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Under effectual legal acts of Lithuania the definition of insolvency is used only speaking about legal entities. Legal acts regulating bankruptcy of natural persons is going to be drafted following the best world practice.
According to the Enterprise Bankruptcy Law an insolvency is the state of an enterprise when it fails to settle with the creditor/creditors after the lapse of three month from the deadline prescribed by laws, other legal acts as well as by agreements between a creditor and the enterprise, or upon expiry of the said time period after the creditor/creditors demands/demand the discharge of the obligations where the deadline has not been set in the agreement, and the overdue obligations/debts are in excess of over a half of the value of the assets on the enterprise’s balance.
The purpose of bankruptcy proceedings is:
Under effectual laws, restructuring, as insolvency proceeding, may only be formal. Bankruptcy proceedings can be both formal and informal. Bankruptcy proceedings may be enacted not following judicial order if there are no cases in court wherein there are material claims including claims regarding labour relations, also if an enterprise is not being levied under enforceable instruments issued by courts or other institutions.
There are two equivalents of formal insolvency proceedings for administration purposes in Lithuania – restructuring and making a composition with creditors in bankruptcy proceedings.
Formal insolvency proceeding for liquidation purposes is declaration of bankruptcy of an enterprise and its liquidation.
At least one of the conditions for opening bankruptcy proceedings may be present, when the enterprise:
Restructuring of an enterprise may commence when the following conditions are present:
A petition to initiate restructuring proceedings shall be filed to the court by the head of the enterprise.
If during the liquidation of the enterprise it transpires that it will be unable to discharge all its liabilities, the enterprise liquidator must suspend all payments and state file for initiating the enterprise bankruptcy proceedings.
It is established that county courts examine both bankruptcy and restructuring proceedings:
When filing to court a petition for enterprise bankruptcy or restructuring, any person as well the court may nominate a candidate to the post of the administrator. Unlike in restructuring process, the candidacy of the administrator for bankruptcy must be coordinated with the Enterprise Bankruptcy Management Departament which supervises the activities of administrators.
The administrator shall exercise functions of the liquidator, in particular:
After the court order to institute bankruptcy proceedings becomes effective, the enterprise managing bodies shall lose their powers - they shall transfer the administrator the assets of the enterprise according to the financial accounts and all pertinent documents.
If the owners of an enterprise make a decision to restructure the enterprise and consent of creditors is given or if the creditors make a proposal for restructuring of the enterprise and the owners give their consent, the head of the enterprise files a petition on initiating the enterprise restructuring proceedings to the court.
All creditors may:
Creditors’ consent or proposal is necessary for initiating restructuring proceedings and they must approve the guidelines for the enterprise restructuring plan.
The creditors' meeting shall:
In the process of bankruptcy the enterprise managing bodies must transfer the assets of the enterprise to the appointed administrator on the day the order to institute bankruptcy proceedings comes into effect. The court may provide provisional protective measures in force until the effective date of the court order to institute bankruptcy proceedings or the refusal to institute it as well as must levy an attachment against the immovable property and other fixed tangible assets of the enterprise, in force until the effective date of the court order to institute bankruptcy proceedings.
In the process of restructuring, the restructuring plan shall be implemented, all property owned or held in trust shall be disposed of and economic activities of the enterprise shall be directed by the managing bodies within the limits of their competence. The enterprise may not sell the enterprise or a part thereof, long-term assets or property rights, assign the enterprise or a part thereof, long-term assets or property rights, or transfer them for use without remuneration, grant guarantees, give sureties, pledge or secure the discharge of the obligations in any other way.
There are two types of claims:
Upon institution of bankruptcy proceedings all creditors must lodge their claims with the court. Individual acts of creditors are not possible as all the claims lodged against the enterprise are referred to the court.
Persons, who have leased, borrowed, are keeping in custody, or using or managing on any other grounds the assets of the enterprise in bankruptcy shall be prohibited from concluding with third parties contracts relating to the above assets. All contracts entered into in breach of this provision shall be invalid as of their conclusion.
The creditors’ claims are satisfied in the sequence and procedure established by the law.
First in line for satisfaction shall stand claims for compensation for damage caused by grievous bodily harm or some other injury, an occupational disease or death due to an accident at work.
The name of the enterprise may be preserved when the arrangement with creditors is concluded. The name can also be sold.
Upon the institution of bankruptcy proceedings against the enterprise the administrator of the enterprise shall upon a 15-day written advance notice terminate employment contracts with the members of the enterprise board and the head of the administration. The said individuals shall not be entitled to severance pay or compensation, except for monetary compensation for the unused holidays.
Within 3 working days after the institution of bankruptcy proceedings against the enterprise the administrator gives the workers of the enterprise a written notice of the termination of employment contracts with them and after 15 working days terminates the employment contracts with them.
In bankruptcy case the contracts which are contrary to the objectives of the enterprise activities and/or which could have led to the disability of the enterprise to settle with creditors are considered as detrimental. If the court establishes a fraudulent bankruptcy, the administrator must review all contracts concluded within the 5-year period prior to the institution of bankruptcy proceedings.
In restructuring case the contracts which are contrary to the objectives of the enterprise and/or which might have led to the inability of the enterprise to settle with creditors.
In the process of insolvency the court sets a time limit within which the creditors shall have the right to file their claims which emerged prior to the institution of bankruptcy proceedings.
The administrator of the enterprise compiles the list of all enterprise creditors and their claim on the basis of claims filed by the creditors and submits the list to the court for approval.
The creditors’ claims are satisfied in two stages. During the first stage the creditors’ claims not including the computed interest and default interest are satisfied. In the second stage the remaining part of the creditors’ claims (interest, default interest) are paid in the following sequence:
The creditor’s claims secured by pledge and/or mortgage shall be paid first of all from the proceeds obtained from the sale of the pledged assets of the enterprise or by transferring the pledged assets.
The court shall declare the enterprise bankrupt and issue an order to put the enterprise into liquidation if an order to conclude the arrangement with the creditors is not issued within 3 months from the effective date of the order to allow the creditors claims and the court has not granted any extension of the deadline. Immovable property and pledged assets shall be sold by auction. The procedure of sale of other assets, except the pledged assets, shall be decided by the creditors. Unsold assets may be transferred to the creditors. The creditors whose claims have not been satisfied due to the insufficiency of funds shall decide on the use of the unsold assets.
The creditors’ claims in the liquidation procedure shall be satisfied in the same stages and sequence as the claims in the bankruptcy procedure. (See Question 7.)Claims connected with employment relationships which have been put forward by workers may be satisfied from the resources of the Guarantee Fund. The allowed claims of a worker or a natural or legal person shall be reduced by the amount of the sum paid from the above Funds.
A bankruptcy case shall be discontinued when:
The head of the enterprise shall be given a fine for violations of the order for satisfaction of creditors’ claims, for not filing a petition for initiation of the enterprise bankruptcy proceedings, etc.
A person, who has deliberately mismanaged the enterprise thus bringing it to bankruptcy and causing the creditors material damage shall be imposed a punishment of up to three years of imprisonment.
A fraudulent debtor shall be given a fine or a punishment of imprisonment.Top
Last update: 30-05-2007