The Law on Restructuring of Enterprises provides for the possibility to restructure a business experiencing financial difficulties.
Stabilising a business
Legal acts provide for the possibility that a taxpayer may ask the tax administrator to draw up a tax loan agreement, in accordance with which, the terms of payment are postponed for late tax and interest payments.
Legal acts in place provide for the possibility for a taxpayer that has not paid taxes on time or that has to pay calculated interest in relation to a late tax payment to request the tax administrator to transfer tax arrears. The tax arrears of a taxpayer can be transferred to a legal entity or to other organisation, or to a natural person, provided they do not have tax arrears. The tax arrears of a taxpayer may not be transferred to a third person that has the status of a business under bankruptcy or liquidation, or to a third person against which restructuring proceedings have been initiated.
Taxpayers to whom institutions financed from state and/or municipal budgets are in debt may be relieved of paying interest that has been calculated for taxes not paid on time.
When restructuring proceedings are initiated against a business in a court, the following measures provided for in the law begin to apply to the business that are intended to prevent further deepening of the business' crisis:
- it is prohibited to discharge all financial liabilities that have not been discharged before the day of the court ruling to initiate the restructuring proceedings against the business;
- calculation of default interest and interest for liabilities is suspended;
- recovery under writs of execution and claim offsetting is suspended.
Access to different sources of finance can help overcome financial difficulties.
When filing for bankruptcy is the only option left for a business owner, it pays to cut your losses, initiate proceedings sooner rather than later, and move on to a new project.
Initiating business restructuring proceedings
Company's general meeting, the owner or the institution exercising the rights and duties of the owner of state or municipal enterprise, having approved the outline of the restructuring plan, supports the candidate to the post of restructuring administrator, nominated by the governing body of the company, and decides to file with a court for the initiation of business restructuring proceedings. Documents necessary for conducting the business restructuring proceedings are to be attached to the request.
Deferment of payment
Creditors who are state institutions may by standard procedure make concessions to a business being restructured. If the concessions of creditors that are state institutions are considered state aid in accordance with European Union law, permission from competent European Union institutions is necessary in order to apply them.
A restructuring plan approved by a court establishes future arrangements with creditors over the 'reduced satisfaction' of their claims against the business during its restructuring (extension of the period of claim covering, waiver of right of full (or partial) claim, substitution of pecuniary obligations with other type of commitment (to settle by the entity's assets and/or shares).
The enterprise experiencing financial difficulties and its creditors may agree on appropriate economic, technical, organisational and other measures for recreating the solvency of the enterprise.
Agreement on these measures must be envisaged in the restructuring plan which is to be approved by the creditors and authorised by a court.
Restructuring plan must specify the following:
- the amount, as well as terms and conditions, of new credits;
- how to ensure new credit contracts;
- any future arrangements with creditors over reduced satisfaction of claims against the business during restructuring.
During the restructuring process, creditors, including administrators of mandatory payments, have the right to make concessions on payment of debts that have accrued prior to the initiation of business restructuring proceedings.
No later than 6 months (the law provides for the possibility of extension for up to 1 month) after the opening of restructuring proceedings in a court, the court must receive the restructuring plan endorsed by creditors, whose claims in value terms amount for not less than two thirds of the total claims in value terms confirmed by the court, for approval. The court shall approve the business restructuring plan with the ruling.
Release from debts
When the business restructuring plan has been successfully implemented, the court takes the decision to approve the submitted act of restructuring plan implementation and to end business restructuring proceedings. In this event, the restructured business is released from paying remaining debts if this was provided in the restructuring plan.
State social insurance
The demands of social insurance creditors are to be satisfied by general procedure in the way established in the business restructuring plan. In certain instances, the State Social Insurance Fund Board may only make concessions to a business after receiving the agreement of the competent European Union institutions.
The Lithuanian Business Support Agency (LBSA) administers national funds and European Union (EU) support for the development of Lithuanian business, tourism and energy sectors.
Investicijų ir verslo garantijos UAB (INVEGA) is an institution established by the Government that provides guarantees; it administers and carries out the following activities:
- State guarantee for a loan
INVEGA guarantees to financial institutions up to 80 percent of a loan to an SME for financing investments or working capital. In order to take advantage of this state aid, a business has to ask any bank for a loan with a state guarantee and negotiate the terms of the loan (loan amount, currency, duration, repayment schedule, interest rate, etc.) Then the bank will submit a request to INVEGA to grant a guarantee for the said loan.
- State guarantees for the loans to large enterprises and companies experiencing temporary financial difficulties
INVEGA provides loan guarantees to credit institutions for the loans to large enterprises and companies experiencing temporary financial difficulties. Guarantees for loans to these companies will be provided until 31 December 2010.
- Micro-credits (very small loans)
It is a sum of up to 25 thousand euros being provided to an SME. There is a limitation on the interest rate on micro-credits; therefore this rate is smaller than on other loans. Micro-credits are currently being provided by Šiaulių bankas AB; Medicinos bankas UAB; and DnB NORD bankas AB. Banks have completely depleted the funds assigned for micro-credits and further lending is carried out from the repayments.
- Small loans -I (up to 175 thousand litas)
These loans of up to 175 thousand litas are intended for financing investments and/or working capital of SMEs. The interest rate on these loans varies from 1.8% to 4.8% depending on the terms of the contract with the bank. Banks have completely depleted the funds assigned for credits and further provision of loans is carried out from the repayments. Small loans are being provided by Ūkio bankas AB; Šiaulių bankas AB; and Medicinos bankas UAB.
- Small loans - II (up to 350 thousand litas)
These loans are intended for financing investments and/or working capital related to business expansion. The average interest rate varies from 3.5 to 4.7. A recipient of a loan who is carrying out a project not in Vilnius, Kaunas or Klaipėda city municipalities can borrow under better conditions (lower interest rate). Banks have completely depleted the funds assigned for credits and further provision of loans is carried out from the repayments. These loans are being provided by Ūkio bankas, AB; Šiaulių bankas, AB; Medicinos bankas, UAB; and Parex bankas, AB.
- Open credit fund
Open credit line agreements are concluded with banks, which, upon making the decision to provide a credit that meets the set requirements, will request INVEGA to allocate OCF funds (not more that 75% of the credit amount) to finance business expansion. The maximum amount of such loan from the OCF is 1.5 million litas (banks must contribute at least 25% of their funds to this amount). Currently, the average interest rate is 5 per cent for a loan in litas and 4 per cent for a loan in euros. INVEGA has signed the agreements related to OCF with the Medicinos bankas UAB; Finasta bankas AB; Ūkio bankas AB; Citadelė bankas AB; Snoro bankas AB; Šiaulių bankas AB; and DnB NORD bankas AB.
- Partial reimbursement of interest
INVEGA reimburses up to 50% of guaranteed interest, but not more than 5% of all annual interest. Partial reimbursement applies to interest on business expansion related loans for financing investments and working capital.