Insolvency Law at Lithuania
Lithuania's insolvency framework is governed by the Law on Insolvency of Legal Entities and the Law on Bankruptcy of Natural Persons, which were significantly reformed in 2021 to align with EU directives, notably Directive (EU) 2019/1023 on preventive restructuring frameworks. These reforms aim to facilitate early intervention, promote restructuring over liquidation, and provide debt relief mechanisms for both individuals and companies.
⚖️ Key Features of Lithuania’s Insolvency Law
1. Expanded Definition of Insolvency
The concept of insolvency has been broadened to include two alternative criteria: (Lithuania: new insolvency concept enters into force | bnt attorneys in CEE)
Inability to fulfill property obligations in due time
Liabilities exceeding the value of assets (Lithuania: new insolvency concept enters into force | bnt attorneys in CEE)
This expansion allows for earlier initiation of bankruptcy proceedings, potentially increasing the number of cases. (Lithuania: new insolvency concept enters into force | bnt attorneys in CEE)
2. Bankruptcy Proceedings
Initiation: Bankruptcy proceedings can be initiated by the debtor or creditors when the company is insolvent or has failed to pay employee wages for three months. (ENTERPRISE BANKRUPTCY LAW)
Court Role: The court appoints a bankruptcy administrator to manage the process, including asset liquidation and distribution to creditors.
Duration: The duration of bankruptcy proceedings varies, typically ranging from 6 months to 6 years, depending on the complexity of the case. (TEN Q&A on bankruptcy and insolvency: Lithuania)
3. Restructuring Proceedings
Eligibility: Available to legal entities that are not insolvent, have not terminated operations, and meet certain other criteria. (Insolvency/bankruptcy | European e-Justice Portal)
Process: Involves the development of a restructuring plan to restore solvency, which must be approved by both the company's members and creditors. (Insolvency/bankruptcy | European e-Justice Portal)
Supervision: A restructuring administrator oversees the implementation of the plan. (Insolvency/bankruptcy | European e-Justice Portal)
4. Personal Bankruptcy
Eligibility: Natural persons who are insolvent and acting in good faith can apply for bankruptcy proceedings. (Insolvency/bankruptcy | European e-Justice Portal)
Process: Involves the development of a solvency recovery plan, which, upon approval by creditors and the court, becomes mandatory. (TEN Q&A on bankruptcy and insolvency: Lithuania)
Duration: The bankruptcy procedure for a natural person is fixed and cannot exceed 3 years. (TEN Q&A on bankruptcy and insolvency: Lithuania)
5. Creditor Participation
Creditors have the right to:
File claims and attend meetings
Vote on restructuring or recovery plans
Request the removal of administrators
Challenge transactions and decisions
Receive information on the progress of proceedings (Insolvency/bankruptcy | European e-Justice Portal)
6. Legal Obligations for Company Directors
Directors are required to:
Promptly initiate bankruptcy proceedings if the company is insolvent
Cooperate with administrators and provide necessary information
Avoid actions that could harm creditors' interests
Failure to comply may result in personal liability for damages caused to creditors. (Lithuania: new insolvency concept enters into force | bnt attorneys in CEE)
📅 Timeline of Key Reforms
15 July 2021: The Law on Insolvency of Legal Entities and the Law on Bankruptcy of Natural Persons entered into force.
1 January 2023: Certain provisions, including those related to restructuring proceedings, became applicable.
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