1. When are you declared bankrupt?
Two different Laws regulate the legal aspects of bankruptcy procedures:
- bankruptcy procedures of a natural person are regulated by the Law on Natural Persons’ Bankruptcy of the Republic of Lithuania (hereinafter – LNPB);
- enterprise bankruptcy procedures are regulated by the Enterprise Bankruptcy Law of the Republic of Lithuania (hereinafter – EBL).
In accordance with the LNPB, a person is deemed insolvent when one is unable to discharge his overdue obligations which exceed 25 minimum monthly wages approved by the Government of the Republic of Lithuania.
In accordance with the EBL, an enterprise is deemed insolvent when it fails to discharge its obligations and it’s overdue liabilities/debts are in excess of half of the value of the assets recorded in the enterprise’s balance sheet.
At the moment of writing (2018-09-05) the sum is equal to 10 000,00 Eur (400 (minimal wage) x25).
2. How long does it take to process a petition for bankruptcy?
Both LNPB and EBL state that the court shall within one month from the day of receipt of the petition make a decision to institute bankruptcy proceedings or to refuse to grant the petition.
For valid reasons the court is entitled to extend the period of preparation for the investigation of the bankruptcy case, but for not longer than one month.
Enterprises in the Republic of Lithuania also have an option to enter extrajudicial bankruptcy procedure without the intervention of the court. The EBL states that the extrajudicial bankruptcy procedures may be applied when:
- no action has been brought in court in which property claims (including claims relating to employment relations), have been brought against the enterprise;
- no recovery is being made from the enterprise under the writs of execution issued by courts or other institutions.
The resolution to carry out extrajudicial bankruptcy procedure can be adopted by a positive vote of least 75 percent of all existing creditors of an enterprise.
3.What can you do if you disagree with the bankruptcy order by the court?
According to LNPB, the court ruling (to institute bankruptcy proceedings or to refuse to grant the petition) can be appealed within 7 days of its adoption. Both the applicant and the creditors have the right to appeal the court ruling.
According to the EBL, both the claimant (manager, shareholder, creditor) and the defendant (the enterprise) can appeal the court ruling. However, only the particular creditor who participated in the judicial proceedings in connection with the opening of the insolvency proceedings can appeal the court ruling.
4. What happens if you are declared bankrupt in Lithuania?
Upon instituting bankruptcy proceedings to a person, the discharge of all financial obligations (including payments of interest, default interest, taxes other compulsory contributions) and the recovery of debts from the person through court or without suit, are prohibited. The person is also prohibited from managing the available assets.
The person must provide the creditors with a 3-year solvency recovery plan, which, when adopted in a creditor’s meeting and approved by the court, becomes mandatory for the insolvent person. The bankruptcy process is supervised by the bankruptcy administrator (trustee), appointed by the court. Both the applicant (insolvent person) and the creditor(s) can offer an administrator‘s (trustee’s) candidacy.
Upon instituting bankruptcy proceedings against an enterprise (including extrajudicial bankruptcy procedure) the discharge of all financial obligations (including payments of interest, default interest, taxes other compulsory contributions) and the recovery of debts from the enterprise through court or without suit, are prohibited. In addition, calculation of default interest and interest on all obligations of the enterprise, including late payment of amounts relating to employment relations, are terminated.
The bankruptcy procedure is run by the bankruptcy administrator (trustee), appointed by the court through computer selection program. All the documents and assets of the enterprise must be transferred to the bankruptcy administrator (trustee), who decides on the continuation of the company’s activities and solves other procedural issues.
5. What duties and powers does the trustee have?*
The bankruptcy administrator (trustee) of a natural person who entered into bankruptcy procedures can and has a duty to:
- manage the assets of a person (including funds in the bank account);
- keep the record of all amounts received by a natural person and their use;
- convene meetings of creditors;
- act for a natural person in proceedings in relation to recovery of assets from other persons in favor of the natural person, which have been opened before the bankruptcy proceedings;
- make payments to creditors included in the solvency recovery plan;
- give semi-annual reports to the court, creditors and the natural person on the progress of the implementation of the solvency recovery plan.
The bankruptcy administrator (trustee) for an enterprise can and has a duty to:
- manage, use and ensure protection of the assets of the enterprise (including funds in bank accounts) in bankruptcy proceedings;
- manage the economic and commercial activities of the enterprise or cancel them altogether;
- examine the transactions entered into by the enterprise in bankruptcy within a period of at least 36 months before the initiation of bankruptcy proceedings and bring actions in court for the invalidation of the transactions which are contrary to the objectives of the enterprise’s activities (or which could have led to its inability) to settle with the creditors;
- represent the enterprise in bankruptcy in court.
