Bankruptcy - Lithuania

Updated 11/2010

Legal requirements

Entrepreneurs may be able to avoid bankruptcy by anticipating difficulties – if they keep a close eye on the financial situation of their business.

Financial difficulties — Lithuania

In accordance with Enterprise Bankruptcy Law, bankruptcy is a state of an insolvent business when bankruptcy proceedings have been initiated in court against the business or when creditors are implementing extrajudicial bankruptcy procedures within the business.

Enterprise Bankruptcy Law

There are no special preferential terms for those starting a business again after bankruptcy.

There are no constraints on starting a business again after bankruptcy, except the following:

a court can limit the right for 3 to 5 years to perform the functions of the head of a legal entity, if the individual concerned failed to file a petition for the initiation of bankruptcy proceedings when the Enterprise Bankruptcy Law mandated that they do, after the order of a bankruptcy petition has become final have not transferred assets and/or the documents, have not provided the necessary information to the bankruptcy proceedings or interfered with the procedures in any other ways.
Article 10(14) of the Enterprise Bankruptcy Law

Insolvency procedures

A bankruptcy process can be either:

Judicial. Creditor (creditors), owner (owners), the head of the company have the right to file with a court for the initiation of bankruptcy proceedings. The liquidator of the company under liquidation must file with a court a petition to initiate bankruptcy proceedings, if in the process of company liquidation becomes clear that the company will not be able to meet its obligations.A court, having initiated bankruptcy proceedings against a business, appoints a bankruptcy administrator.
Extrajudicial bankruptcy proceedings are governed by the Enterprise Bankruptcy Law.The issues within the competence of the court shall be considered and decided by the creditors' meeting. Creditors can be offered to implement extrajudicial bankruptcy procedures by the head or an owner (owners) of the business.

An extrajudicial bankruptcy process cannot take place if action has been brought in court in which claims have been entered against the business, or execution is levied on the business under writs of execution issued by the courts or other institutions.

Responsible bodies

Bankruptcy proceedings shall be instituted by the county court of the locality where the registered office of the enterprise is situated:

Vilnius County Court
Kaunas County Court
Klaipėda County Court
Šiauliai County Court
Panevėžys County Court

Institutions participating in bankruptcy proceedings:

An extrajudicial bankruptcy process is more effective and cheaper than a court process.

When a company possesses no assets or its assets are insufficient to cover legal and administration costs, the simplified bankruptcy proceedings are applied.

In the course of application of simplified bankruptcy process, the meeting of creditors shall not be convened. The issues relating to the sale of assets to the competence of the creditors' meeting, shall be resolved by court. The process may not last longer than one year from the effective date of the order to apply the simplified bankruptcy proceedings.

The Enterprise Bankruptcy Law provides the business with the opportunity to conclude an arrangement with the creditors, which specifies the following:

concessions made to the enterprise and the creditors’ claims;
liabilities of the enterprise;
ways and schedule of satisfaction of claims;
liability of the enterprise in case of failure to carry out the arrangement with the creditors.

Payouts from the Guarantee Fund are made to the employees of businesses that are in bankruptcy or bankrupt.

Law on the Guarantee Fund

The procedure of sale of assets and rights of claim under debtors' obligations of a business in bankruptcy or a bankrupt business is provided in the Enterprise Bankruptcy Law.

Immovable property and pledged assets of the business are sold by auction in accordance with the procedure established by the Government. The meeting of creditors shall decide on the use of other property and the property unsold in the second (or repeated second) auction.

Description of the Procedure for the Sale of Assets by Auction

Entrepreneurs having experienced bankruptcy should not lose confidence in their ability to embark on a new business.

Business — Starting up

Administrative procedures

Bankruptcy procedure: a step-by-step guide

The head or owner (owners) of a business must file with a court a petition for the initiation of bankruptcy proceedings if:

the business is and/or will be unable to settle with the creditor(s), and the latter has (have) not filed with a court a petition for the initiation of bankruptcy proceedings;
the business has publicly announced or otherwise notified a creditor(s) that it cannot or does not intend to discharge its obligations.

Petitions shall be filed in writing with the county court of the locality in which the registered office of the enterprise is situated in the manner set forth by the Code of Civil Procedure.

Petition for bankruptcy filed by the manager, owner (owners) of the enterprise to the court must specify: reasons why the enterprise is filing for the initiation of bankruptcy proceedings, and a nomination for the administrator's post.

The following are to be attached to the request:

lists of creditors and debtors;
a set of financial statements for the preceding financial year and for the period of the current financial year prior to the day of the filing of the petition;
information relating to proceedings instituted in courts and recoveries without suit;
proof that the requirement set forth in Article 8(3) of the Enterprise Bankruptcy Law has been met in the manner specified by the Code of Civil Procedure;
other documents of importance to the bankruptcy proceedings may be submitted.

The head of the company or another person who has the right to take the respective decision bears responsibility as follows:

under the civil procedure: such person must cover the damages incurred by the creditors because the enterprise was late in filing with a court a petition to initiate bankruptcy proceedings (Article 8(4) of the Enterprise Bankruptcy Law);
under the disciplinary procedure: a court can limit the right for 3 to 5 years to perform the functions of the head of a public and (or) private legal entity, if the individual concerned failed to file a petition for the initiation of bankruptcy proceedings when the Enterprise Bankruptcy Law mandated that they do, after the order of a bankruptcy petition has become final have not transferred assets and (or) the documents, have not provided the necessary information to the bankruptcy proceedings or interfered with the procedures in any other ways (Article 10(14) of the Enterprise Bankruptcy Law);
under the administrative procedure: failure to file with a court a petition for the initiation of bankruptcy proceedings incurs a penalty of 5,000 to 10,000 litas on heads of administration of enterprises and institutions
Article 50(6) of the Code of Administrative Offences

A court, having initiated bankruptcy proceedings against a business, appoints a bankruptcy administrator. Creditors, owner(s), head of the company administration, and company liquidator can nominate candidates for the administrator.

