A look at corporate, personal and, where relevant, partnership insolvency proceedings in Lithuania, with a brief description to explain key features, as part of our Dictionary of Insolvency Terms in EU Member States. In particular, we highlight who controls the procedure and whether it is likely to be accompanied by a moratorium to prevent enforcement.
Įmonės restruktūrizavimo byla
Company restructuring proceedings
- Aimed at allowing companies in financial difficulty to continue to trade, settle their debts and avoid insolvency.
- Prerequisites: (i) the company has (or might, within the next three months, have) financial difficulties; (ii) it has not discontinued its activities; (iii) it is not in bankruptcy; (iv) it has been in existence for at least three years prior to filing for restructuring proceedings; and (v) at least five years have passed since any previous restructuring process was completed or terminated.
- The company prepares a restructuring plan and puts this to a vote of its shareholders. If approved, the decision to initiate restructuring proceedings is made. An administrator is nominated by a vote requiring a two-thirds majority of shareholders and creditors are informed of the decision.
- The company then files a petition for restructuring proceedings with the court.
- Once a court order opening restructuring proceedings takes effect, the company is prohibited from making any payments to discharge pre-opening obligations.
- The company’s management remains in control of the company, subject to the supervision of the restructuring administrator.
- Creditors must submit claims to the administrator within a 30- to 45-day period prescribed by the court order. The administrator reviews the claims and forwards a list to the court for approval. Creditors whose claims are approved by the court are entitled to vote in the restructuring proceedings.
- The restructuring plan sets out the company’s proposals to settle its debts and restore its financial health. It must be presented to the court for approval within six months following the opening of proceedings (extendable by up to one month). Failing to present a plan to the court within the requisite timescale results in the restructuring proceedings being terminated.
- The administrator evaluates the plan and the possibility of its implementation, and sets a date for a creditors’ meeting to consider it. The plan is approved if two-thirds in value of creditors vote in favour of it. Votes of both secured creditors and other creditors are of equal value. If approved, the plan applies to all creditors even those who did not vote in favour of it.
- Secured creditors’ claims are settled, in priority, from the proceeds of sale of pledged or mortgaged assets.
- Restructuring proceedings cannot continue for more than four years, but can be extended by the court for an additional year.
- Once the plan has been implemented, the company’s management and restructuring administrator jointly prepare a statement for the court’s approval. The court approves the statement and closes the proceedings.
- Restructuring proceedings may be terminated: (i) if the restructuring plan is not submitted within the requisite time frame; (ii) if all creditors waive their claims and the court approves those waivers; (iii) if the company satisfies all creditors’ claims prior to the deadline set out in the restructuring plan; (iv) if the administrator or the meeting of creditors submit evidence of a failure on the part of the company to implement, or properly implement, the restructuring plan; or (v) if, upon the expiry of the deadline for implementation of the plan, a statement on its implementation has not been submitted.
- Restructuring proceedings apply to all legal persons except for budgetary institutions, political parties, trade unions, religious communities and associations, credit institutions, payment institutions, electronic money institutions, insurance and reinsurance companies, management companies, investment companies, and intermediaries of public trading in securities.
Įmonės bankroto byla
Company bankruptcy proceedings
- Court-driven terminal proceedings aimed at satisfying creditors’ claims from the company’s assets.
- A petition for the bankruptcy of a company can be filed by a creditor/creditors, the company’s managing director or its shareholders. The court is obliged to rule on the petition not more than one month after it has been filed, extendable once by one month.
- Once the petition is accepted by the court, an automatic moratorium arises and any realisation of company assets is suspended.
- If the court finds the company to be insolvent and unable to fulfil its current and future obligations, it will initiate bankruptcy proceedings and appoint a bankruptcy administrator whereupon the powers of the directors and other managing bodies of the company cease and the bankruptcy administrator assumes control of the company.
- All enforcement actions, as well as the accrual of interest, are suspended once the court ruling takes effect. In addition, all contracts and agreements except for employment contracts and any contracts from which any rights of claim on the part of the company arise are deemed to have expired; unless, within 30 days following the date on which the court order took effect, the administrator notifies otherwise.
- Creditors are required to submit claims to the administrator within a period of up to 45 days, as prescribed by the court order initiating the bankruptcy proceedings. The administrator reviews creditors’ claims and forwards a list to the court for approval. Only those creditors whose claims are approved by the court are entitled to vote at the meeting of creditors.
- Bankruptcy proceedings may be terminated if: (i) all creditors waive their claims and the court approves those waivers; (ii) the company satisfies all creditor claims; or (iii) a settlement is concluded with creditors, which is approved by the court.
- If within three months following the court approving the list of creditors, a settlement with creditors is not submitted to the court, the court declares the company to be bankrupt and in liquidation, with the duties of a liquidator being performed by the bankruptcy administrator.
- Secured creditor claims are settled, in priority, from the proceeds of sale of pledged assets.
- Following submission to the court of a final receipts and payments account, the court rules on the termination of the existence of the company, it is removed from the register and ceases to exist.
- Bankruptcy proceedings apply to all legal persons except for budgetary institutions, political parties, trade unions, religious communities and associations.
Įmonės bankroto procesas ne teismo tvarka
Company bankruptcy proceedings out of court
- Out-of-court company bankruptcy proceedings are terminal, aimed at satisfying creditors’ claims from the company’s assets, without involving the court.
- The regulation of such proceedings is very similar to judicial bankruptcy proceedings (see section titled Įmonės bankroto byla / Company bankruptcy proceedings) with the difference that in out-of-court proceedings, all decisions that are made by the court, are made by a meeting of creditors. There are some additional prerequisites: there cannot be any judicial disputes against the company or any active debt recovery or enforcement proceedings.
- A company’s managing director or its shareholders are entitled to call a creditors’ meeting to consider a written proposal for an out-of-court bankruptcy that will specify the identity of the proposed bankruptcy administrator.
- The proposal requires the approval of a majority of 75% (in value) of creditors and if approved, the out-of-court bankruptcy commences.
- Out-of-court bankruptcy proceedings are becoming more popular, in light of the ability of creditors to appoint the bankruptcy administrator of their choice.
Fizinio asmens bankroto procesas
Natural person bankruptcy process
- A procedure, carried out by the court, aimed at providing a fresh start for private individuals.
- It can only be initiated by natural persons who are unable to fulfil financial obligations that cumulatively total a sum in excess of 25-times the government-set minimum monthly wage.
- The court sets a deadline for creditors to submit claims to a bankruptcy administrator.
- The individual must provide the bankruptcy administrator with a draft plan including reasons for their insolvency, anticipated income and amounts required for basic needs, provisions for the sale of assets, and the amounts to be paid to each creditor on (at least) a semi-annual basis throughout the duration of the bankruptcy proceedings.
- If a meeting of creditors approves the plan, the bankruptcy administrator submits it to court for approval. The maximum period for implementation of the plan is up to three years. Assets are sold by the bankruptcy administrator in the order, and within time frames, set out in the plan. The initial sale price of the assets is approved by the meeting of creditors. Immovable property is sold at auction.
- During the course of the bankruptcy proceedings, it is possible for an agreement to be concluded between the individual and any collateral holder in relation to the maintenance of the mortgaged (pledged) property. The court is required to consider whether the agreement violates the rights of any other creditors. If the court approves the agreement, the mortgaged (pledged) property will not be sold as part of the process. A secured creditor can request the sale of mortgaged (pledged) assets and satisfaction of its claim (in priority) out of the proceeds of sale.
Priverstinis įkeitimas / hipoteka
Statutory mortgage / pledge
Įkeitimas / hipoteka perduodant įkeistą turtą kreditoriui
- Creditors may take security over property by way of contractual mortgage (over real estate objects), contractual or possessory pledge (over all other types of property), or statutory mortgage and/or pledge, which will grant the creditor priority against unsecured creditors in any bankruptcy or restructuring proceedings.
- If the debtor has been declared bankrupt or is the subject of restructuring, the property encumbered with a mortgage or pledge can be sold by the bankruptcy trustee (administrator).
- Secured debts have priority and will be paid from the proceeds of sale of the mortgaged or pledged assets.
Anticipated changes in the next two years
There are proposals for a new, single insolvency procedure to cover matters relating to the restructuring and bankruptcy of legal persons. The proposals include: (i) unification of the professions of bankruptcy and restructuring administrators; (ii) implementation of self-governance and control of administrators; and (iii) implementation of procedures to make insolvency processes more efficient, faster and more orientated towards securing the interests of creditors.
The EU Directive on Restructuring and Insolvency1 requires Member States to incorporate minimum common standards into their national restructuring and insolvency laws by 17 July 2021. The intention of the Directive is to reduce barriers to the free flow of capital stemming from differences in Member States’ restructuring and insolvency frameworks, and to enhance the rescue culture in the EU.
Notable features required to be included in Member States’ national laws include:
- An effective preventive restructuring framework to enable debtors experiencing financial difficulties to restructure at an early stage, with a view to preventing insolvency and ensuring their viability.
- A stay of up to four months extendable to up to 12 months to support negotiations of a restructuring proposal, which should prevent individual enforcement action and include rules preventing the withholding of performance, termination, acceleration or modification of essential contracts.
- An ability to cram down dissenting classes of creditors.
- Adequate protection for financing needed to allow the business to survive or to preserve the value of the business pending a restructuring, and for new financing necessary to implement a restructuring plan.
- Provision for honest, insolvent entrepreneurs to have access to a procedure that can lead to a full discharge of their debts (subject to limited exceptions) within three years.
With thanks to Žygimantas Pacevicius of Sorainen for writing this chapter of the dictionary.
1 Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132.