Latvia’s Insolvency Landscape: Declining Insolvencies and Shift to Legal Protection Processes

Recent data from the Insolvency Control Service (MKD) of Latvia reveals a notable trend: a decrease in both insolvency proceedings and initiated insolvency cases, coupled with a rise in the number of legal protection processes (TAP). These shifts reflect evolving strategies for businesses facing financial difficulties and changes in the economic landscape.

Decline in Insolvencies, Rise in Legal Protection Processes

Last year, 127 TAP proposals were made, a 7% decrease compared to 2024. However, the number of announced TAPs increased significantly, rising by 32% to 37 processes. This brings the proportion of proposed to announced TAPs to 29%, a nine-percentage-point increase from the previous year. The ratio of declared TAPs to declared personal insolvency proceedings also increased by 4%.

Decreasing Insolvency Cases

The number of initiated insolvency cases for legal entities decreased by 6%, and the number of declared insolvency processes for legal entities fell by 5%. Personal insolvency proceedings also saw a substantial decline, decreasing by 23% last year, a trend that has been ongoing since 2021. This decline in personal insolvencies is potentially linked to increases in the minimum wage, which has also raised the deposit required for natural person insolvency proceedings [Insolvency Control Service].

Process Duration and Creditor Recovery

The average duration of insolvency proceedings has increased to two years, influenced by legal proceedings, criminal cases, debt collection efforts, and other related circumstances. Positive developments were observed in creditor recovery rates. Unsecured creditors recovered 20 cents for every euro, while secured creditors achieved a recovery rate of 51 cents per euro, although this is lower than the rate observed in 2024.

Costs of Insolvency and “Empty Companies”

The costs associated with insolvency proceedings amounted to 42 cents for every euro covered or recovered from creditors. The MKD notes that these indicators are affected by the specifics of the terminated processes, including the amount of debtors’ assets and recovery possibilities. A significant factor impacting recoverability remains the prevalence of “empty companies,” with reports of absent property filed in 52% of cases last year.

Current Status and Future Transition

As of the beginning of this year, 2156 active insolvency proceedings were underway in Latvia, comprising 872 legal entity proceedings and 1292 personal proceedings, alongside 150 TAPs.

A significant change is underway: as of September 30, 2026, the MKD will cease operations, with its functions transitioning to the Ministry of Justice (TM) and the Judicial Administration (TA) on October 1, 2026. The TM will oversee administrator activities, including complaint handling, while the Latvian Association of Insolvency Process Administrators will focus on industry self-regulation through examinations and disciplinary procedures. The TA will administer the employee claims guarantee fund, manage deposit costs, and maintain the Electronic Insolvency Accounting System. [Facebook Post]