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 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 would made by the court, are made instead by a meeting of the creditors. There are some additional prerequisites: there cannot be any judicial disputes against the company, any active debt recovery or enforcement proceedings, or a tax investigation or tax audit, performed by the State Tax Inspectorate.
- A company’s managing director is 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 insolvency 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 an insolvency 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 three years. Assets are sold by the bankruptcy administrator in the order, and within the 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.
Įkeitimas / hipoteka perduodant įkeistą turtą kreditoriui
Statutory mortgage / pledge
- 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 insolvency administrator.
- Secured debts have priority and will be paid from the proceeds of sale of the mortgaged or pledged assets.
EU Directive Implementation
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, with an option to extend that deadline by one year. 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.
Implementation in Lithuania
The Directive is not implemented in Lithuania yet.
In light of the Directive, on 17 February 2021 the Parliament of Lithuania registered amendments to the Law on Insolvency of Legal Persons (the Law). The amendments to the Law are expected to take effect on 1 July 2021.
Recognition of foreign insolvency processes
EU Regulation on Insolvency Proceedings
The EU Regulation on Insolvency Proceedings2 applies to all EU Member States except Denmark and requires that certain collective insolvency proceedings, which are listed in Annex A to the Regulation, occurring in one EU Member State are automatically recognised in all other EU Member States and that each EU Member State automatically recognises the powers and authority of an insolvency practitioner appointed in another EU Member State.
Recognition of third country insolvency processes
The recognition and enforcement of third country insolvency proceedings are governed by the Code of Civil Procedure of the Republic of Lithuania and the recognition and enforcement of such insolvency proceedings are not automatic in Lithuania. Therefore, an insolvency practitioner of third country proceedings needs to receive a prior endorsement from the competent national court before taking legal action to deal with an insolvent company’s assets in Lithuania.
According to the Code of Civil Procedure, a court decision of a third country cannot be recognized if:
- The decision has not come into force according to law of third country;
- according to law of the Republic of Lithuania, or provisions of an international treaty, a case is attributed to the exclusive competence of courts of the Republic of Lithuania or courts of a third country;
- there has been a default of appearance, if one party was not served with the document which instituted the proceedings (or with an equivalent document) in sufficient time and in such a way that the party to the case had no possibility to arrange a legal defence; and in case a party was incapable – no possibility of an appropriate representation was made;
- the court judgment, the recognition of which is sought, is irreconcilable with a judgment of a Lithuanian court given in a dispute between the same parties;
- the judgment conflicts with a public order determined in the Constitution of the Republic of Lithuania.
If none of the above-mentioned negative conditions apply, the third country court decision shall be recognized.
Insolvency changes in response to COVID-19
At present, no relevant legal acts related to changes to insolvency law in Lithuania as a result of the COVID-19 pandemic, are in force in Lithuania.
Law stated as at 20 May 2021.
With thanks to Žygimantas Pacevicius of Sorainen for writing this chapter of the dictionary.
1Directive (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.
2Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast).