The Saeima¹ has adopted and
the President has proclaimed the following Law:

Group of Companies Law

Chapter I
General Provisions

Section 1. Terms Used in this Law

The following terms are used in this Law:

1) executive body - a board of directors of a company;

2) participation - taking part in the equity capital of a company with a contribution;

3) supervisory body - a council of a company;

4) [16 March 2006];

5) meeting of shareholders - a meeting of stockholders of a stock company or a meeting of shareholders of a limited liability company;

6) company - a stock company or a limited liability company;

7) shareholder of a company - a stockholder of a stock company or a shareholder of a limited liability company;

8) undertaking - a commercial company within the meaning of the Commercial Law, as well as a natural person.

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Section 2. A Group of Companies

(1) A group of companies is an aggregate of a dominant undertaking and one or several dependant companies.

(2) A dominant undertaking is such an undertaking as has a decisive influence over one or more companies and which is located in Latvia or in another state. The legal relations arising out of Section 10, Paragraph one, Clauses 2 and 3 of the Law On State and Local Government Capital Shares and Capital Companies shall not be discussed pursuant to the provisions of this Law.

(3) A dependent company is a company that is under the decisive influence of a dominant undertaking and is located in Latvia. A dependent company may simultaneously be under the decisive influence of several dominant undertakings.

(4) This Law, except for provisions for the protection of creditors, shall not apply if all the stocks (capital shares) of one company are held by a natural person.

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Section 3. A Decisive Influence

(1) A decisive influence arises on the basis of a group of companies contract, as well as on the basis of participation in the cases provided for in Paragraph three of this Section.

(2) A group of companies contract is such a contract by which a company subjects its management to another undertaking (management contract) or, also, undertakes to transfer all of its profit or part of such to another undertaking (transfer of profit contract). A group of companies contract is also a contract by which the company subjects its management to another undertaking and undertakes to transfer its profit to this other undertaking (management and transfer of profit contract). A group of companies contract shall be entered into in writing.

(3) An undertaking has a decisive influence over a company on the basis of participation, if at least one of the following circumstances exist:

1) the undertaking has the majority of voting rights in the company;

2) the undertaking as a shareholder of the company has the right to appoint or remove the majority of members of the executive body or of the supervisory body of the company;

3) the undertaking is a shareholder of the company and, exercising only its rights of a shareholder, during the accounting year has appointed the majority of members of the executive body or of the supervisory body of the company; or

4) the undertaking is a shareholder of the company and, on the basis of agreement with other shareholders, has sole control of the majority of voting rights in the company.

(4) In applying the provisions of Paragraph three of this Section, the voting rights of an undertaking and the right to appoint or dismiss members of an executive body or a supervisory body of a company shall accordingly include such voting rights and the right to appoint or remove members of an executive body or a supervisory body of a company as are enjoyed by another company dependent upon such undertaking, as well as by other persons acting in their own name but for the benefit of the undertaking or of another company dependent on such undertaking.

(5) In applying the provisions of Paragraph three of this Section, the following rights shall be excluded from the rights mentioned in Paragraph four of this Section:

1) those which are related to stocks (capital shares) held by the undertaking or by a company dependent on such undertaking for the benefit of another person; and

2) those which are related to stocks (capital shares) held as collateral for obligations, insofar as such rights are exercised in accordance with the instructions of the provider of the collateral or the holding of which in connection with giving of loans is within the scope of the commercial activities normally carried out by the recipient (the taker of the collateral) of the stocks (capital shares), insofar as such rights are exercised in the interests of the provider of the collateral.

(6) In applying the provisions of Paragraph three, Clauses 1, 3 and 4 of this Section, such voting rights shall be excluded from the total voting rights of shareholders of a company as are related to stocks (capital shares) held by the company itself, companies dependent upon it, or persons acting in their own name but for the benefit of this company or companies dependent upon it.

(7) A dominant undertaking has the right to notify in writing the Enterprise Register of its decisive influence on the basis of participation, indicating in the notice the basis for the decisive influence in accordance with the provisions of Paragraph three of this Section, as well as the name of the dominant undertaking and the dependent company. Similarly, the dominant undertaking has the right to notify in writing the Enterprise Register of the termination of such decisive influence on the basis of participation. If a dependent company is a public stock company, the dominant undertaking has the duty to notify in writing the Enterprise Register of its decisive influence on the basis of participation and of the termination of such influence. Such notices shall be attached to the registration file of the dependent company and, if the dominant undertaking is registered in the Enterprise Register, also, to the registration file of the dominant undertaking.

(8) A shareholder of a company has the duty to notify in writing the company and the Enterprise Register of the acquisition of the decisive influence in the case referred to in Paragraph three, Clause 4 of this Section, as well as of its termination.

(9) If an undertaking has a decisive influence on the basis of participation in a company and the Enterprise Register has not been notified thereof, the legal relations between the undertaking and the company shall be determined pursuant to the provisions of this Law.

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Section 4. Types of Decisive Influence

(1) A decisive influence may be direct and indirect.

(2) If a dominant undertaking exercises a decisive influence upon a dependent company without the mediation of another dependent company, it has a direct decisive influence upon such company.

(3) If a dominant undertaking exercises a decisive influence upon a dependent company through the decisive influence of another dependent company or such persons as act in their own name but for the benefit of the dominant undertaking or the company dependent upon it, it has an indirect decisive influence upon such company.

Section 5. A Decisive Influence in Case of Mutual Participation

(1) If mutual participation exists between two companies, and only one of them in respect of the other may exercise a decisive influence, the former shall be considered to be a dominant undertaking but the latter, a dependent company.

(2) If mutual participation exists between two companies, and each of them in respect of the other may exercise a decisive influence, both of them shall be considered to be both a dominant undertaking and a dependent company.

Section 6. Obligation of a Shareholder of a Company to Notify

(1) If a shareholder of a company acquires more than 10 per cent of the stock (capital shares) of the company, he or she has the duty to notify the company in writing of the total number of his or her stocks (capital shares) and the voting rights associated with this number within a two-week period from the date of acquiring such stocks (capital shares) as exceed 10 per cent of the stock (capital shares) of the company.

(2) In accordance with Paragraph one of this Section, a shareholder of a company has the duty to notify of any further acquisition of stocks (capital shares) of the company which increase his or her participation in the company above every next five per cent of the stock (capital shares) of the company.

(3) The provisions of Paragraph one of this Section shall accordingly apply to the duty of a shareholder of a company to notify of a decrease in participation whenever it decreases for every next five per cent or becomes less than 10 per cent of the stock (capital shares) of the company.

(4) Stocks (capital shares) which a person holds in his or her name but for the benefit of another person shall be considered to be held by such other person. If such other person is a dominant undertaking, the stocks (capital shares) which are held by a dependent company or which are held by a third party in its name but for the benefit of a company dependent upon such dominant undertaking shall be considered to be held by the dominant undertaking.

(5) A person who holds stocks (shares of capital) in his or her name but for the benefit of another person, shall be obliged to indicate the person for whose benefit the stocks are held or were held in the notices referred to in Paragraphs one, two and three of this Section.

Section 7. Consequences of Failure to Comply with an Obligation to Notify

(1) A shareholder of a company may not exercise rights related to stocks (capital shares) of the acquisition of which he or she has the duty to notify the company in accordance with the provisions of Section 6, Paragraphs one, two and three of this Law until the moment of submission of such notice.

(2) If relevant rights related to stocks (capital shares) have been exercised in contravention of the provisions of Paragraph one of this Section and this has affected the taking of a decision, such decision may be declared void ab initio.

(3) Any shareholder of a company who contests the rights of another shareholder of the company to participate in the taking of a decision has the right to bring an action before a court to declare the decision void not later than within a period of six months from the day when he or she found out or he or she should have found out about the acquisition of such stocks (capital shares) regarding which there is a duty to notify in accordance with the provisions of Section 6, Paragraphs one, two and three of this Law.

(4) Declaring a decision void shall not affect the rights of third parties which have been acquired in good faith.

(5) A company is entitled to request from a shareholder the return of dividends paid to him or her to which the shareholder did not have rights in accordance with the provisions of Paragraph one of this Section.

Section 8. Disclosure of Information concerning Participation

(1) A company has the duty after receipt of the notice referred to in Section 6, Paragraphs one, two and three of this Law to reflect the participation notified and the decisive influence on the basis of participation in an annex to the annual accounts.

(2) If participation in a company exceeds 10, 25, 50, 75 or 90 per cent or, also, decreases under 10, 25, 50, 75 or 90 per cent, within a two-week period after the receipt of a relevant notice, the company shall register such notice with the Enterprise Register.

(3) An annex to the annual accounts and a notice shall include the given name and surname or the name of a relevant stockholder, the number of stocks held by him or her and the number of voting rights related to such.

Chapter II
The Entering into, Amending and Termination of a Group of Companies Contract

Section 9. Report of the Executive Body of a Company

Each executive body of a company involved in entering into a group of companies contract has the duty to submit a detailed report in writing providing a legal and economic explanation of and grounds for the entering into the group of companies contract, individual provisions of a draft of the contract, including the provisions regarding the indemnity referred to in Section 23 of this Law and the type and amount of the indemnity referred to in Section 24, as well as the possible consequences of entering into the group of companies contract.

Section 10. Examination of a Draft of a Group of Companies Contract

(1) Each company involved in entering into a group of companies contract shall appoint a sworn auditor for the examination of a draft of the contract. The companies involved in entering into a group of companies contract may jointly elect a sworn auditor for the examination of a draft of the contract.

(2) Examination by a sworn auditor is not required, if all stocks (capital shares) of a dependent company are held by one dominant undertaking.

(3) After examination, the sworn auditor shall submit a sworn auditor opinion in writing, including in such:

1) whether the indemnity or compensation offered is appropriate (equitable and reasonable);

2) methods which are utilised to determine the amount of indemnity and compensation, as well as the grounds why the utilisation of such methods is appropriate (equitable and reasonable);

3) what the amount of indemnity and compensation would be if other valuation methods were utilised, but, if various methods are utilised, which of these has a decisive role in determining the amount of indemnity and compensation; and

4) special difficulties which have arisen in the valuation of the companies involved in the entering into the group of companies contract.

Section 11. Notice of Intention to Enter into a Group of Companies Contract

(1) The executive body of each company involved in entering into a group of companies contract shall notify all known employees of the relevant company of the intention to enter into the group of companies contract. A notice shall be submitted not later than three months prior to a meeting of shareholders in which it is expected to examine a draft of the group of companies contract and to decide on the entering into the group of companies contract. The notice shall indicate:

1) the parties to the group of companies contract;

2) which of the parties to the group of companies contract will be a dominant undertaking and which - a dependent company;

3) the place and time where and when it will be possible to review the draft of the group of companies contract, annual accounts and reports on the last three accounting years of each party involved in entering into the group of companies contract, as well as the report of the executive body of the company and the opinion of a sworn auditor.

(2) Not later than three months before a meeting of shareholders of a company in which it is expected to examine a draft of a group of companies contract and to take a decision on entering into the group of companies contract, a notice of the executive body of the company of the entering into the group of companies contract shall be submitted for publication in the newspaper Latvijas Vēstnesis [official gazette of the Government of Latvia]. The notice shall include the information referred to in Paragraph one of this Section.

(3) An executive body of a company shall ensure that a draft of a group of companies contract, the annual accounts and a report on the last three accounting years of each company involved in the entering into of the group of companies contract, the report of the executive body of the company and the opinion of a sworn auditor is accessible to shareholders of the company in the time period and place stated in the notice. Pursuant to requests of shareholders of the company, copies of the referred to documents shall be issued to them without delay and free of charge.

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Section 12. Taking a Decision to Enter into a Group of Companies Contract

(1) A decision to enter into a group of companies contract shall be taken by a meeting of shareholders of a company.

(2) The executive body of a company has the duty, pursuant to the request of a shareholder of the company, to provide to a meeting of shareholders of the company information concerning the economic position of the dominant undertaking.

(3) The taking of a decision to enter into a group of companies contract shall require a majority vote by shareholders of at least three quarters of the equity capital represented at a meeting of shareholders. The articles of association may specify a larger majority of votes by which a decision on entering into a group of companies contract is to be taken. The provisions of law and of the articles of association regulating amendments to the articles of association of the company shall not apply to such decision.

(4) If a dominant undertaking is a company, a group of companies contract shall be in effect if, also, a meeting of shareholders of such company votes for it. In such case the provisions of Paragraph three of this Section shall apply accordingly.

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Section 13. Registration of a Group of Companies Contract with the Enterprise Register and Its Coming into Effect

(1) Within a two-week period from the date of entering into a group of companies contract the executive body of the company shall register such contract with the Enterprise Register.

(2) An application for the registration of a group of companies contract shall indicate:

1) the date of entering into the group of companies contract;

2) the type of the group of companies contract; and

3) the name of the dominant undertaking and the dependent company.

(3) The application shall have appended:

1) the group of companies contract or its notarised duplicate (copy); and

2) the minutes of the meeting of shareholders of the dependent company and the minutes of the meeting of shareholders of the dominant undertaking (if it is a company), or notarised copies of such minutes.

(4) A group of companies contract shall come into effect at the moment when it is registered with the Enterprise Register. A transfer of profit contract may be applied to the transfer of the profit of the previous accounting year, but, only if the group of companies contract is registered with the Enterprise Register not later than in the first half of the accounting year of the dominant undertaking.

(5) Not later than within a one-week period after registration, the Enterprise Register shall submit a notice of the entering into a group of companies contract to the newspaper Latvijas Vēstnesis for publication. The notice shall indicate the date of registration of the group of companies contract and the information mentioned in Paragraph two of this Section.

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Section 14. Amendments to a Group of Companies Contract

(1) A group of companies contract may only be amended with the consent of a meeting of shareholders of a dependent company. The provisions of Sections 9-13 of this Law shall apply to amendments to the group of companies contract accordingly.

(2) In order that a decision of a meeting of shareholders of a company on amendments to such provisions of a group of companies contract that provide for the indemnity or compensation to minority shareholders, comes into effect, a special decision of minority shareholders is required.

(3) The taking of a decision of minority shareholders on the consent to amendments to the provisions of the group of companies contract referred to in Paragraph two of this Section shall require a majority vote by minority shareholders of at least three quarters of the equity capital represented by the minority shareholders. Each minority shareholder has the right to receive information which substantiates the necessity of such amendments.

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Section 15. Revocation of a Contract

(1) A group of companies contract may be revoked only at the end of an accounting year or of the accounting period specified by the group of companies contract. A contract revoked retroactively shall be void. A contract of revocation shall be entered into in writing.

(2) A group of companies contract which provides for indemnity or compensation to minority shareholders may be revoked if minority shareholders agree to it with a special decision. In such case the provisions of Section 14, Paragraph three of this Law shall apply accordingly.

Section 16. Notice of Termination of a Group of Companies Contract

(1) If a group of companies contract is entered into for an indefinite time, any contracting party may terminate such contract by providing the other contracting party a notice of termination not later than three months in advance. A group of companies contract may also specify a longer time period for the giving of a notice of termination.

(2) A dependent company in accordance with the provisions of Paragraph one of this Section may only terminate a group of companies contract which provides for indemnity or compensation to minority shareholders, if the minority shareholders consent thereto by taking a special decision. In such case the provisions of Section 14, Paragraph three of this Law shall apply accordingly.

(3) Any contracting party may at any time terminate a group of companies contract, without observing the time period for notice of termination, if there is good cause for it.

(4) Notice of termination of a group of companies contract shall be expressed in writing.

Section 17. Registration of Termination of a Group of Companies Contract with the Enterprise Register

(1) The executive body of a dependent company has the duty to apply for the registration of termination of a group of companies contract with the Enterprise Register, indicating the grounds for and the date of termination. The application shall be accompanied by the relevant documents or their notarised duplicates (copies).

(2) Not later than within a one-week period after registration, the Enterprise Register shall submit a notice of the termination of a group of companies contract to the newspaper Latvijas Vēstnesis for publication. The notice shall indicate the date of registration of the termination of the group of companies contract, the information referred to in Paragraph one of this Section, as well as indicate the time period for the submission of applications by creditors in accordance with Section 21, Paragraph one of this Law.

Section 18. Prohibition of Giving Instructions

A dominant undertaking, on the basis of a group of companies contract, may not give instructions to a dependent company to amend, keep in effect or terminate a group of companies contract.

Chapter III
Protection of Interests of a Dependent Company, Creditors and Minority Shareholders

Section 19. Maximum Amount of Profit to be Transferred by a Dependent Company

On the basis of an agreement on the transfer of profit contract and irrespective of the amount determined by such contract to be transferred, a dependent company may transfer to a dominant undertaking as its profit only such amount which is not more than the profit of the accounting year prior to the transfer of the profit, moreover, the profit of the accounting year referred to shall be decreased by:

1) the amount of losses of the previous accounting year if the dominant undertaking has not compensated such losses; and

2) the amount which in accordance with law, the articles of association or the group of companies contract is to be included in the mandatory profit deductions (reserves) for the dependent company of the respective accounting year.

Section 20. Assuming Losses for an Accounting Year

(1) During the term of a group of companies contract a dominant undertaking has the duty to compensate the losses of an accounting year of a dependent company, insofar as such are not compensated by such payments of the dominant undertaking into the profit deductions (reserves) of the dependent company which have been made during the term of the group of companies contract.

(2) A dependent company may waive the claim referred to in Paragraph one of this Section or offer such for set-off only upon the expiry of a time period of three years from the date of publication of a notice of the termination of a group of companies contract in the newspaper Latvijas Vēstnesis. This limitation on the time period shall not apply if the dominant undertaking is insolvent and concludes a settlement with its creditors in order to prevent the possible insolvency proceedings.

(3) Waiver of a claim or a settlement shall only be in effect if minority shareholders agree to it by taking a special decision, and the minority of such shareholders whose stocks (capital shares) reach 10 per cent of the equity capital represented in the taking of such decision does not oppose it.

Section 21. Protection of Creditors

(1) Upon the termination of a group of companies contract, a dominant undertaking has the duty to give collateral to those creditors of a dependent company whose claims have arisen prior to the publication of a notice of the registration with the Enterprise Register of the termination of the group of companies contract in the newspaper Latvijas Vēstnesis, if the creditors within a six-month period after publication of such notice submit an application for collateral to the dominant undertaking.

(2) Secured creditors may not request the collateral referred to in Paragraph one of this Section in the amount of the claim secured.

(3) In place of giving collateral, a dominant undertaking may enter into a guarantee agreement with a creditor of a dependent company.

Section 22. Minority Shareholders of a Company

(1) Shareholders of a dependent company shall be regarded as minority shareholders of a company, except:

1) the other party to a group of companies contract;

2) a dominant undertaking of the other party to a group of companies contract;

3) a shareholder who is associated with the other party to a group of companies contract, on the basis of the contract entered into on a reciprocal basis; and

4) a shareholder whose stocks (capital shares) are held by the other party to a group of companies contract.

(2) The status of a minority shareholder shall not depend on the time of the acquisition of stocks (capital shares) of a dependent company.

(3) In case of doubt, a shareholder of a dependent company shall be regarded as a minority shareholder.

Section 23. Indemnity to Minority Shareholders

(1) A transfer of profit contract shall provide for appropriate indemnity to minority shareholders in the form of an annual payment proportionate to their stocks (capital shares) in the equity capital (a payment of indemnity) and determine the minimum amount of such payment. The management and transfer of profit contract, if a dependent company has not undertaken to transfer all of its profit, shall provide for a definite share of the annual profit in the amount of an indemnity payment as an appropriate indemnity to minority shareholders.

(2) A group of companies contract may not provide for an appropriate indemnity to minority shareholders only if at the moment when a decision is taken to enter into the group of companies contract there are no minority shareholders in a dependent company.

(3) At least such an annual payment of an amount as, in conformity with the profit obtained by a dependent company until the entering into a group of companies contract and the further profit prospects of the dependent company, may be paid as a share of the average profit for individual stocks (capital shares) as if the group of companies contract were not entered into shall be determined as an indemnity payment.

(4) If a dominant undertaking is a company which is not a dependent company of another dominant undertaking, it may offer as an indemnity payment to minority shareholders the payment of such amount which, on the basis of an appropriate recalculation, is due as a share of the profit for stocks (capital shares) of the dominant undertaking. The appropriateness of the recalculation shall be determined in such proportion according to which, in case of the merger of such companies, the stocks (capital shares) would be granted for the stocks (capital shares) of the other company.

(5) In determining profit in the cases referred to in Paragraphs three and four of this Section, profit deductions (reserves) the formation of which is not provided for by law shall be considered, insofar as this complies with reasonable commercial activity practices.

(6) Both parties to a group of companies contract shall be solidarily liable for payment of the indemnity. A claim of a minority shareholder for payment of indemnity is subject to a limitation period of three years from the date when the indemnity was to have been paid.

(7) A group of companies contract which in contravention of the provisions of Paragraph one of this Section does not provide for indemnity to minority shareholders at all shall be void. If indemnity provided for by a group of companies contract is not appropriate, its amount, on the basis of a relevant claim, shall be determined by a court.

(8) Each minority shareholder of a dependent company may bring an action for the determination of appropriate indemnity within a three-month period from the day of publication of a notice of the registration of entering into or amendments to a group of companies contract in the newspaper Latvijas Vēstnesis.

(9) In determining the amount of indemnity, a court may determine that an expert-examination and expenses relating to such shall be covered by a dependent company. A court adjudication by which the amount of indemnity has been determined shall be submitted to the Enterprise Register by the executive body of the dependent company.

(10) A dominant undertaking, within a two-month period after coming into effect of a court adjudication by which a greater amount of indemnity has been determined, has the right to terminate a group of companies contract, without observing the time period for a notice of termination.

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Section 24. Compensation to Minority Shareholders

(1) Irrespective of the obligation to pay indemnity in accordance with the provisions of Section 23 of this Law, a group of companies contract shall provide for the obligation of the other party to the group of companies contract to, pursuant to the request of a minority shareholder, acquire his or her stocks (capital shares) for an appropriate compensation determined by the contract.

(2) Compensation provided for by a group of companies contract may be in the form of:

1) the exchange of own stocks (capital shares) of the other party to the group of companies contract, if such other party is a company, which is not dependent upon another undertaking;

2) the exchange of stocks (capital shares) of a dominant undertaking of the other party to the group of companies contract or compensation in money, if the other party to the group of companies contract is a dependent company and its dominant undertaking is also a company; or

3) compensation in money in all other cases.

(3) In cases when compensation takes the form of the exchange of stocks (capital shares) of another company, it shall be considered to be appropriate, if the stocks (capital shares) are exchanged in such proportion according to which, in case of a merger of such companies, the stocks (capital shares) of the dependent company would be exchanged for stocks (capital shares) of another company, moreover, the difference shall be indemnified by additional payments in money.

(4) In respect of appropriate compensation in money, only the property situation and income level of a dependent company at the time when a decision on entering into a group of companies contract is taken shall be considered. Both parties to the group of companies contract shall be solidarily liable for the payment of compensation.

(5) An obligation to acquire stocks (capital shares) may be restricted by a term. The term shall expire not earlier than within a three-month period from the day of publication of a notice of registration with the Enterprise Register of the entering into a group of companies contract. If an amount of compensation is determined by a court, the term referred to shall expire not earlier than within a three-month period from the date of coming into effect of a court adjudication regarding the last application examined.

(6) A minority shareholder, who has not exercised the right to compensation in accordance with the provisions of Paragraph five of this Section within a specified period, has the right to receive indemnity.

(7) If the compensation to minority shareholders has not been provided for by a group of companies contract at all or the compensation provided by a group of companies contract does not comply with the provisions of Paragraphs one, two, three and four of this Section, its amount, on the basis of a relevant claim, shall be determined by a court. In the cases set out in Paragraph two, Clause 2 of this Section, the court shall determine:

1) the proportion according to which the stocks (capital shares) are to be exchanged if the exchange of stocks (capital shares) of a dominant undertaking of the other contracting party is provided for by the group of companies contract; and

2) the compensation in money if the exchange of stocks (capital shares) of a dominant undertaking of the other contracting party is not provided for by the group of companies contract.

(8) The provisions of Section 23, Paragraphs eight, nine and ten of this Law shall apply to the determination of the amount of compensation and a notice of termination of a group of companies contract pursuant to an adjudication by a court.

