debt recovered by creditors - the average proportion being just 14% of total amounts claimed.

Krumina also said that current laws and regulations make it possible for insolvency administrators to be associated with one another in ethically questionable ways, and that they have too much freedom in deciding how a legal protection process actually unfolds.

Meanwhile the Justice Ministry responded to the Audit Office’s report by supporting its conclusions, but questioning its estimates of budget losses as being imprecise. Ministry officials claim that a host of reforms and amendments have been made to make the insolvency process more effective in general. The losses to the state treasury come not just from the insolvency process itself, but as a result of the activities and choices taken by the various legal entities involved.

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