Transfer of Undertaking – Is There a Risk from the SRS?

Particularly in today’s economic crisis, entrepreneurs must consider how to restructure their business operations to continue working as soon as the crisis caused by Covid-19 ends. Often, in such restructuring processes—which are frequently carried out due to objective circumstances—entrepreneurs forget one very important aspect: the concept of a “transfer of undertaking” and the consequences it can create.

The transfer of undertakings is regulated by Section 20 of the Commercial Law of the Republic of Latvia, which states: 

• If an undertaking or an independent part thereof passes into the ownership or use of another person, the acquirer of the undertaking shall be liable for all obligations of the undertaking or its independent part. However, for those obligations that arose before the transfer of the undertaking or its independent part into the ownership or use of another person and for which the performance deadline or condition occurs within five years after the transfer of the undertaking, the transferor and the acquirer of the undertaking shall be solidarily liable.
• In the event of a transfer of an undertaking or an independent part thereof, the claims and other rights included in the undertaking or its part shall pass to the acquirer of the undertaking.
• An agreement that is contrary to the provisions of this Section shall not be valid in relation to third parties.

In practice, a transfer of undertaking is identified and also utilized by the SRS (State Revenue Service) to recover unpaid taxes from the acquiring company, which in most cases comes as an unpleasant surprise to entrepreneurs. Practically, a transfer of undertaking can be identified in the following cases if a set of circumstances is met:

• The acquiring company is registered at the same address as the original company;
• The acquiring company carries out economic activities in the same premises and in the same industry as the original company;
• The acquiring company has the same ownership structure and board of directors;
• The acquiring company has maintained the same identity, including the website, trademark, and public publications used by the original company;
• The majority of employees have transferred to the acquiring company;

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