Data about bankruptcy proceedings against businesses, persons who have the right to provide business bankruptcy administration services, assets of businesses that are in bankruptcy or are bankrupt being sold by auction, and other information is published in the publication and also in the website of the Enterprise Bankruptcy Management Department under the Ministry of Economy:

Information about businesses against which bankruptcy proceedings are being carried out

A court initiates bankruptcy proceedings against a business by passing an order under which a business is declared to be in bankruptcy.

The court sets a time limit (30 to 45 days from the effective date of the court order to initiate bankruptcy proceedings) within which the creditors have the right to file their claims arising before the date of opening the bankruptcy proceedings with the administrator.

On the basis of the claims filed by the creditors, adjusted according to the enterprise's accounting documents, the administrator compiles a list of all the creditors of the enterprise and their claims, and submits it to the court for approval.

The administrator satisfies the creditors' claims in accordance with the procedure and the sequence of satisfying the creditors' claims provided in Articles 34 and 35 of the Enterprise Bankruptcy Law.

Bankruptcy proceedings can be ended either with:

winding up of a company because of insolvency and its de-registration from
the Register of Legal Entities ;
or discontinuation of bankruptcy proceedings (when all creditors waive their claims, when the enterprise settles with all the creditors, or when an arrangement with the creditors is concluded).
Form for notification about liquidation and the application of the simplified bankruptcy proceedings [43 KB]
Form for notification about the end of existence of a legal entity and removal from the Register of Legal Entities [42 KB]

Restructuring

The process of restructuring of businesses is regulated by

the Law on Restructuring of Enterprises

The aim of restructuring is to provide conditions for legal entities having temporary financial difficulties, which have not discontinued their economic and commercial activities, to maintain and develop these activities, to settle their debts, and avoid bankruptcy.

When restructuring proceedings have been initiated against a business, its economic and commercial activities are headed by the management bodies of the business in supervision by a court-appointed restructuring administrator.

Restructuring plan of the enterprise is approved for no more than 4 years (the duration may be extended, but not longer than for one year).

The decision on the beginning of the restructuring process of the enterprise is made by the meeting of the enterprise participants, the owner or the authority implementing the rights and duties of the owner of state or municipal enterprise. The management body of the enterprise is to file, no later than within 5 days, a petition with a court for the initiation of restructuring proceedings.

Petitions shall be filed in writing with the county court of the locality in which the registered office of the enterprise is situated in the manner set forth by the Code of Civil Procedure.

The following documents are to be attached to the petition:

documents certifying that the enterprise meets the provisions of Article 4 of this law;
draft, and the decision of the meeting of participants of the enterprise, and in the case of a state or municipal enterprise - the decision of the institution which enforces the rights and fulfils the duties of the owner, to approve the draft;
a copy of a set of financial statements of the previous financial year and a copy of the balance sheet and income (loss) statement for the period of the reporting financial year before the date of the decision made by the meeting of the enterprise’s participants, the owner or the authority implementing the rights and duties of the owner of state or municipal enterprise indicated in Article 5(3) of this law;
consent of the restructuring administrator to carry out the enterprise’s restructuring procedures, which must indicate that it complies with the provisions of Article 21(2) of this law, and there are no other statutory impediment for it to carry out the enterprise’s restructuring procedures;
the lists of bailiffs, who are served writs of execution for recovery of the enterprise or of its seizure, and the lists of enforcement proceedings and the courts investigating cases in which the claims to property have been brought against the enterprise;
list of the enterprise’s accounts in custody with the account numbers and details of credit institutions, in which they have been opened;
other documents that may be important in the enterprise restructuring proceedings.

A petition for the initiation of restructuring proceedings against an enterprise may also be filed with a court by the creditors.

Simplified procedure for opening the business restructuring proceedings

The enterprise restructuring proceedings may be initiated in a more simplified manner where its restructuring plan is drawn up prior to the filing in the court of a petition to initiate the enterprise restructuring proceedings.

By applying the simplified restructuring opening proceedings, the management body of the enterprise along with the application on the opening of restructuring proceedings, must submit the decision of the meeting of the enterprise’s participants, the owner or the authority implementing the rights and duties of the owner of state or municipal enterprise to apply to creditors on the opening of the enterprise’s restructuring proceedings and approval of the restructuring plan, the restructuring plan, which must be approved by the creditors the value of claims of which according to the details of the enterprise’s set of financial statements comprises at least 2/3 of all creditors' claims amount in terms of value, and other necessary documents.

The restructuring process may end in:

a successful restructuring of the business;
termination of restructuring proceedings;
termination of restructuring proceedings by the initiation of bankruptcy proceedings against the business. When bankruptcy proceedings have been started against a business, the restructuring process may not be applied to that business.
Restructured businesses

Compulsory liquidation

The Civil Code establishes the basis and procedure for compulsory liquidation of enterprises, the competencies of the liquidator, and the procedure and sequence for satisfying the claims of the creditors of the enterprise.

Civil Code

Check also the legislation on this topic in:

Bankruptcy - Lithuania