Section 25. Future Protection of Minority Shareholders

If at the moment of taking a decision on entering into a group of companies contract there is no minority shareholder in a dependent company, the group of companies contract shall terminate not later than at the end of such accounting year during which participation in the dependent company is acquired by a minority shareholder if the parties to the contract do not agree on the making of relevant amendments to the group of companies contract.

Chapter IV
Management and Liability, if an Management Contract or an Management and Transfer of Profit Contract has been Entered into

Section 26. Management Powers

(1) If a management contract or a management and transfer of profit contract has been entered into, a dominant undertaking has the right to give instructions to the executive body of a dependent company with respect to the management of the company. If it is not otherwise provided for by the management contract or the management and transfer of profit contract, the dominant undertaking may give instructions resulting in losses for the dependent company, to the extent such instructions are in the interests of the dominant undertaking or in the interests of other undertakings which are merged with the dominant undertaking and the dependent company in a group of companies.

(2) The executive body of a dependent company has the duty to comply with instructions of a dominant undertaking. The executive body of the dependent company is not entitled to refuse to comply with such instructions even if it considers that the instructions are not in the interests of the dominant undertaking or in the interests of such other undertakings which are merged with the dominant undertaking and the dependent company in a group of companies, except in cases when compliance with the instructions are manifestly not in such interests.

(3) If the executive body of a dependent company is given instructions to conclude a transaction the conclusion of which requires the consent of the supervisory body of the dependent company and such consent is not given within the relevant time period, the executive body of the dependent company has the duty to notify the dominant undertaking thereof. If the dominant undertaking repeatedly gives such instructions, the consent of the supervisory body of the dependent company is no longer required.

Section 27. Liability of Lawful Representatives of a Dominant Undertaking

(1) If a management contract or a management and transfer of profit contract has been entered into, the lawful representatives of a dominant undertaking have a duty to act with the care of an honest and conscientious manager with respect to a dependent company, when giving instructions to its executive body. The lawful representatives of the dominant undertaking may not give such instructions the compliance with which may cause insolvency, suspension of operations by administrative procedures or liquidation by court process of the dependent company.

(2) If the lawful representatives of a dominant undertaking violate the duty set out in Paragraph one of this Section, they as joint debtors have the duty to compensate the losses incurred by a dependent company. If a dispute arises with respect to whether the instructions have been given with the care of an honest and conscientious manager, the burden of proof shall lie with members of the executive body of the dominant undertaking.

(3) A dependent company may waive the claim referred to in Paragraph one of this Section or offer such for set off only upon the expiry of a three-year period from the moment when the claim arose. Such limitation on the time period shall not apply if the dominant undertaking is insolvent and enters into a settlement with its creditors to prevent possible insolvency proceedings.

(4) Waiver of a claim or a settlement of it shall be valid only if minority shareholders agree to it by taking a special decision and the minority of the shareholders whose stocks (capital shares) reach 10 per cent of the equity capital represented in the taking of such decision does not oppose it.

(5) An action for compensation of losses in one's own name but for the benefit of a dependent company may also be brought by each of its shareholders. An action for compensation of losses may be brought by a creditor of a dependent company, insofar as the creditor may not achieve satisfaction of his or her claim from the dependent company. Waiver of a claim by a dependent company or a settlement of it shall not affect the right of the creditor to claim compensation for losses.

(6) If a dependent company has been declared insolvent, during the insolvency procedures the right to bring an action referred to in Paragraph five of this Section of a shareholder of a dependent company and a creditor may be exercised by an administrator.

(7) The claims mentioned in this Section are subject to a limitation period of five years.

Section 28. Liability of Members of an Executive Body and a Supervisory Body of a Dependent Company

(1) Members of an executive body and a supervisory body of a dependent company, if they have acted in violation of their duties, shall be held liable as joint debtors together with the persons who in accordance with Section 27 of this Law have the obligation to compensate losses. If a dispute arises with respect to whether the instructions have been given with the care of an honest and conscientious manager, the burden of proof shall lie with members of the executive body and supervisory body of the dependent company.

(2) The duty to compensate losses mentioned in Paragraph one of this Section is not excluded by the fact that the supervisory body of the dependent company has agreed to the activities of members of the executive body.

(3) Members of an executive body and a supervisory body of a dependent company do not have the duty to compensate losses if the activity resulting in the losses is based on an instruction which was to be complied with in accordance with the provisions of Section 26, Paragraph two of this Law.

(4) The provisions of Section 27, Paragraphs three, four, five, six and seven of this Law shall apply to a claim for compensation of losses.

Chapter V
Liability, if a Group of Companies Contract has not been Entered into

Section 29. Limits to Exercising of a Decisive Influence

(1) If a management contract has not been entered into, a dominant undertaking may not use its influence in order to induce a dependent company to conclude a transaction disadvantageous to it or carry out another measure disadvantageous to it unless compensation for losses incurred as a result of such transaction or measure is made.

(2) If during an accounting year the compensation for losses mentioned in Paragraph one of this Section is not in fact made, a dominant undertaking shall, until the end of the accounting year in which such losses have been incurred, inform in writing a dependent company when and in what way the losses are to be compensated, granting relevant rights to claim on the dependent company.

Section 30. Report on Dependency

(1) If a group of companies contract has not been entered into, the executive body of a dependent company shall prepare a report on dependency for each accounting year. The report on dependency shall be prepared and approved together with the annual accounts of the dependent company.

(2) A report on dependency shall present an overview of the relations of a dependent company with a dominant undertaking.

(3) A report on dependency shall indicate:

1) the transactions concluded by the dependent company during the accounting year with the dominant undertaking or with another undertaking that is merged with the dominant undertaking in a group of companies, as well as the transactions concluded by the dependent company in the interests of such undertakings or as a result of an inducement, indicating in particular the transactions which are completely or partially disadvantageous to the dependent company or which involve a special risk for the dependent company or, also, which differ substantially from the commercial activities normally carried out;

2) other company measures carried out by the dependent company during the accounting year or from which it has refrained in the interests of the dominant undertaking or of another undertaking merged with the dominant undertaking in a group of companies or as a result of an inducement, indicating in particular the measures which are completely or partially disadvantageous to the dependent company or which involve a special risk for the dependent company or, also, which differ substantially from the entrepreneurial activities normally carried out;

3) the performance and reciprocal performance of the transactions mentioned in Paragraph one;

4) the grounds for the measures mentioned in Paragraph two, as well as the benefit gained and losses caused as a result of such measures;

5) the measures carried out during the accounting year in order to actually compensate losses caused to the dependent company; and

6) the amount of losses caused during the accounting year to the dependent company and the right granted to it to claim compensation for such losses, to the extent the compensation for such losses has not in fact been made during the accounting year.

