In November 2021 an interview was published in Dienas Business titled “It was, in fact, fraud!”. The interview was with the former owner of Kurzemes Finieris Dzintars Odins who only after a pause of 7 years grasped what had happened. The takeover of Kurzemes Finieris done by Stiga RM and actions of its owner Andris Ramolins were basically an argument between two businessmen, which is interesting only from the aspect of – was there fraud or not?
The interview was base for suspicion about taxpayer money fraud with the possible involvement of the insolvency administrator, State Revenue Service and Mortgage and Land Bank (ALTUM).
From a Gazelle to Insolvency
Kurzemes Finieris received Dienas Buziness prize “Gazele 2012” after the increase of the number of employees in 2011 and this way the company caught attention of Dienas Bizness, right when Dzintars Odins in 2021 wanted to expose the details of overtaking the company through his view.
Up until then A. Ramolins version was circulating in various media about the overtaking of company, which reported that everything is legal, correct and the employees are safe from an insolvent employer. Until 2014 owner of the company was Dzintars’ father Dainis Odins, but Dzintars himself was chairman of the board of Kurzemes Finieris. In 2021 both were in debt and Dz. Odins claimed to Dienas Bizness that he is experiencing difficulties opening an account in Latvian banks which, in his thoughts, was the consequiences of a created fictitious debt after completing the insolvency proceedings of the company.
Until 2012 Kurzemes Finieris loaned money from Moertgage and Land Bank (currently Altum) both for equipment, wood drying, boiler house etc. “Of course, we were ambitious, we wanted rapid growth, create jobs, export. Looking back I should say ut was too ambitious, but threre were no real mistakes, everything was planned correctly,” says Dz. Odins.
The first loan was a million, the second also was a million, but in conclusion the company loan was near three million. From selling woodchip the company transitioned gluing veneer back in 2008, which, by today’s standards, caused problems for everyone.
When Kurzemes Finieris received the “Gazele” prize it had been working already for two years with tremendous losses. Odins hoped for better times. In the middle of 2014 Dz. Odins realized he needs to find an investor with deeper pockets. After familiarizing himself with various offers he met with A. Ramolins who showed “acceptance and understanding”.
In 2014 Dz. Odins already had a small debt of 65 thousand Euros for STIGA RM. Odins was no stranger to debts. “There were other small debts for other plywood block suppliers but they, realizing the market situation, showed understanding,” says Dz. Odins in the interview. Needless to say, this is an important fact (when looking at later events) to realize the total creditor number.
According to Dz. Odins, A. Ramolins initially offered to enter Kurzemes Finieris with a 60% part leaving 40% to the Odins family. He also showed interest about company processes and as a potential partner he also got to know everything. STIGA RM also supplied Kurzemes Finieris with wood worth 83 thousand Euros, which made the debt even larger. Both were also visiting lawyer Martins Krums.
When all of the information about the company status was handed over to the potential partner, a letter arrived to STIGA RM about repayment of the debt soon followed by a court statement about starting insolvency proceedings. “My potential partner and investor had started insolvency proceedings against me,” Dz. Odins concludes his introduction story.
Kurzemes Finieris After Insolvency
One should say that the interesting part begins after announcing insolvency because Dienas Bizness has no possibility to check which of the businessmen is saying the truth about the other and who remembers seven-year-old events differently. I.e., oral agreement between Ramolins and Odins is impossible to be proven, but after court verdict there appear documents and quoting variations. Only the consequences of the process show that fraud even existed. The Letter of Insolvency came in the middle of October in 2014, but it was announced on November 15. There were no conversations with Dz. Odins afterwards.
“Everything happened very fast. As it turns out, the overtaking of this company through insolvency was plotted behind my back all the time. It was executed swiftly and precisely, almost like a military operation. No wonder insolvency administrators with only good reputation were involved,” says Dz. Odins.
When insolvency administrator Andris Berzins appeared, then bank changed its guard. STIGA RM immediately became the company leaseholder after insolvency in November 2014! Already in February 2015 STIGA RM became the owner of all of the company assets, buying out bank cessions from Mortgage and Land Bank (Altum).
