Compensation for Losses in Latvian Groups of Companies Law

Abstract

The main purpose of the legal regulation of groups of companies, i.e. the Groups of Companies Law of Latvia, is to protect rights and legitimate interests of the dependent company, its creditors and minority shareholders. A controlling enterprise is entitled to pursue its own economic interests by exerting the decisive influence on a dependent company. There is no general prohibition for a controlling enterprise to induce the dependent company into entering transactions or carrying out measures that are disadvantageous to the dependent company. Disadvantageous transactions have to be reflected in the yearly dependency report submitted by the board of the dependent company. As a general principle, the controlling enterprise shall compensate the dependent company for losses arising from disadvantageous transactions or undertakings. If a group contract between the controlling enterprise and the dependent company exists, legal representatives (board members) of the controlling company are jointly responsible for the losses of the dependent company. If a group contract has not been concluded and a de facto group of companies exists, the controlling enterprise itself has to compensate for the losses of the dependent company. Besides the controlling enterprise, the legal representatives of this enterprise are jointly responsible.