In 1992, the Supreme Council of the Republic of Lithuania passed the first
bankruptcy law - the 15 September 1992 Law No. I-2881 of the Republic of
Lithuania on Enterprise Bankruptcy. The law was replaced by Law No. VIII-270 of
the Republic of Lithuania on Enterprise Bankruptcy which was enacted by the
Seimas on 17 June 1997. The latter, after several revisions as well as some
inconsistencies with the practice of Lithuanian courts, was replaced by a
completely new 20 March 2001 Law No. IX-216 of the Republic of Lithuania on
Enterprise Bankruptcy which came into force on 1 July 2001 along with the set
of other new corporate laws.
The 20 March 2001 Law No. IX-216 of the Republic of Lithuania "On Enterprise
Bankruptcy" ("the Enterprise Bankruptcy Law");
The 3 July 2001 Resolution No. 831 of the Government of the Republic of
Lithuania "On Representation of State Institutions by Authorised Persons in
Enterprise Bankruptcy and Restructuring Procedures, Auction Sale of Assets of
Enterprises under Bankruptcy and Bankrupt Enterprises, and Supplementation of
the 15 December 2000 Resolution No. 1458 of the Government of the Republic of
Lithuania "On the List of the Subject Matter of a State Duty, Amounts and
Procedure for Payment and Refunding Thereof";
The 20 April 1993 Resolution No. 276 of the Government of the Republic of
Lithuania "On Establishing the Insolvency of Enterprises and the Order of
Implementation of the Main Procedures Related to the Implementation of the
Enterprise Bankruptcy Law of the Republic of Lithuania";
The 5 July 2001 Order No. 276 of the Minister of Economy of the Republic of
Lithuania "On Submission and Announcement of Data on Enterprise Bankruptcy
Procedures, Submission and Announcement of Data on Enterprise Restructuring
Procedures, Granting of the Right to Provide Enterprise Bankruptcy and
Restructuring Administration Services to Natural and Legal Persons, Procedure
for Control of Activities of Enterprise Bankruptcy Administrators, Composition
of Attestation Commission of Enterprise Bankruptcy and Restructuring
Administrators and Approval of the Code of Ethics of Business Administrators".
Scope of Regulation
The Enterprise Bankruptcy Law applies to all enterprises, public
establishments, commercial banks and other credit institutions (hereinafter
collectively - "enterprises") registered in the Republic of Lithuania.
The particular characteristics of bankruptcy procedure, where it relates to the
bankruptcy of banks, credit unions, insurance companies, agricultural
enterprises, brokerage firms, investment companies and other defined
enterprises and institutions, are set forth in the laws that specifically
regulate the activities of such entities or institutions.
For the first time the new Enterprise Bankruptcy Law includes a general rule
that it overrides the provisions of other laws regulating enterprise
activities, creditors' rights to satisfy their claims, creditors' rights to
recover debts, payment of taxes and other mandatory contributions and the
administration of these in the bankruptcy process. The Enterprise Bankruptcy
Law, therefore, ensures that all these types of situations are covered by the
same procedures, and removes inconsistencies between them.
The current Enterprise Bankruptcy Law is only applicable to enterprises where
bankruptcy procedures were initiated after 1 July 2001, the date on which the
law took effect.
Petition in Bankruptcy
Grounds for Filing Petition
Article 4 of the Enterprise Bankruptcy Law establishes the following grounds for
filing a bankruptcy petition with a court:
Entities or Persons Who May File Bankruptcy Petition
the enterprise fails to pay, when due, wages or satisfy other employment -
related amounts, when due;
the enterprise fails to pay, when due, for goods received, work performed or
services rendered, or fails to repay loans or fulfil other contractual
the enterprise fails to pay, when due, taxes, other compulsory contributions
prescribed by the laws and/or amounts adjudged from it;
the enterprise has publicly declared or otherwise communicated to the creditors
its inability or refusal to meet liabilities; or
the enterprise has no assets or income from which debts could be recovered and
therefore a court bailiff has returned the writs of execution to the creditor.
Article 5 of the Enterprise Bankruptcy Law authorises the following entities or
persons to file a bankruptcy petition with a court:
In case of enterprises in liquidation the bankruptcy petition may be brought by
the liquidator of the enterprise.
a creditor or group of creditors;
the owner or owners of the enterprise;
the head of administration of the enterprise.
Petitions are filed in writing, in the manner set forth by the Code of Civil
Procedure, in the district court having jurisdiction over the locality in which
the enterprise has its registered office.
