POKIS v. LATVIA
Inadmissible
The applicant, Mr Valters Poķis, is a Latvian national who was born in 1970 and lives in Riga (Latvia). He was represented before the Court by Mrs I. Jansone, a lawyer practising in Riga. The facts of the case, as submitted by the applicant, may be summarised as follows. In November 1996 the applicant, together with three other individuals and a legal entity, set up a limited-liability company named SIA LatelektroGulbene (“the company”), which was entered immediately in the companies register (Uzņēmumu reģistrs). The new company’s base capital amounted to 2,000 lati (LVL), comprising 2,000 shares worth LVL 1 each. The applicant held 756 shares, making him the majority shareholder. In May 1998 the applicant used his shares as security for a loan from a commercial bank in Riga, but continued to own them. On 27 September 1999 a general meeting of company members decided to wind up the company. On 14 January 2000 a winding-up petition was lodged with the Vidzeme Regional Court, which examined it at a hearing on 7 March 2000. Despite the explanations of the company’s representatives to the effect that the company’s financial situation had improved in the meantime, with the result that it was now able to honour its debts, the court declared the company insolvent, placed it in compulsory liquidation and appointed a liquidator (administrators), N.P. In addition, the court appointed the company’s Chairman, Z.J., its Chief Executive, D.G., and its accountant, M.R., as the debtor’s representatives (parādnieka pārstāvji). The Regional Court’s judgment of 7 March 2000 was final. In September 2000 a creditors’ meeting adopted a recovery plan (sanācijas plāns) for the company, based in particular on a very substantial increase in its share capital. However, by an order of 6 October 2000, the Vidzeme Regional Court refused to ratify the plan. Notwithstanding this refusal, N.P. forwarded amendments to the company’s memorandum and articles of association for entry in the companies register. The amendments were entered straight away. On an application by the applicant dated 29 October 2000, the Chief Registrar of Companies (galvenais valsts notārs) cancelled the registration of the amendments in question. According to the Chief Registrar, the liquidator had acted in bad faith, as he had had no right to amend the company’s memorandum and articles of association when the recovery plan had not been ratified by the courts. The Chief Registrar also observed that the increase in the company’s share capital envisaged by N.P. would interfere with the applicant’s right of pre-emption over the new shares. On 30 October 2000 a creditors’ meeting again approved the increase in the company’s share capital and the amendments to its memorandum and articles of association. In November 2000 the applicant’s three individual associates concluded a deed of gift with a third party, V.M., under which they transferred all their shares to him. V.M. thus became the majority shareholder, with 1,044 shares. The applicant continued to own 756 shares and the remaining 200 shares were held by the legal entity which had been one of the company’s founders. On 24 November and 5 December 2000 the company’s creditors met and adopted a new recovery plan. Under the terms of the plan, V.M. was to increase the company’s share capital to LVL 100,000 within fifteen days. The funds required for the purpose were to come from the public limited company B.H., of which V.M. was Chairman and Chief Executive. By a final order of 3 January 2001, the Vidzeme Regional Court ratified the new plan. In the meantime, on 28 December 2000, the applicant, represented by the bank to which he had pledged his shares as security, lodged an application with the Vidzeme Regional Court challenging the decisions of the company’s creditors and the actions of the liquidator. In his memorial he submitted a series of complaints concerning the conduct of the insolvency procedure. Firstly, he contended that N.P. did not have the right to increase the company’s share capital and that the creditors had no right to approve the unlawful decisions taken by the liquidator. Secondly, he criticised the final version of the recovery plan. In his view, the text contained a number of shortcomings and irregularities which made it incompatible with the legislation on company insolvency. He argued, for instance, that the plan did not set out in sufficient detail the recovery measures and the deadlines for their implementation; the debt repayment schedule was unfair as it gave small creditors an advantage; the overall recovery period exceeded the statutory maximum period of two years; and the creditors’ meeting had not had all the documents it needed in order to take an equitable decision. Thirdly, in the applicant’s view, N.P.’s conduct demonstrated that he was incompetent and had acted in bad faith, and he should be dismissed as liquidator. Accordingly, the applicant requested the court to declare all the decisions taken by N.P. and the creditors null and void, to