Along with the insolvency administrator coming to Kurzemes Finieris there also came STIGA RM representative, who later became head of manufacturing. The biggest problem for Ozolins was that after selling Kurzemes Finieris cessions to STIGA RM he drowned in debt which, most likely, was the main reason why he still remembers these unpleasant events seven after seven years. The debt also involved both the bank and the aforementioned lawyer Martins Krums. Dz. Odins remembers that he was threatened with criminal proceedings connected to mismanagement if he would protest and adding that it was at the recommendation of Mortgage and Land Bank to other banks that he was not able to open accounts. From this story several questions arose already in 2021.
First, has Ramolins lied to Odins and taking over of the company could be considered fraud, which is not a directly provable fact, because only an oral afgreement exists. Second, had the Mortgage and Land Bank by selling cessions the right to sell them without an auction, because there were other creditors besides STIGA RM who received nothing but exactly this deal happened.
How and why is Dz. Odins in debt to Martins Krums for 200 thousand Euros? Finally, there is one unsold cession and Odins is in debt to the bank as well. “There is also a claim against my father,” Dz. Odins comments the debt to the bank, mentioning that it is not possible for him to earn this amount in his lifetime, therefore he will fight for a righteous solution.
It is About Public Money
When commenting Dz. Odins story – saving of the drowning is also in the hands of the drowning themselves. Dienas Bizness questions for Altum as the overtaking part of Mortgage and Land Bank did not yield results. Questions for State Revenue Service about Kurzemes Finieris VAT debts in 2014 and 2015 also do not clear anything. Hence why we asked Dz. Odins what he himself was doing during the time since Dienas Bizness interview.
Almost a year after the interview Dz. Odins submitted a claim to State Police about the fraud with company assets and tax evasion. There are no criminal proceedings, but the mentioned facts enrich the story.
There is a clear hint that Altum is 100% state-owned capital company and is operating with public assets, and base claim against Kurzemes Finieris is almost 3.35 million Euros. However, in the 2015 sales agreement there are property sums which must be paid by transfers – 322 thousand Euros for real estate, 1,86 million Euros for movable property and 391 thousand Euros for VAT. There are also claim rights against other debitors. The total purchase value is 2,19 million Euros out of which 391 thousand Euros is VAT later obtained by State Revenue Service.
Basically, STIGA RM with money transfers (not performing purchase payments) becomes the owner of public property. Furthermore, there was no auction for such sales process. This, according to the documents, was most likely arranged by insolvency administrator Andris Berzins.
In his statement to the police Dz. Odins claims that there was most likely an agreement between A. Berzins, A. Ramolins and State Revenue Service officials about organizing such process. He also believes that the senior lawyer of Altum Aivis Bruders has manipulated many bank’s requirements for Kurzemes Finieris.
By the way, Dz. Odins is also requesting to investigate the origin of money which was used to gain claim rights, because STIGA RM annual audit from the court for specific time period is not that bright meaning it was not possible to pay 2,19 million Euros and even VAT.
The statement also includes information about a possible VAT scheme about the mentioned sum. Here Dz. Odins claims that the State Revenue Service creditor in the person of tax debt administrator has refused tax payment revenue for the good of the country.
Only State Revenue Service Will Conduct Search
Dz. Odins has also delivered hints to Anti-Corruption Bureau (KNAB) about possible fraudulent actions of Altum employees as well as asked Ministry of Finances to explain the actions of the mentioned institution in the corresponding time period. KNAB leaves the statement stagnant while Ministry of Finances explains it shortly – considering all future expenses, which could have happened, and STIGA RM offer the deal was beneficial and Altum had the rights to do so!
Ministry of Finances points out that during insolvency proceedings the potential value of property should not be considered whereas its actual possibilities (considering turnover rate principle) should. In other words – stop wasting time and sell when there is a chance! In her letter to Odins the Deputy secretary of the State in the field of tax administration and combating the shadow economy Jana Salmina points out that State Revenue Service task is to enforce the collection of fees and taxes rather than implementing legal entity insolvency proceedings, being responsible for their effective progress and achievement of goals. She also notes: “Because after declaring the insolvency process of the legal entity, the administrator has all the rights, duties and responsibilities of administrative institutions provided for in regulatory acts, the debtor’s statutes or contracts and thus the administrator has the obligation to manage the debtor’s property and carry out its expropriation as a good and careful owner, guided by the economic interests of the set of creditors, not the property interests of a specific creditor or his own personal interests, and to avoid conflicts of interest and doubts about objectivity in his actions.”