Petitions Filed by Creditors
A creditor or group of creditors may file a petition in bankruptcy not earlier
than three months from the date when the obligation became due, or three months
after the creditor or creditors presented a demand for the performance of the
obligation where the term for performance has not been fixed. The creditor or
creditors must notify the enterprise manager, in writing, of the intention to
file a petition in bankruptcy. The enterprise must be provided with at least 30
days grace period to fulfil its obligation before the petition in bankruptcy
may be filed. These two conditions are not applicable in case the enterprise
has no assets or income, from which debts may be recovered, and therefore a
court bailiff returns executive writs to the creditor.
Petitions Filed by Owners and Head of Administration
Definition of the "owner" in the Enterprise Bankruptcy Law is rather broad and
includes not only owners of unlimited liability enterprises, but also
shareholders (or a group of shareholders) having more than 10% of shares in a
limited liability enterprise (e.g. a public or private company).
Owners (shareholders) or the head of administration of the enterprise file a
bankruptcy petition in case the enterprise is not or will not be able to fulfil
all its liabilities to the creditors and the creditors have not filed the
bankruptcy petition of their own, also in case of public declaration of the
enterprise or other communication to the creditors of its inability or refusal
to meet liabilities.
Petitions Filed by Enterprise Liquidator
If at the time of liquidation of the enterprise it is established that the
enterprise will not be able to fulfil all its liabilities, the enterprise
liquidator must, not later than within 15 days after the establishment of said
state of the enterprise, file a petition in bankruptcy.
The court, not later than within 1 month from the date of filing of the
bankruptcy petition (this term may be extended for another month yet), renders
a decision to institute a bankruptcy proceedings or refuse initiation thereof.
The bankruptcy proceedings will be instituted if the court has sufficient
grounds to find the enterprise insolvent or, alternatively, it is found that
the enterprise has publicly declared or otherwise communicated to the creditors
its inability or refusal to meet liabilities.
The Enterprise Bankruptcy Law largely redefines the concept of insolvency. An
enterprise is considered insolvent if it fails to settle with creditors within
three months after the due date and the aggregate value of its overdue
liabilities is more than a half of the net book value of all its assets.
Pending (non-overdue) debts are not taken into account when determining the
Institution of the bankruptcy proceedings may also be postponed or denied in
case a restructuring petition is filed or restructuring proceedings are
instituted in respect of the enterprise. Initiation and implementation of
restructuring procedures is regulated by a separate enactment - the 20 March
2001 Law No. IX-218 of the Republic of Lithuania "On Restructuring of
The following are the most significant actions and consequences that occur after
the court institutes bankruptcy proceedings:
By the same ruling which institutes the bankruptcy proceedings the court
appoints the bankruptcy administrator of the enterprise as well as establishes
a term for the creditors to file creditor claims against the enterprise in
the management bodies of the enterprise transfer to the appointed bankruptcy
administrator the assets of the enterprise;
the management bodies of the enterprise lose their powers and the appointed
bankruptcy administrator terminates employment contracts with the board members
and the head of administration of the enterprise;
the enterprise is prohibited from fulfilment of liabilities not met prior to
the initiation of bankruptcy proceedings, including payment of interest,
penalties and taxes; an automatic stay is put on actions for the recovery of
debts of the enterprise, either through court action or directly; calculation
of interest and default interest for all liabilities of the enterprise,
including those related to employment relations, is suspended;
the appointed bankruptcy administrator of the enterprise within 30 days of the
initiation of bankruptcy procedures is entitled to unilaterally decide and
notify other parties on termination of the agreements of the enterprise
(including lease or loan for use agreements); termination rights are not
applicable only to employment agreements and agreements from which the rights
of claim of the enterprise arise;
the enterprise has the right to engage in business activities only if such
activities decrease losses of the creditors incurred in relation to the
enterprise bankruptcy, and to consume income received from such business
activities for covering of the business-related expenses; if the enterprise's
business activities generate tax obligations, the enterprise must pay taxes
under the laws of the Republic of Lithuania;
upon request of the creditors, the court may impose restrictions on the
enterprise's business activity and disposal of its assets which then may be
sold, leased, pledged or otherwise transferred or conveyed only by leave of the
Point of Interest
The appointed bankruptcy administrator has unilateral powers to terminate ongoing agreements of the enterprise in bankruptcy (including property lease or usage agreements) and is not required to provide reasoning for such termination.
