We provide legal services in relation to all insolvency and restructuring legal matters. In particular, we provide the following legal services relevent for this area:
Knowledge & Insights
Opening of insolvency proceedings in Lithuania
The Lithuanian court shall order the opening the bankruptcy proceedings in the event it arrives to the conclusion that: (a) the company is insolvent (this means that a company does not pay the debts and the overdue obligations of the company exceed ½ of the value of the property recorded on its balance sheet) or the company is in delay of paying salaries to employees or other contributions pertaining to the employments relations; or (b) the company has publicly declared that it is insolvent and it is not able and not going to meet its obligations. A relevant person shall have the right to apply to the court for opening bankruptcy proceedings if any of the listed circumstances are outstanding:
As a matter of principle, Lithuania does not recognise the insolvency set-off. After the court's order that opens the insolvency proceedings enters into force, it is prohibited to settle any financial obligations that were not settled before opening of the bankruptcy proceedings, including payment of interest, contractual penalties, taxes, other payments, except for certain tax obligations when such set-off is expressly permitted by applicable tax laws.
Preferences to creditors
The Lithuanian laws do not permit granting preference to any of creditors. If certain creditors were unfairly preferred in anticipation of the bankruptcy proceedings, it is likely that such transactions would be challenged and set aside upon the initiative of the bankruptcy administrator or third party creditors. As a result, the funds would be ordered to be returned to the bankrupt entity and distributed to all creditors according to the bankruptcy ladder of priorities.
Bankruptcy ladder of priorities
Strictly speaking, the secured creditors do not belong to the bankruptcy ladder of creditors as a matter of the Lithuanian law. They are super-secured creditors and their claims are satisfied of the secured assets having deducted necessary administration costs.
The claims of unsecured creditors are settled in two stages. The first stage involves the satisfaction of creditors' claims without interest and contractual penalties, whilst the second stage covers the auxiliary claims for interest and contractual penalties. The Lithuanian hierarchy of seniority of claims is structured as follows:
Cancellation of contracts after opening bankruptcy proceedings
Many jurisdictions permit a counterparty to cancel a contract after the bankruptcy proceedings were opened. It is generally not prohibited to terminate contracts provided such the insolvency is specified as an event of an event of default permitting the immediate termination of the agreement. The bankruptcy administrator may challenge such termination and insist on performance, though this happens rarely in practice. The bankruptcy administrator has a more privileged position to terminate the contracts by reason of insolvency. If during 30 days after the relevant court order opening the insolvency proceedings came into effect, the bankruptcy administrator informs the contract counterparty that the bankrupt company is not going to continue the contract (except for the employment contract and the contract that entitles the bankrupt company to certain rights), such contracts are deemed to be terminated with immediate effect.
A company facing financial troubles can also be restructured, which permits the repayment of debts and being rescued from insolvency. Like in most of the jurisdiction, the restructuring involves staying of pending claims. The reorganization can be arranged under the following circumstances:
In practice, the option of restructuring a company is considered before the bankruptcy proceedings are initiated. In order to receive a court order for restructuring, the restructuration plan must be prepared, the administrator for restructuration must be nominated, each creditor must be notified about the restructuring plan, and the candidature of the administrator. As of 2010, the approval of creditors of the company to initiate the restructuring proceedings is not required. The restructuring plan before being submitted to the court must be approved by 2/3 of all members of the legal person. Following the positive court order to open the restructuring proceedings the following restrictions come into effect:
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