(4) In the conclusion of the report on dependency, the executive body of a dependent company shall include a notice of whether the company according to the circumstances that were known to the executive body at the moment of the conclusion of a transaction or carrying out of other measures or at the moment when it refrained from the carrying out of such, has received a relevant reciprocal performance for each transaction and whether losses have not been caused to the company in connection with carrying out of other measures or refraining from such.

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Section 31. Examination of a Report on Dependency

(1) A report on dependency concurrently with the annual accounts and report of a dependent company is subject to mandatory examination by an auditor.

(2) The auditor shall examine whether:

1) the actual information contained by the report on dependency is true;

2) the performance value of transactions conducted by the dependent company, which are mentioned in the report on dependency, has not been disproportionately high, and, if such performance value has been disproportionately high, whether the compensation for losses caused to the dependent company as a result of such has been made; and

3) any circumstances exist due to which the measures mentioned in the report on dependency should be evaluated differently than has been done by the executive body of the dependent company.

(3) The provisions of the Law On Annual Accounts of Undertakings shall apply to the examination of a report on dependency accordingly. The rights provided by law with respect to an auditor shall also apply to a dominant undertaking and other undertakings merged with the dominant undertaking in a group of companies.

(4) In conformity with the results of examination, an auditor shall prepare an opinion in writing with respect to the issues referred to in Paragraph two of this Section. If an auditor, in examining the annual accounts, report and the report on dependency, determines that the report on dependency is incomplete, he or she has the duty to particularly indicate such in the opinion. The auditor shall sign the opinion and submit it to the executive body of the relevant dependent company.

(5) The executive authority of a dependent company shall submit the report on dependency and the opinion of an auditor together with the annual accounts, report and a proposal for distribution of profit to the supervisory body of the dependent company. Each member of the supervisory body has the right to inspect the report on dependency and the opinion of the auditor.

(6) A supervisory body of a dependent company shall submit a report to a meeting of shareholders expressing its view of the opinion of an auditor. In the conclusion of the report submitted to the meeting of shareholders, the supervisory body of the dependent company shall include a notice of whether objections should be raised against a notice of the executive body of the dependent company included in the report on dependency.

(7) Pursuant to the request of a supervisory body of a dependent company, an auditor has the duty to take part in the discussion of a report on dependency at a meeting of the supervisory body.

(8) The executive body of a dependent company shall submit to the Enterprise Register a report on dependency examined and approved and an opinion of an auditor together with the annual accounts and report.

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Section 32. Special Examination

(1) On the basis of a request of a shareholder of a dependent company or of such creditor who cannot achieve satisfaction of his or her claim from a dependent company, the Enterprise Register shall appoint a sworn auditor in order to examine the relations of the dependent company with a dominant undertaking, if:

1) the auditor has indicated in his or her opinion that the report on dependency is incomplete;

2) the supervisory body of the dependent company has announced that objections should be raised against a notice of the executive body of the dependent company included in the conclusion of the report on dependency; or

3) the executive body of the dependent company itself has announced that, as a result of certain transactions or measures, losses have been incurred by the dependent company which have not been compensated.

(2) The sworn auditor shall examine whether:

1) losses by the dependent company have been incurred as a result of the transactions or measures referred to in Section 30, Paragraph three, Clauses 1 and 2 of this Law;

2) the transactions and measures referred to have been carried out in the interests of the dominant undertaking or of another undertaking merged with the dominant undertaking in a group of companies or as a result of an inducement; and

3) the losses caused to the dependent company as a result of the transactions or measures referred to have actually been compensated.

(3) In examining the relations of a dependent company with a dominant company, the provisions of Section 31, Paragraph three of this Law shall be applied accordingly.

(4) A sworn auditor shall prepare an opinion of the results of an examination in writing, sign and submit it to the executive body of the dependent company. The executive body of the company, within a one-month period from the day of receipt of the opinion of the sworn auditor, shall submit its summary to the newspaper Latvijas Vēstnesis for publication.

(5) Expenditures relating to the carrying out of a special examination shall be covered by the dependent company.

(6) If a transfer of profit contract or a management and transfer of profit contract have been entered into between a dependent company and a dominant undertaking, the special examination provided for by this Section shall not be carried out.

Section 33. Liability of a Dominant Undertaking and its Lawful Representative, if a Group of Companies Contract has not been Entered into

(1) If a dominant undertaking induces a dependent company with which a management contract has not been entered into to conclude a transaction disadvantageous to it or to carry out another measure disadvantageous to it and by the end of the accounting year does not in fact compensate the losses caused as a result of such transaction or measure or, also, does not grant the relevant right to claim compensation for such losses, the dominant undertaking has the duty to compensate the losses incurred by the dependent company as a result of such action. The dominant undertaking has the obligation to compensate those losses, which they have suffered, incurred by shareholders of the dependent company as a result of such action, irrespective of the losses incurred by them as a result of the losses caused to the dependent company.

(2) A dominant undertaking does not have the obligation to compensate the losses referred to in Paragraph one of this Section if it proves that an honest and conscientious manager of an independent undertaking would have also concluded the transaction referred to in Paragraph one of this Section or carried out the measure referred to in Paragraph one of this Section.

(3) Lawful representatives of a dominant undertaking, who have induced a dependent company to conclude a transaction disadvantageous to it or carry out another measure disadvantageous to it together with the dominant undertaking, shall be liable as joint debtors.

(4) The provisions of Section 27, Paragraphs three, four, five, six and seven of this Law shall apply to a claim for compensation of losses accordingly.

Section 34. Liability of an Executive Body of a Dependent Company and Members of an Administrative Body if a Group of Companies Contract has not been Entered into

(1) Members of an executive body of a dependent company, together with the persons who in accordance with Section 33 of this Law are obliged to compensate losses, shall be liable as joint debtors if they, violating their duty, have not included a disadvantageous transaction or a disadvantageous measure in a report on dependency or have not included that losses have been caused to the dependent company as a result of such transaction or measures and that compensation for such has not in fact been made. If a dispute arises with respect to whether they have acted with the care of an honest and conscientious manager, the burden of proof shall lie with members of the executive body of the dependent company.