When instituting bankruptcy proceedings, the court must appoint a bankruptcy
administrator for the enterprise. The candidate for the bankruptcy
administrator may be suggested by the petitioner or other parties entitled to
provide bankruptcy petition, however, the court is authorised to appoint
another candidate to the bankruptcy administrator, provided such person meets
the established requirements. Discharge of the administrator is also possible
only through a court ruling.
The bankruptcy administrator is an individual or a legal person appointed by
the court with the right and authority to provide bankruptcy administration
services, act as an enterprise manager and executor of court decisions and
orders and/or resolutions of the creditors' meeting, from the date of the
court's ruling to institute bankruptcy proceedings throughout the bankruptcy
A natural person may not be the bankruptcy administrator of two enterprises at
the same time. However, practically, if the bankruptcy administrator is a legal
person, such administrator's representative, a natural person, may act as the
bankruptcy administrator's representative for an unlimited number of bankrupt
enterprises. Only natural and legal persons that have obtained a qualification
certificate (in case of a natural person) or permission to provide
administration services (in case of a legal person) from the Ministry of
Economy of the Republic of Lithuania may be appointed as bankruptcy
In addition, the appointed administrator may not be: a creditor (a person
connected with the creditor by employment relations or a member of the latter's
management bodies) of the enterprise under bankruptcy; a person who under the
laws of the Republic of Lithuania or other legal act has no right to be
appointed the head of administration; an owner of the enterprise or its
daughter enterprise; a member of the supervisory board or the board, head of
administration or its deputies, chief financier of the enterprise or its parent
enterprise; a shareholder owning in excess of 10% of shares of the enterprise
or its parent enterprise. The prohibition also applies to persons employed in
an enterprise under bankruptcy or dismissed from office within 12 months
immediately preceding the initiation of bankruptcy proceedings.
Point of Interest
Powers of the bankruptcy administrator are very broad. Among the powers of the bankruptcy administrator established in Article 11 of the Enterprise Bankruptcy Law are: the power to manage, use and dispose of the assets of an enterprise under bankruptcy; the power to conclude new transactions on behalf of the enterprise; the power to examine transactions of the enterprise under bankruptcy concluded within a period of at least 36 months before the initiation of bankruptcy proceedings. Administrator also has the authority to file with the court, in which the bankruptcy hearing is conducted, claims for the invalidation of pre-bankruptcy transactions and claims to declare invalid the fraudulent discharge of financial liabilities, also within 30 days after institution of bankruptcy proceedings to decide on termination of ongoing transactions of the enterprise.
Although the Enterprise Bankruptcy Law provides that the bankruptcy
administrator is liable for any losses incurred through his/her fault, and that
his/her activities are controlled by competent governmental institutions, these
do not ensure adequate safeguards on the activities of the administrator. It
should be noted that creditors of the enterprise in bankruptcy have no instant
and direct means to supervise the bankruptcy administrator.
Non-Judicial Bankruptcy Proceedings
Bankruptcy procedures may be implemented without involvement of the court,
provided that no court proceedings, under which proprietary claims, including
claims connected with employment relations, have been instituted against the
The decision to utilise non-judicial bankruptcy procedures is adopted at a
meeting of creditors, provided that the decision is approved by open voting of
the group of creditors whose claims, in terms of value, account for at least
4/5 of the amount of the enterprise's current financial liabilities (including
those which are not due), as of the day of the creditors' vote.
In the case of non-judicial bankruptcy proceedings, all issues within the
jurisdiction of the court may be considered and decided by the creditors'
Point of Interest
Rather uniform procedures for non-judicial bankruptcy proceedings were provided in several revisions of the Enterprise Bankruptcy Law, however, there have been no actual non-judicial enterprise bankruptcy proceedings in Lithuania within the last decade.
Protection of Creditors, Debtors and Third Persons
Upon the institution of bankruptcy proceedings, the court will fix the time
period within which creditors must present their financial claims. The time
period may be not less than 30 days and not longer than 45 days from the date
of institution of the bankruptcy proceedings. The administrator is entitled to
adjust the creditors' claims according to the books and records of the
enterprise, as well as to challenge unreasonable claims in the court. The
creditors' claims must be reviewed and approved by the court.
Point of Interest
The court, in its discretion, may accept the creditors' claims after the date fixed, provided that the failure to act in a timely manner has been justified. Late submissions, however, may be accepted only until the end of bankruptcy proceedings. Thus, the court may approve the creditors' claims only until the court decision to liquidate the bankrupt enterprise comes into force.