* Please be noticed, that only the general duties and powers are mentioned above
6. What kind of obligations do I have as a bankrupt?
During the bankruptcy proceedings, a natural person must:
- responsibly manage and use the assets in his possession in the period of time between filing the personal bankruptcy petition and the court deciding to open personal bankruptcy proceedings;
- submit a draft solvency recovery plan to a bankruptcy administrator (trustee) within the time limit defined by LNPB;
- provide the bankruptcy administrator (trustee) with all documents related to the bankruptcy process;
- transfer all the funds to a deposit account in accordance with the solvency recovery plan in order to satisfy creditors’ claims and cover bankruptcy administrative expenses;
- notify the bankruptcy administrator of any change one’s financial standing (including increase of income, inheritance, winning of money and/or valuables, receipt of awards, gifts, etc. or decrease of income and other cases), no later than within ten working days of the change.
The manager of the enterprise that entered into bankruptcy proceeding (including the process of the extra judicial bankruptcy) must:
- transfer all the assets and the documents to the bankruptcy administrator (trustee) within the time limits set by the court;
- cooperate and provide requested information the bankruptcy administrator (trustee) during the enterprise bankruptcy process.
7. How can I monitor in Lithuania the progress of the bankruptcy?
According to both the LNPB and the EBL, the creditors have the right to ask the bankruptcy administrator (trustee) to provide with detailed information about the ongoing proceedings. The procedure and deadlines for provision of information must be established by the meeting of creditors. The bankruptcy administrator is obligated to follow the established procedure.
The creditors (via the meeting of creditors) also have the right torequest the bankruptcy administrator (trustee) to submit a report on his activities and actions taken during the bankruptcy procedure.
8. How long does a bankruptcy last in Lithuania?
The period of bankruptcy procedure of a natural person is fixed and cannot be longer than 3 years.
The period for the enterprise bankruptcy is not fixed and depends on the complexity of the procedures (initiation of additional civil cases regarding the damage dealt to the enterprise, etc.) and could vary from 6 months to 6 years. However, the average term is 2 years.
9. Can I make arrangements with my creditors?
Both natural persons and enterprises are allowed to make arrangements with creditors in the respective bankruptcy procedures.
10. How can an employee collect outstanding salary from his bankrupt employer?
A part of the unpaid salary (roughly about 70 percent) is covered by a special government fund, managed by the State Social Insurance Fund Board (SODRA) under the Ministry of Social Security and Labour of the Republic of Lithuania. The employee has a right to submit his/her financial claim to the bankruptcy administrator (trustee), while the administrator, in turn, has the duty to submit a special application to the State Social Insurance Fund Board under the Ministry of Social Security and Labour.
Claims of the employees relating to employment relations (unsatisfied by the aforementioned fund) shall be satisfied first in line (there are three creditor lines in the process of an enterprise bankruptcy) using the funds recovered during the bankruptcy process (if any are available).
11. What important advice can be given to a company director in the event of imminent bankruptcy?
- the bankruptcy procedure of an enterprise requires preparation so the first thing one should do is find a good lawyer who specializes in bankruptcy law and follow the advice given;
- make sure that all the payments to the creditors are made in line with the requirements of the Civil Code of the Republic of Lithuania;
- if the company is abundantly insolvent, suspend all payments;
- make sure that the company does not lose any assets;
- do not delay in submitting the application for the bankruptcy procedure.
12. Is there a special arrangement for a private person who is in danger of going bankrupt?
A natural person who has the intention to file a personal bankruptcy petition shall give a written notice thereof to all his creditors no less than one month before filing his bankruptcy petition.
A bankruptcy petition shall indicate the causes of the insolvency, be accompanied by documents evidencing insolvency, provide the contact information (the address of his place of residence, phone number, etc.), and nominate a candidate for the position of a bankruptcy administrator (trustee).
In addition, the following shall accompany a bankruptcy petition and be submitted:
- documents evidencing income received and/or expected to be received;
- list of the assets held by a natural person;
- information about the pledged assets of a natural person, other performance guarantees provided and other liabilities;
- list of creditors and debtors;
- information about civil or criminal proceedings in courts involving property claims in respect of a natural person or a natural person himself.
Publisher: Law firm „Constitus” – Lithuania