refuse to ratify the recovery plan and to dismiss N.P. By an order of 9 January 2001, the relevant judge of the Vidzeme Regional Court declared the applicant’s application inadmissible. The order stated that no legislation conferred on ordinary shareholders a right of appeal against decisions taken by the liquidator or by meetings of the creditors of a company in liquidation. In that connection the judge pointed out that only the official representatives of the debtor company could participate in the insolvency proceedings and that the applicant was not one of the three representatives appointed under the judgment of 7 March 2000. Finally, the judge found that the applicant was not entitled to request the dismissal of the liquidator; such a request could be made only by a meeting of the creditors. This order was served on the bank, as the applicant’s representative, but not on the applicant himself. Consequently, he did not receive a copy until 19 January 2001. On 23 January 2001 he challenged the order by means of an appeal to the Civil Division of the Supreme Court. At the same time he requested the Vidzeme Regional Court to extend the time allowed for lodging an appeal against the order in question, explaining that he had received a copy of the order on the last day of the ten-day period laid down in section 442 of the Civil Procedure Act and had therefore been unable to lodge his appeal within the time allowed. On 5 February 2001 the relevant judge of the Regional Court transmitted the appeal to the Supreme Court without giving a formal ruling on the extension of the time allowed. The judge simply noted that “the appeal [had been] lodged within the period set down by section 133 of the Civil Procedure Act and [was] to be forwarded” to the recipient. By a final order of 19 March 2001, the relevant judge of the Civil Division declared the appeal inadmissible on the ground that it had been lodged out of time and that the first-instance judge had not extended the period specified in section 442 of the Civil Procedure Act. The applicant then lodged an appeal on points of law with the Senate of the Supreme Court, which dismissed it by a final order of 9 May 2001. In the Senate’s view, the fact that the first-instance judge had omitted to rule on the extension of the time allowed for lodging an appeal did not alter the finding that the appeal had been lodged out of time; the appeal court had therefore been right not to examine it. Insolvency proceedings are governed by the Companies Insolvency Act of 12 September 1996 (Likums “Par uzņēmumu un uzņēmējsabiedrību maksātnespēju”). In accordance with the Act, the chief players in insolvency proceedings are the liquidator, the company’s representatives, the creditors’ meetings and, where appropriate, the creditors’ committee. As a rule, a meeting of creditors includes all the creditors of the company in liquidation; any person with a claim against the company has the right to attend (section 6(1)). The liquidator is appointed by the relevant court (section 16(1)). At the material time the debtor company’s representatives were usually appointed by the liquidator (section 33), but could also be appointed or approved by the court. They are now appointed by the court in all cases. Once a company has been declared insolvent, it loses the right to dispose of its assets, that right being transferred to the liquidator. Similarly, the bodies responsible for administering and managing the company are suspended and their powers transferred to the liquidator (section 19(2) and (3) and section 50(1)). The latter must report to a meeting of creditors, which can request his dismissal (section 7(1)). The procedure for dismissal is laid down in section 28: if the creditors’ meeting considers that the liquidator no longer fulfils the statutory requirements, is incompetent or is acting in bad faith, it must pass a vote of no confidence in him. It must then request the relevant court to dismiss the liquidator and replace him. At the relevant time a creditors’ meeting could challenge the decisions of the liquidator before the courts, on condition that it had first made an application to the liquidator himself. This option was also available to the debtor company and to individual creditors. The latter had first to apply to the liquidator; if their application was rejected, explicitly or implicitly, they had to propose legal action to a creditors’ meeting. If the meeting rejected the proposal, they could then institute legal proceedings themselves (section 61(1)). A company recovery plan adopted by a creditors’ meeting may be challenged before the courts by the liquidator, a single creditor or a group of creditors (section 91). Judicial insolvency proceedings are governed by Chapter 46 of the Civil Procedure Act (Civilprocesa likums). At the material time the relevant provisions of this Chapter were identical in substance to those of the Insolvency Act. Section 358(1) stated that the liquidator had the right to appeal against any decisions taken by a meeting of creditors.