From the date of the institution of bankruptcy proceedings, the enterprise
owner(s) and its administration cease having the right to conclude any
business-related contracts or dispose of the enterprise's assets. Likewise,
creditors are prohibited from taking over the assets or seizing funds of the
enterprise after the institution of bankruptcy proceedings. Persons or entities
using, leasing or holding in custody the assets of the enterprise under
bankruptcy are prohibited from concluding any contracts with respect to such
assets. As it has already been noted, the continuation of the ongoing
transactions is dependent on the administrator of the enterprise.
If the court, in which the bankruptcy hearing is conducted, deems the
bankruptcy to be fraudulent, the bankruptcy administrator must review all
contracts concluded by the enterprise within at least the last 5 years. If the
bankruptcy administrator finds contracts which are contrary to the interests of
the enterprise and/or which could have brought about the enterprise's inability
to satisfy creditors claims, an action to invalidate such contracts must be
brought before the court conducting the enterprise bankruptcy hearing.
All cases containing proprietary claims, that have been filed with the courts
prior to the institution of bankruptcy proceedings, will be referred to the
court conducting the enterprise bankruptcy proceedings. All debts of the
enterprise under bankruptcy are considered past due as of the date of the
institution of bankruptcy proceedings.
After the institution of the bankruptcy proceedings, the creditors of the
enterprise have the right:
Point of Interest
within the court prescribed time period, to present creditors' claims and
supporting documents, as well as indicate any security of their claims issued
by the enterprise;
to refer to the court in respect of intentional bankruptcy and to challenge
resolutions of the meeting of creditors of the enterprise;
to attend the meetings of creditors of the enterprise and defend own claims;
according to the procedure established by the meeting of creditors to receive
information on the course of bankruptcy proceedings from the bankruptcy
The Enterprise Bankruptcy Law does not expressly establish the creditors' right to receive information on the economic activities of the enterprise in bankruptcy - fulfilment of transactions, disposals of assets etc.
The creditors' meeting to be convened not later than within 15 days after the
approval of the creditors' claims by the court, will have the following rights:
Generally, a resolution of the creditors' meeting is deemed adopted if an
affirmative, open vote is taken by the creditors whose claims in terms of
value, approved by the court, account for more than a half of the amount of all
approved creditors' claims.
to elect the chairman of the creditors' meeting;
to decide on the formation of the creditors' committee, elect the committee,
change its composition and delegate to the committee all or part of the rights
vested in the creditors' meeting;
to investigate creditors' complaints relating to actions of the administrator;
to demand that the administrator reports on his/her activities and approve such
reports. (If the administrator's report is not approved by the creditors'
meeting, it may be approved by court);
to approve the estimate of administrative expenses, as well as to revise this
to submit proposals to the court on continuation of the enterprise's economic
activities, restrictions thereon as well as to restrict its freedom to dispose
of the enterprise's property;
to fix the number of employees to be employed during the bankruptcy procedures;
to fix the salary of the administrator;
to adopt a resolution on concluding the settlement with creditors;
to apply to the court for the replacement of the administrator;
to propose to the court that the liquidation procedure be applied with respect
to the enterprise;
to resolve any other issues ascribed under the law to the competence of the
In order to more effectively supervise the bankruptcy procedure, the
administrator's activity, as well as to protect the creditors' interests, the
creditors' committee can be formed by the creditors' meeting. The rights of the
creditors' committee are established by the creditors' meeting. The creditors'
committee consists of at least 5 members. At least one member of the creditors'
committee is a representative of the employees if the enterprise has employment
- related liabilities.
Points of Interest
No particular procedure for election of the creditors' committee is prescribed in the Enterprise Bankruptcy Law. This, in practice, allows formation of creditors' committee which represents principally the interests of the majority of creditors.
The creditors are free to assign their claims to other creditors or third parties, they are also entitled to reduce or waive their claims. Assignment of claims does not affect the ranking thereof as established in the Enterprise Bankruptcy Law.
Termination of Bankruptcy Proceedings
Bankruptcy proceedings may be terminated on the following grounds:
all creditors waive their claims and the court accepts the waivers; or
the enterprise in bankruptcy settles all creditors' claims and the
administrator provides proving documents to the court; or
a settlement with creditors is concluded and approved by the court.
Restructuring of Enterprises
Important feature of the Enterprise Bankruptcy Law is that it does not allow
rehabilitation or similar procedures to take place after bankruptcy proceedings
have been instituted against the enterprise. Restructuring of enterprises is
governed by a separate law - the 20 March 2001 Law No. IX-218 of the Republic
of Lithuania on Restructuring of Enterprises. Restructuring of an enterprise
may only be attempted prior to the institution of bankruptcy proceedings
against such enterprise. No restructuring is possible after bankruptcy
proceedings are in place. After bankruptcy proceedings are started i.e.
application for bankruptcy is approved, the enterprise may only be wound up and
liquidated, or recovered through an amicable settlement with the creditors.