(2) Members of a supervisory body of a dependent company, together with the persons who in accordance with Section 33 of this Law are obliged to compensate losses, shall be liable as joint debtors if they have not met their obligation to report to a meeting of shareholders with respect to a disadvantageous transaction or a disadvantageous measure. In such case the second sentence of Paragraph one of this Section shall apply accordingly.

(3) The provisions of Section 27, Paragraphs three, four, five, six and seven of this Law shall apply to a claim for compensation of losses accordingly.

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Chapter VI
Take-over of Companies

Section 35. Take-over

(1) A meeting of shareholders of a company may take a decision regarding the take-over of the company by another company (principal company) if the company to become the principal company has acquired all the stocks (capital shares) of the company to be taken-over. The provisions of law and the articles of association regulating amendments to the articles of association of a company shall not apply to such decision.

(2) A decision of a company to be taken over concerning the take-over shall come into effect only if a meeting of shareholders of the company to become the principal company agrees to it. The taking of a decision concerning consent to a take-over shall require a majority vote by shareholders of at least three quarters of the equity capital of the company to become the principal company represented at a meeting of shareholders. The articles of association may specify a larger majority of votes for the taking of such decision. The provisions of law and the articles of association regulating amendments to the articles of association of the company shall not apply to such decision.

(3) After notice has been given of the convening of a meeting of shareholders of the company to become the principal company, which will take a decision on consent to the take-over, the executive body of the company to become the principal company shall ensure that a draft of the decision concerning the take-over, the annual accounts of and the reports on the last three accounting years of both companies, as well as a report on the take-over be accessible to shareholders of the company at a time and place indicated in the notice. Pursuant to the stockholder requests, duplicates (copies) of the documents referred to shall be issued to them without delay and free of charge.

(4) Pursuant to the request of a shareholder of a company, the executive body of the company to become the principal company has the duty to provide to a meeting of shareholders information concerning the economic position of the company to be taken over.

(5) The executive body of a company to be taken over shall apply for the registration of the take-over and of the firm name of the principal company to the Enterprise Register within a two-week period from the date of receipt of a decision concerning take-over. An application shall be accompanied by the minutes of meetings of shareholders of both companies or their copies certified by a notary.

(6) A company shall be regarded as taken over by the principal company from the date of registration of its take-over with the Enterprise Register.

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Section 36. Take-over on the Basis of a Decision of the Majority of Shareholders of a Company

(1) A meeting of shareholders of a company may take a decision for the company to be taken over by another company (principal company) also if the company to become the principal company has acquired 90 or more per cent of the stocks (capital shares) of the company to be taken over. The stocks (capital shares) that have been acquired by the company to be taken over itself, as well as the stocks (capital shares) that are held by another person for the benefit of the company to be taken over shall be deducted from the total number of stocks (capital shares) of the company to be taken over. The provisions of law and the articles of association regulating amendments to the articles of association of the company shall not apply to such decision.

(2) The provisions of Section 35, Paragraphs two, three, four, five and six of this Law, as well as Paragraphs three, four and five of this Section shall apply to take-over.

(3) The agenda of the meeting of shareholders of a company to be taken over shall include the following information concerning the company to become the principal company:

1) the firm name and the legal address;

2) the notice by which such company offers its stocks (capital shares) to the excluded shareholders as compensation for their stocks (capital shares), but in the case referred to in the third sentence of Section 38, Paragraph one of this Law, also, compensation in money. This notice shall also be included in the agenda of the meeting of shareholders of the company to become the principal company.

(4) Take-over is subject to a mandatory examination by a sworn auditor. A sworn auditor shall be appointed by the executive body of the company to become the principal company. The provisions of Section 10, Paragraph three of this Law shall apply accordingly to the opinion of the sworn auditor.

(5) After notice has been provided of the convening of a meeting of shareholders which will take a decision concerning consent to take-over an executive body of the company to become the principal company shall ensure that the documents referred to in Section 35, Paragraph three of this Law and the sworn auditor opinion referred to in Paragraph four of this Section be accessible to stockholders of the company to become the principal company, as well as to the company to be taken over at a time and place indicated in the notice. A notice of take-over shall provide a legal and economic explanation of and grounds for the type and amount of compensation provided for in Section 38 of this Law.

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Section 37. Consequences of Take-over

As soon as take-over has been registered with the Enterprise Register, all stocks (capital shares) of a company to be taken over that are not owned by the principal company shall devolve to the principal company. If the stocks (capital shares) referred to have been issued as registered or bearer securities on paper (securities printed on paper), such stocks (capital shares) only give the right to compensation until their submission to the principal company.

Section 38. Compensation to Excluded Shareholders of a Company

(1) An excluded shareholder of a company is a former shareholder of the company whose stocks (capital shares) have devolved to a principal company.

(2) An excluded shareholder of a taken over company is entitled to receive appropriate compensation which consists in the exchange of own stocks (capital shares) of the principal company. If the principal company is a dependent company, the stocks (capital shares) of the principal company shall be exchanged or appropriate compensation in money paid at the option of the excluded shareholders of the company.

(3) If compensation consists in the exchange of stocks (capital shares) of the principal company, the compensation shall be considered to be appropriate if the stocks (capital shares) are exchanged in such proportion according to which, in case of a merger of such companies, the stocks (capital shares) of the principal company would be allocated for the stocks (capital shares) of the taken over company, moreover, the difference shall be indemnified by an additional payment in money.

(4) In respect of appropriate compensation in money, only the property situation and income level of a taken over company at the time when a decision regarding the take-over of the company was taken shall be taken into account. The principal company and the taken over company shall be solidarily liable for the payment of compensation in money.

(5) If compensation offered to excluded shareholders of a company is not appropriate or has been offered improperly, the amount of compensation, on the basis of a relevant action, shall be determined by a court.

(6) Each excluded shareholder of a company may bring an action for the determination of the amount of compensation within a three-month period from the day of publication of the notice of the registration of take-over in the Enterprise Register in the newspaper Latvijas Vēstnesis.

Section 39. Protection of Creditors

(1) A principal company has the duty to give collateral to those creditors of a taken over company whose claims have arisen before publication of the notice of the registration of take-over with the Enterprise Register in the newspaper Latvijas Vēstnesis and who may not achieve satisfaction of their claims from the taken over company if the creditors within a six-month period after publication of such notice submit an application for collateral to the principal company. The notice of take-over shall include an indication of the right of creditors to submit such application.

(2) Secured creditors may not request the collateral referred to in Paragraph one of this Section in the amount of the claim secured.

(3) In place of giving collateral, a principal company may enter into a guarantee agreement with a creditor of a dependent company.

Section 40. Liability of a Principal Company

(1) After take-over, a principal company with respect to creditors of a taken over company shall be liable as a joint debtor for the liabilities of the taken over company which have arisen before the take-over. Similarly, the principal company shall be liable for such liabilities of the taken over company which have arisen after take-over. An agreement contrary to these provisions shall be void.

(2) If an action has been brought against a principal company regarding the liabilities of a taken-over company, the principal company has the right to raise objections not related to its person only to the extent such could be raised by the taken over company.

(3) A principal company may refuse to satisfy a creditor as long as

1) the taken over company has the right to contest a transaction which forms the basis of the obligations of the taken over company; or

2) the creditor may satisfy his or her claim by off-setting in respect of a claim of the taken over company.

(4) On the basis of a court adjudication that has come into legal effect in a matter in which the defendant is a taken over company, execution may not levied against the property of the principal company.

Section 41. Administrative Powers of a Principal Company and Liability of Members of the Executive Body

(1) A principal company is entitled to give instructions to the executive body of a taken over company with respect to the administration of the taken over company. In such case the provisions of Section 26, Paragraph two, the first sentence and Paragraph three, as well as of Sections 27 and 28 of this Law shall apply accordingly.

(2) The provisions of Sections 29-34 of this Law shall not apply to the administrative powers of a principal company and the liability of members of the executive body.

Section 42. Transfer of Profit and Taking Over of Losses

(1) The provisions of Sections 9-15 and 17-21 of this Law shall not apply to a transfer of profit contract between a principal company and a taken over company. Such contract must be in writing. Only such amount that is not more than the profit of the accounting year of the taken over company prior to its transfer may be transferred as profit of the taken over company. The contract shall terminate not earlier than at the end of such accounting year when the take-over terminates.

(2) A principal company has the duty to compensate the losses of the accounting year of a taken over company that have been otherwise caused insofar as the extent of such exceeds the capital reserves and profit deductions (reserves) of the taken over company.

Section 43. Rights of Shareholders of a Principal Company to Receive Information

Each shareholder of a principal company is entitled to receive information concerning the economic position of a taken over company in the same amount as concerning the economic position of the principal company.

Section 44. Termination of Take-over

(1) A take-over shall be terminated:

1) by a decision of a meeting of shareholders of the taken over company;

2) if all the stocks (capital shares) of the taken over company are no longer owned by the principal company; or

3) upon the termination of the principal company (in the case of liquidation of the principal company).

(2) If all the stocks (capital shares) of a taken over company are no longer owned by a principal company, it has the duty to notify in writing the taken over company of such circumstances.

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Section 45. Registration of Termination of Take-over with the Enterprise Register

(1) The executive body of a former taken over company has the duty to without delay apply for the registration of termination of the take-over with the Enterprise Register, indicating the grounds for and the date of termination. The application shall be accompanied by the relevant documents or their notarised duplicates (copies).

(2) Not later than within a one-week period after registration, the Enterprise Register shall submit a notice of the termination of the take-over to the newspaper Latvijas Vēstnesis for publication. The notice shall include the date of registration of the termination of the take-over and the information mentioned in Paragraph one of this Section.

Section 46. Limitation Period

(1) Claims arising from liabilities of a former taken over company against the former principal company are subject to a limitation period of five years after the termination of the take-over, unless a shorter limitation period has been determined for the claim against the former taken over company.

(2) The limitation period shall begin to run on the day of publication of a notice of the termination of the take-over in the newspaper Latvijas Vēstnesis. If the term for performing the obligations of a former dependent company or a condition comes into effect after publication of a notice of termination of the take-over, the limitation period shall begin to run on the day when the term for meeting the liability or the condition comes into effect.

Chapter VII
Special Protection of Minority Shareholders

Section 47. Request for Redemption of Stocks (Capital Shares)

If an undertaking has directly or indirectly acquired 90 per cent or more of the stocks (capital shares) of another company, each minority shareholder of a dependent company may request that the stocks (capital shares) owned by him or her be redeemed by the dominant undertaking. The shareholder of the dependent company shall submit such request to the dependent company, which shall forward it to the dominant undertaking.

Section 48. Entering into a Stock (Capital Share) Purchase Contract

(1) A dominant undertaking not later than within a one-month period from the day of receipt of the request referred to in Section 47 of this Law has the duty to make a proposal to the minority shareholders to enter into a stock (capital share) purchase contract.

(2) A dominant undertaking shall notify the minority shareholders, whether at all and with what provisions the dominant undertaking within a one-year period prior to the forwarding of a proposal to the minority shareholders has redeemed stocks (capital shares) from other minority shareholders in accordance with the provisions of this Chapter.

(3) If a minority shareholder rejects the proposal of a dominant undertaking, then the price at which stocks (capital shares) are to be redeemed, on the basis of a relevant action by the minority shareholder, shall be determined by a court. The minority shareholder is entitled to bring an action in a court for determination of the price of the stocks (capital shares) to be redeemed within a one-month period from the day of receipt of the proposal from the dominant undertaking.

Transitional Provisions

1. A shareholder who has acquired a decisive influence over a company on the basis of participation up to the coming into force of this Law shall comply with the duties regarding providing notice referred to in Section 3, Paragraphs seven and eight of this Law before the next meeting of shareholders of a dependent company, however, not later than by the beginning of the next accounting year after the coming into force of this Law.

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2. The report on dependency provided for in Section 20 of this Law shall be prepared for the first full accounting year after the coming into force of this Law.

The Saeima adopted this Law on 23 March 2000.

President V.Vīķe-Freiberga

Riga, 13 April 2000

 

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¹ The Parliament of the Republic of Latvia

Translation © 2014 Valsts valodas centrs (State Language Centre)