Transfer of an Undertaking (Asset Deal) in Latvia

An Expert's View about Intellectual Property Law in Latvia

Posted on: 4 Aug 2010

I. Undertaking as Object to TransferAccording to Latvian laws the transfer of an existing Limited Liability Company or Join Stock Company (hereinafter – JSC) may be realized in two ways:1) By transfer of shares (Share Deal);2) By transfer of an undertaking in the form of universal succession or singular succession (Asset Deal).Section 18 of the Latvian Commercial Law “Definition of an Undertaking”: “An undertaking is an organizational economic unit. The undertaking includes both tangible and intangible things belonging to a merchant, as well as other economic benefits (value), which are utilized by the merchant to perform commercial activities.”Section 20 of Latvian Commercial Law “Transfer of an Undertaking”:

“(1) If an undertaking or its independent part is transferred to the ownership or use of another person, the acquirer of the undertaking shall be liable for all the obligations of the undertaking or its independent part. However, in respect of those obligations which arose prior to the transfer of the undertaking or its independent part to the ownership or use of another person, and the terms or conditions for the fulfillment of which come into effect five years after the transfer of the undertaking, the transferor of the undertaking and the acquirer of the undertaking shall be solidarily liable if the transfer agreement does not specify otherwise.(2) In the case of the transfer of ownership or use of an undertaking or its independent part, claims and other rights included in the undertaking or its part shall be transferred to the acquirer of the undertaking.(3) An agreement, which is in contradiction to the provisions of this Section, shall be void as to third persons.”In case of Share Deal the object to transfer is shares of JSC, but in the case of Asset Deal – the Undertaking as separate object.II. Abstraction PrincipleThe concept of "abstracting" a personal obligation to pay or exchange goods or legal rights (e.g. through contract) from the transfer of proprietary title of goods or legal rights is fundamental to Latvian private law.One example to clarify this: In the system of the Latvian private law, ownership is not transferred by a contract of sale, as in some other jurisdictions. Instead, a contract of sale merely obliges the seller to transfer ownership of the good sold to the buyer, while the buyer is obliged to pay the stipulated price. The buyer does not automatically gain ownership by virtue of the contract of sale whereas the seller has not automatically gained ownership of the money. In the contract according to the Latvian obligation law, Undertaking may be treated as one asset.For the transfer of title, each part of Undertaking has to be transferred separately according to specific rules of Latvian property law.III. Real EstateTransfer of title does not take place unless and until the transfer has been registered in the system of Latvian Zemesgramata, in which titles to real estate are registered.For the registration purposes the value of each real estate has to be pointed out in the contract (if it is not done – there is a risk of denial of registration or that the registration fee will be calculated from the total value of the Undertaking).IV. MovablesAccording to section 987 of Latvian Civil Law, transfer of title is effected at the moment of handing over the movables to the transferee (under condition there was a consensus between parties):“The alienation of a property by its owner is not of itself sufficient for the right of ownership in the property to pass to its acquirer, if in addition to this, another mandatory provision is not complied with, namely, the delivery of such property to the new acquirer.Upon delivery, the new acquirer acquires the rights of ownership in the property to the same extent as they belonged to the transferor of the property.”In case of sale, retention of title is possible; Section 2069 Latvian Civil Law:“A seller may keep the ownership rights to the sold property either by keeping this right while full payment of the purchase price has not been received, or by having the ownership rights revert back if the purchaser does not pay. If doubts should arise regarding the intent of the contracting parties, then it shall be assumed agreed that it has been contracted for the ownership rights to be retained by the seller so long as full purchase price has not been received.”A “retention of title” clause is a clause that allows the transferor to retain ownership over the movables handed over to the transferee until such time as certain payment is made, thus providing the transferor with a form of security against the transferee's default or insolvency. For the accounting and tax reasons, usually as sales price of movables is taken the residual value according to accounting records.V. ClaimsAccording to section 1793 of Latvian Civil Law claims may be transferred by transferor to transferee by cession:“Claims may be transferred from a former creditor to a new one by cession, which may take place:1) Pursuant to law, without an expression of intent from the former creditor;2) Pursuant to a judgment of a court;3) Pursuant to a lawful transaction, regardless of whether it was entered into by the creditor on the basis of a legal duty or voluntarily.”According to section 1800 of Latvian Civil Law in the way of cession may be transferred only rights to claim (no obligations and no contractual relationship):“If no other agreement has been made, the cession of the right to bring an action shall be considered to be the cession of the claim which is the subject-matter of the action; but only the right to claim shall be transferred to the cessionary (Section 1801), rather than the contractual relation giving rise to the rights.”There are no specific requirements for the form of cession of claims (except in case the claims are secured by mortgage, Latvian - hipot?ka).Usually by transfer of Undertaking the object to transfer are groups of claims. The claims have to be specified, to preclude any disputes in that regard. VI. Obligations and ContractsThe transferor may not transfer his obligations