The Law on Restructuring of Enterprises came into effect simultaneously with the
Enterprise Bankruptcy Law on 1 July 2001. The law governs the restructuring of
enterprises and public establishments which face temporary financial
difficulties, its main aim being to avoid bankruptcy. The purpose of the law is
to allow enterprises that face temporary financial difficulties and have not
ceased commercial activity to preserve and maintain their activity, as well as
to settle their debts and restore their solvency. Unlike the Enterprise
Bankruptcy Law, it applies only to enterprises, not to other types of legal
entities. Moreover, it does not apply to banks, credit unions, other credit
institution, insurance companies, investment companies, pension and other funds
or to securities brokers. It gives priority to restructuring over bankruptcy
proceedings by establishing that restructuring petitions will prejudice
bankruptcy petitions against the enterprise i.e. if the petition for
restructuring of enterprise is provided simultaneously or after the petition
for bankruptcy, then the bankruptcy petition will be decided only if
restructuring petition is dismissed.
Settlement with Creditors
The only way to recover enterprise in bankruptcy foreseen in the Enterprise
Bankruptcy Law may be a settlement agreement between the enterprise and the
creditors. The settlement agreement may be proposed by the creditors,
administrator or owners. The settlement agreement must be signed by all
creditors, whose claims are not satisfied, or their authorised representative
and the enterprise's administrator upon written consent of the enterprise
owner(s), the management body which has the right to decide on liquidation or
A settlement with creditors may be concluded at any stage of the bankruptcy
proceedings prior to the ruling on liquidation by the court. The court, and in
case of non-judicial bankruptcy procedures - the public notary, must approve
the settlement agreement.
Liquidation of Bankrupt Enterprises
If the bankruptcy court enters no ruling regarding the approval of the
settlement agreement between the enterprise and its creditors (i.e. if
settlement is not reached) within 3 months from the approval of creditors
claims by the court, and extension of the said term was not requested by the
creditors' meeting, the court will adjudge the enterprise bankrupt and issue a
decision instituting liquidation proceedings.
Functions of the liquidator of the enterprise will be performed by the
bankruptcy administrator. In liquidation the administrator disposes of the
assets of the enterprise, organises sale or assignment of the assets, satisfies
approved creditors claims, appropriates assets remaining after settlement with
the creditors to the owners (shareholders) etc. A bankrupt enterprise may be
removed from the register not earlier than 1 month following the effective date
of the liquidation ruling.
Sales of Assets and Ranking of Creditors Claims
The assets of the enterprise and receivables owed to the enterprise are
appraised prior to selling. Immovables and mortgaged/pledged assets will only
be sold through public auction according to the procedure laid down by the
Government. Publicly traded securities will only be sold in compliance with
applicable legislation. Procedure for selling assets other than immovables will
be established by the creditors of the enterprise. Unsold assets may be
transferred to the creditors.
The ranking of creditors' claims in satisfaction is established in Articles 34
and 35 of the Enterprise Bankruptcy Law as follows:
Important feature of the Enterprise Bankruptcy Law is that it introduces a
two-stage system for the satisfaction of creditors' claims. Principal claims
(without accrued interest and fines) are satisfied first, and then, only after
the principal claims of all creditors have been satisfied, accrued interest and
fines are compensated in the second stage.
claims by creditors secured by a mortgage/pledge of the debtor (only in respect
of the proceeds from sale of mortgaged/pledged assets);
employment - related claims and claims arising from unpaid debts for
agriculture production supplied to the debtor (the Government of the Republic
of Lithuania has established funds to aid in the satisfaction of claims arising
from employment relations and compensation for the unpaid supply of
tax, social insurance and state medical insurance related claims and claims
relating to loans guaranteed by or issued on behalf of the Republic of
Lithuania or the Government; and
all other creditors' claims.
The Enterprise Bankruptcy Law does not establish the maximum limit for
administration expenses of the enterprise in bankruptcy. These expenses are
compensated from all funds of the enterprise in bankruptcy (proceeds from sale
of assets, including mortgaged/pledged assets, income from economic activities,
recoveries etc.). The estimate of administration expenses, the procedure and
ranking of payment are established by the creditors' meeting.