Law on Bank Takeover

(1) Purpose of the Law is preservation of stability of the banking system of the Republic of Latvia and provision of smooth operation of payment systems in interests of the public.

(2) Provisions of the Credit Institution Law, the Financial Instrument Market Law, the Commercial Law, the Deposit Guarantee Law, the Commercial Pledge Law and the Law „On State and Municipality Capital Shares and Capital Companies” are applicable to the bank takeover as far as this Law does not provide otherwise.

(1) Provisions of this Law are attributable to banks registered in the Republic of Latvia and their branches in the Republic of Latvia, other Member States of the European Union, or abroad, which have received licence for activities of a credit institution.

(2) Provisions of this Law are not attributable to Latvian branches of banks registered in the Member States of the European Union or abroad.

(3) Provisions of this Law are not attributable to banks which are declared to be liquidated or insolvent until adoption of the decision mentioned in Section 6 of this Law, or regarding which the Financial and Capital Market Commission has submitted an application to the court for insolvency or liquidation.

(1) Bank takeover is permissible in exceptional cases, when the stability of the banking system of the Republic of Latvia and the smooth operation of payment systems is seriously threatened or could be threatened if the bank takeover would not take place and the bank therefore is not or would not be able to observe the requirements regulating banking activities determined by the law.

(2) Bank takeover is permissible on the basis of an agreement (voluntary takeover of bank) or against a fair compensation on the basis of a special law (compulsory takeover of bank).

(1) Bank takeover takes place by alienating shares issued by the bank, bank’s assets, rights or liabilities.

(2) The acquirer of the bank is the state in the person of a direct state management institution or a state capital company.

(3) In case of alienation of shares, provisions on the shareholders’ pre-emption rights are not applicable.

(4) All pledge rights and other encumbrances registered on the shares to be alienated shall be deleted irrespective of consent from creditors on the basis of the special law mentioned in Section 3 of this Law, except encumbrances, which the acquirer of the bank has taken over at himself. Persons, in whose favour a pledge is registered, receive the sums due to them according to the procedure of priority from the compensation to be paid to shareholders. If the shares are encumbered with debts, which exceed the determined compensation for the shares to be alienated, these creditors are entitled to claim from their debtor a payment of the rest of the debt which is not settled by the equivalent of the shares to be alienated.

Bank takeover does not affect the state aid and funding of the Bank of Latvia granted to the bank until the takeover.

(1) Bank takeover can be proposed by the Financial and Capital Market Commission or the Bank of Latvia. The proposal submitted to the Ministry of Finance indicates reason and facts indicating the circumstances mentioned in Part 1 of Section 3 of this Law.

(2) The Ministry of Finance together with the Financial and Capital Market Commission, and the Bank of Latvia shall immediately evaluate usefulness and necessity of the bank takeover, as well as the possible way of bank takeover under Part 1 of Section 4 of this Law. If a unanimous decision is adopted on usefulness of the bank takeover, the Financial and Capital Market Commission assigns the management board of the bank to be taken over to notify shareholders of the bank on commencement of negotiations, simultaneously the Financial and Capital Market Commission determines an obligation of the management board to receive a prior approval of the Financial and Capital Market Commission for transaction which causes new liabilities or increases the scope of present liabilities of the bank to be taken over. The Minister of Finance holds negotiations with the bank or its shareholders on voluntary takeover of the bank.

(3) In case an agreement is reached on voluntary takeover of the bank within five business days’ time after commencement of negotiations with the bank or its shareholders, the Minister of Finance prepares the draft decision of the Cabinet of Ministers on takeover of the bank. The draft decision on voluntary takeover of the bank shall be attached by a draft agreement coordinated with the bank or its shareholders. The decision on bank takeover is adopted by the Cabinet of Ministers upon the proposal by the Minister of Finance.

(4) In case no agreement is reached on voluntary takeover of the bank within five business days’ time after commencement of negotiations with the bank or its shareholders, the Minister of Finance prepares the draft decision of on necessity of a compulsory takeover of the bank and attaches it by a draft law on compulsory takeover of the bank. The Cabinet of Ministers submits the draft law on compulsory takeover of the bank to Saeima.

(1) The agreement on voluntary takeover of the bank includes provisions of takeover, including amount of compensation and payment procedure.

(2) The law of bank takeover includes the object to be taken over under Section 4 of this Law, its scope and other features characteristic of the object to be taken over, and the acquirer of the bank.

(1) In case of alienation of shares, assets, rights or liabilities, the Cabinet of Ministers shall determine the fair compensation to be granted to the bank shareholders or the bank, its amount and the procedure for its payment and offer. In case the bank to be taken over has received state aid or funding from the Bank of Latvia prior proposal on bank takeover or simultaneously with it determining the amount of compensation, the state aid and funding given by the Bank of Latvia to the bank are excluded from calculations.

(2) The Minister of Finance approves a commission, which includes a representative from the Financial and Capital Market Commission, the Bank of Latvia and the State Treasury. The commission prepares the assessment of the object to be taken over. The Financial and Capital Market Commission ensures the work of the commission. A representative from the Financial and Capital Market Commission manages the commission.

(3) In case of alienation of the shares, assets, rights or liabilities, the assessment shall be prepared in compliance with the financial condition of the bank as it is on the day, when the proposal on bank takeover is submitted to the Ministry of Finance under Part 1 of Section 6 of this Law. Members of the commission do not undertake civil liability for consequences which arise or could arise as a result of the prepared assessment except when it is proven that any of the members of the commission has acted against the law and without due care.

(4) In case of dispute, the amount of the fair compensation to be granted to the bank’s shareholders is determined at a court upon the bank’s or the bank’s shareholder’s claim pursuant to the procedure stipulated by the civil procedure laws. Such claim does not need to be ensured by an interim measure.

(5) Submission of a claim to the court regarding the compensation to be granted to the bank or the bank’s shareholders does not suspend execution of the decision and does not cause limitation of rights or liabilities of the bank’s acquirer to the alienated shares issued by the bank or the overtaken assets, rights or liabilities.

(1) If the bank takeover takes place on the basis of the special law mentioned in Section 3 of this Law and a part of the bank’s shares is alienated compulsory, the management board of the bank announces extraordinary meeting of the bank’s shareholders within three business days after a written request by the acquirer of the bank.

(2) The announcement on convocation of the extraordinary meeting of the bank’s shareholders indicates the agenda of the meeting. The announcement on convocation of the extraordinary meeting of the bank’s shareholders shall be announced in the official gazette Latvijas Vēstnesis not later than three days before the estimated meeting of shareholders takes place.

(3) The extraordinary meeting of the bank’s shareholders convened pursuant to the procedure stipulated in this Section is entitled to decide irrespective of the represented share capital.

The Cabinet of Ministers shall prepare the necessary amendments to other laws and shall submit them to Saeima until 1 March 2009.

The Law comes into force on the following day after its announcing.

Section 1