and/or contract without consent of the particular creditor.The obligations and contracts transfer from transferor to transferee in the way of novation. According to section 1876 of Latvian Civil Law:“If, on the basis of a novation, a new debtor is to replace the former one (Section 1868), then this shall take place as follows:1) The creditor agrees with the new debtor without the consent of the former debtor; or2) The former debtor transfers the debt to another person, and the creditor accepts the latter in lieu of the former.”Taking in account that, within the transfer of Undertaking, transfer of isolated obligations is not usual and mostly it’s about change of party in a contract, novation shall take place as follows:1) As triangular novation agreement between the transferor, the transferee and the contractual party (creditor);2) As an agreement between the transferor and the transferee, accepted by the contractual party (creditor). Transfer of shares owned by transferor is treated as transfer of contract, as well. Therefore it is needed consent of other shareholders.In case the contractual party is not willing the novation, the transferor has to try to get the same effect in some other way:O in case of rent – by giving the object in sub rent to the transferee;O in case of leasing – by providing the object to the transferee for use etc.VII. Trademarks and PatentsThe transfer of trademarks is governed by section 25 of the Latvian Law on Trademarks and Geographical Indications:“(1) The owner of a trademark shall have the right to transfer his or her trademark to another person in relation to one, several or all of the goods or services for which the mark is registered, together with the undertaking, or a part thereof, that has been using this mark, or separately from the said undertaking.(2) If an undertaking, or a part thereof, is transferred to another person, the right to the trademarks of that undertaking shall be deemed to be transferred together with the undertaking or a part thereof if it not otherwise specified by agreement between the parties, or if circumstances of the matter do not clearly dictate otherwise.(3) The Patent Office, after receipt of an application, a document attesting to the transfer of rights and the prescribed fee, shall enter into the Register and publish in the official gazette information concerning the change in ownership of a registered trademark, and the transfer of a trademark to another person, as well as send to the owner (owners) an notice of the entry made in the Register.(4) If the transfer of a trademark to another person (change in ownership) does not include all the goods and services for which the mark is registered, the Patent Office shall divide the registration by applying to it, mutatis mutandis, the provisions of Section 20 of this Law, and create a new registration with respect to the goods and services for which the owner has changed.(5) A trademark transfer agreement with respect to third persons shall take effect on the date of publication of the notice in the official gazette of the Patent Office. The successor in interest (the new owner of the trademark) may not exercise the rights arising from trademark registration prior to the date when the change in ownership is entered into the Register.(6) A trademark transfer agreement may be declared null and void if the change in ownership, intentionally or unintentionally, misleads or may mislead consumers with respect to the origin, nature, quality or other characteristics of the goods and services in relation to which the mark is used or is intended to be used. Any person may bring an action before the Regional Court of Riga to declare the trademark transfer agreement as null and void.(7) If a trademark registration application is transferred to another person before the Patent Office has taken a decision on the registration of the mark, the Patent Office shall, upon receipt of an application, a document attesting to the transfer of rights and the prescribed fee, regard the change of applicant as an amendment to the application within the meaning of the relevant provisions of Section 14 of this Law, and continue examination of that application with respect to the new applicant.(8) If the transfer of a trademark application to another person (change of applicant) does not apply to all the goods and services included in the application, the Patent Office shall divide the application, mutatis mutandis applying the provisions of Section 15 of this Law, and create a new application concerning the goods and services as to which the applicant has been changed.”The transfer of patents is governed by section 51 of the Latvian Patent Law:“(1) The owner of a patent may transfer the ownership rights to the patent to another person together with the undertaking or a part thereof that utilizes such patent, or independently from such undertaking.(2) The Patent Office shall include in the Patent Register and publish in the Official Gazette of the Patent Office the information regarding a change of the registered owner of the patent after a relevant application, a document attesting the succession of rights and a document attesting the payment of the State fee has been received, as well as shall send to the owner of the patent a notification regarding the entry made in the Patent Register.(3) Such person shall be considered as the owner of the patent, who has been entered into the Patent Register. Until the fixing of the change of the owner of the patent in the Patent Register, the successor of rights may not utilize the rights resulting from the acquisition of a patent against third persons.(4) Before the Patent Office has taken the decision regarding the grant of a patent, the patent application may be transferred to another person if a relevant filing, a document attesting the succession of rights and a document attesting the payment of the State fee has been received. The review of the patent application shall be continued in relation to the new applicant.(5) The procedures according to which a patent and patent application shall be transferred to another person shall be determined by the Cabinet.”


Posted: 04 August 2010
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