State Revenue Service informs Dz. Odins on February 13 of this year that an investigation has been launched into the activities of State Revenue Service officials and the results will be reported separately. According to the explanation by Ministry of Finances the inspection will most likely end with the finding of the fact that everything was in order.
At the moment, there is a kind of bureaucratic door game with responsibility. Such a game can often be observed by journalists too, when you ask for an unpleasant question, which door you want, they will always show you others. FM implies the administrator’s responsibility. At the same time, it is not quite clear how much was received for Kurzemes Finieris, because Altum’s activity is a secret.
“First of all, we emphasize once again that the company Altum, as the successor of the rights and obligations of the Latvian Mortgage and Land Bank, is bound by the regulation of the Law on Credit Institutions, according to which we are not entitled to disclose information about specific transactions concluded during this time, both between individuals and legal entities. At the same time, without commenting on specific clients and transactions, we would like to emphasize that various forms of asset realization are possible, while the task of the bank or creditor is to recover the funds invested in the transaction as much as possible.
Sale of cessions is a common and rational tool in banking practice. How much and which liabilities are assigned depends on a number of factors. Both financial and legal aspects are taken into account when deciding on the sale of claim rights. Current and expected expenses for asset management (for example, security, utilities, taxes, etc.) are evaluated, the origin of funds of potential buyers of claim rights, the existence of other creditors and many other factors are analyzed. It is also evaluated what debts the bank has the right to transfer.
In each case, the expected benefit from the assignment transaction is evaluated and compared with the expected benefits from other forms of asset disposal. Various solutions are used in practice, often the client himself is involved in the search for buyers or investors.
The goal of the creditor is to reduce expenses and recover invested funds as much as possible. In all cases, the decision on the initiation or termination of the insolvency process of a physical entity is made by the court, evaluating the compliance of the insolvency process of the physical entity with the norms of the Insolvency Law,” says Altum representative Sandra Eglite in December 2021 in an interview with Dienas Bizness.
Namely, in the end, in case of violations, all fingers of the institutions point in the direction of Andras Bērzis, the insolvency administrator, and for now this is the only clue behind which Dz. Odins could solve the problem, and it cannot be done with the help of the media, even though the actions of this administrator have been publicly questioned more than once.
For example, in 2013, in the public media LSM there is an indication of violations in the administrator’s activity. In 2014, publications appear in which the chairman of the board of Dobeles Dzirnavnieks indicates a possible raiding attempt.
Already in 2018, lists of judges appear whose decisions in insolvency cases contradict legal norms, and not without mentioning A. Bērziņš. In addition, the source is the expert commission of the Council of Justice.
Namely, the basis for doubt is the work of the administrator, and the indirect indications in the answers of FM and Altum are true, however, if we do not look at things only according to the letter of the law, then A. Bērziņš alone would not be able to do anything. It is probably about corruption, about high-level connections and protectionism even at the political level.
Finally, the final question is – if 2.19 million Euros were determined as offsets and 391 thousand VAT, a total of 2.5 million Euros, how much of this money did the state actually receive, or did the VAT refund? There are no clear answers for Dienas Bizness, and doubts still remain!
The technical side of the VAT scheme
Since when purchasing a property, payment is made by offsetting, incl. with regard to VAT, a situation arises where the buyer has the right to deduct input tax, in this case more than 300,000 euros. Therefore, the buyer can reduce his payable VAT by this amount or ask the state to refund it. The seller is therefore liable to pay this VAT.
However, since the payment is made by offsetting and no real money comes into the insolvent enterprise, the insolvent company has no other assets and money, so it is clear that the insolvent company will never pay this amount of VAT.
In this way, the buyer obtains an economic benefit in the form of reduced taxes or even tax refunds from the state. On the other hand, the state tax payment is not received from the insolvent seller, and this debt is written off after completing the bankruptcy procedure and removing the insolvent company from the register.
It is quite strange that the State Revenue Service has agreed and has not objected to such an arrangement for the sale of the property of an insolvent company that already had tax debt, which inevitably causes additional losses to the state and further increases the tax debt of the bankrupt company.