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Insolvency law is a racket, say foreign investors

The insolvency sector in Latvia is little better than an organized crime racket due to the lack of supervision insolvency procedures, said Girts Greiskalns, the executive director of the Foreign Investors Council in Latvia (FICIL), June 3, according to the LETA news service.

Insolvency procedures often are used maliciously, and the fraud schemes often show relation to law enforcement institutions and judges, as well as political forces, which can be seen in the large donations of insolvency administrators to political parties.

Greiskalns said that supervision of the insolvency procedures is a huge problem. The European Commission, foreign investors, former finance minister have pointed out the problems in administration of insolvency procedures.

After Latvia’s accession to the Organization for Economic Cooperation and Development (OECD), also this organization will speak about it.

"Latvian officials, meanwhile, do not rush with changes in this area even though this is a frequent topic," said Greiskalns.

He said that the situation in solving insolvency administration problems can be compared to extinguishing fire by bringing water in thimbles.

"A good example of that is the proposal submitted by the Justice Ministry to Saeima, handing over supervision of insolvency processes to the Insolvency Administration. The responsible parliamentary committees did not support the idea. It means that there is no wish to tackle the problems on political level," said Greiskalns.

He said that the current situation reduces attractiveness of Latvia in the eyes of investors. This is proved by statistical data as investments are declining. Investors are carefully assessing Latvia’s business and investment environment and are choosing other countries if Latvia is not dealing with the problems. The most visible problems are lack of trust in state institutions, the judicial system, the severe bureaucratic burden.

According to a study by the Foreign Investors Council in Latvia and the auditing firm Deloitte, malicious insolvency processes and the overall abuse of insolvency has led to the Latvian economy losing €665 million between 2008 and 2014, and this number could increase to €852 million in the next ten years.

The Foreign Investors Council in Latvia is a non-governmental organization which unites ten foreign chambers of commerce in Latvia as well the biggest foreign companies which have made significant direct investments into Latvia.

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