We advise our clients on various methods of recovering debts. In particular, we assist clients on challenging transactions concluded between their debtors and certain third parties. By filing the Pauliana claim a creditor would attempt to restore solvency of his or her debtor by getting back assets that were dissipated to third parties. We have experience in preparing Pauliana claims and acting on behalf of claimants in so-called Pauliana court proceedings.
Knowledge & Insights
Challenging transactions concluded by a debtor
We tend to notice that debtors facing a legal action may try to avoid their obligations and pass the property to third parties or intentionally worsen their financial standing. Lithuanian law permits a creditor to issue a claim and challenge the transactions concluded by their debtor and third parties, when such transactions worsen the financial standing of a creditor and the relevant debtor knew or must have known about such the reduced ability to repay a debt (Pauliana claim).
Terms for filing the Pauliana claim
The Lithuanian case law has acknowledged that certain conditions must be met in order to challenge the debtor’s transactions by means of a Pauliana claim:
Circumventional evidence of bad faith
The bad faith is something that is quite difficult to prove due to the presumption of a good faith established under law. However, the law also provides for certain cases when this presumption is not applicable. For example, it shall be deemed that the parties to a transaction that violates the interests of a creditor have acted in bad faith if such debtor has concluded the relevant transaction with his or her spouse, children, parents or other close relatives or if the debtor has closed the transaction with the legal person in which his spouse, children, one of the parents, or any other close relatives act as the director or a member of its managing body.
In all other cases, it would be rebuttably presumed that the parties to a transaction acted in good faith, although there are some useful tips that may help to overturn the bad faith burden of proof:
It shall be deemed that a debtor acted in bad faith if he concluded a transaction with a third person, and according to this transaction the assets were transferred to that third party at the price that is unreasonably low. The courts consider the price is unreasonably low if the price is its significantly below market value.
The bad faith of the parties to the transaction may be also established by proving that the debtor has transferred his property to the third part, but the third party failed to pay the full purchase price or its partial payment. If the solvent third party avoids to settle with the debtor and the debtor takes no action to recover the debt, this can be interpreted as the intent of a debtor to hide his property from the creditor.
The bad faith of a debtor shall also be deemed to have been proven if the debtor’s assets were transferred to a third party with no consideration.
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