During its lifetime a company often has to adapt to new circumstances arising from its internal changes or external changes such as legislative amendments. The first thing that comes to mind when hearing the word “reorganisation” is change, something different, something being transformed, rebuilt, or improved. And that makes sense because a reorganisation means substantial changes in the company that are commonly undertaken to simplify or change the group structure, to expand its business, or, conversely, to split off lines of business.
The process of reorganisation can be thought of as a corporate transformation. This may involve private limited companies (SIA), public limited companies (AS), and partnerships. There are several types of reorganisation.
Mergers and acquisitions:
Divisions:
This article explores accounting aspects in a company being reorganised by merger.
A key stage of the reorganisation process is notifying creditors. Once the general meeting of shareholders has resolved to reorganise, each of the companies concerned has 15 days to notify their creditors in writing and to publish a notice to creditors in the official gazette “Latvijas Vestnesis.”
Although a reorganisation involves liabilities and obligations passing to the acquiring company under the Commerce Act, for practical reasons companies often choose to re-sign their agreements separately (e.g. agreements with creditors, debtors, existing employees, entities to which the company has made loans or towards which there are some other liabilities obtained in the merging company). Novating an agreement allows the parties to document their existing relationship at the time of novation. This may be important in employment contracts in order to state, for instance, the number of vacation days unclaimed by the date of transfer, or the length of service, thereby giving the employees a sense of security about the reorganisation not adversely affecting their employment with the company.
An important step is re-registering the employees and preparing a file on each of them. From the date set as an employee’s last working day in the merging company, the employer must report the following codes to the State Revenue Service via the Electronic Declaration System (EDS):
The acquiring company should report the employees at its end of EDS with the following codes from the next day:
The effective date of the reorganisation is important for accounting purposes because that is the date for computing the current monthly salary, accrued vacation days for transfer to the acquiring company, and the average daily or hourly earnings.
The closing stage of the reorganisation involves a process that is similar to preparing the annual report. We need to check all account balances, assess each account, and look out for inaccuracies or errors.
The following inventories should be drawn up for accounting purposes:
Once all accounts have been inventoried and checked, we can start preparing the closing financial statement, which is essentially similar to the annual report. This statement will list all the property, receivables and payables the merging company will pass to the acquiring company from the next day after the reorganisation takes effect. All the documents and data handed over to the acquiring company must be supported by statements of delivery and acceptance.
If you have any comments on this article please email them to lv_mindlink@pwc.com
Ask questionEmployment offences commonly lead to an administrative penalty, yet employers with no practical experience of the National Labour Office’s administrative offence proceedings do not always have a clear picture of how a penalty is determined and what principles apply. This article explores the main stages of a penalty and ways to challenge it.
The year 2021 and the current macroeconomic cycle have brought a number of adjustments and uncertainty about the future to households (private consumers), businesses of various sizes, and policymakers. Covid-19 and related paradigm changes, the risk of recurrent pandemic, disrupted logistics and supply chains, and other factors create substantial risks affecting companies’ ability to stay in business and grow. This article explores common causes of financial distress and debt restructuring tools, including how companies can reach an agreement with the State Revenue Service on paying taxes.
We use cookies to make our site work well for you and so we can continually improve it. The cookies that keep the site functioning are always on. We use analytics and marketing cookies to help us understand what content is of most interest and to personalise your user experience.
It’s your choice to accept these or not. You can either click the 'I accept all’ button below or use the switches to choose and save your choices.
For detailed information on how we use cookies and other tracking technologies, please visit our cookies information page.
These cookies are necessary for the website to operate. Our website cannot function without these cookies and they can only be disabled by changing your browser preferences.
These cookies allow us to measure and report on website activity by tracking page visits, visitor locations and how visitors move around the site. The information collected does not directly identify visitors. We drop these cookies and use Adobe to help us analyse the data.
These cookies help us provide you with personalised and relevant services or advertising, and track the effectiveness of our digital marketing activities.