Chapter 1
General Provisions
Article 1. Purpose of the Law
This Law shall regulate the relations which arise while
instituting and examining bankruptcy cases and implementing
bankruptcy procedures.
This Law shall apply to all economic entities whose
activities are determined by the Republic of Lithuania Law on
Enterprises and other laws which regulate the activities of
enterprises. The peculiarities of instituting bankruptcy
proceedings against banks and other credit institutions,
insurance agencies, and agricultural enterprises may be
established by other standard acts regulating the activities of
said enterprises.
This Law shall not apply to specialpurpose State
enterprises, budgetary and public organisations, or non-profit
organisations (enterprises).
Article 2. Enterprise Bankruptcy Procedure
Enterprise bankruptcy procedure shall involve the
appointment of an enterprise liquidator, the conclusion of a
settlement between the creditors and the debtor, the
reorganisation or rehabilitation of the enterprise with the aim
of avoiding bankruptcy, as well as the liquidation of insolvent
enterprises. Enterprise bankruptcy procedures may be applied
according to judicial or extrajudicial procedure.
The institution of bankruptcy proceedings, its course, and
the bankruptcy procedure implemented at an enterprise must be
recorded in the Enterprise Register.
Article 3. Conditions for Instituting Enterprise Bankruptcy
Proceedings
The court shall institute enterprise bankruptcy proceedings
in accordance with:
1) petitions of creditors concerning the insolvency of an
enterprise. These petitions may be filed three months after the
expiration of the period established in laws, other standard
acts, and agreements between creditors and the enterprise, or, if
the term is not established in the agreements, upon the
expiration of the said period after the creditor requests that
liabilities be fulfilled, by indicating that the debtor's
liabilities exceed his assets;
2) petitions of creditors concerning the excessive debt of
an enterprise. These petitions may be filed when the assets of an
enterprise having the rights of a legal person are not sufficient
to satisfy its debts (in the balance, the debtor's aggregate
property is estimated to be less than the loan capital);
3) petitions of creditors concerning the improper disposal
of an enterprise's assets (gratuitous transfer, selling at lower
prices, or other squandering) or other actions which provide
grounds for the creditors to believe that their claims will not
be satisfied from the debtor's assets; and
4) petitions filed by the owner(s) of an enterprise or its
managing body within whose competence is the adoption of
decisions concerning the reorganisation or liquidation of the
enterprise, if the enterprise is insolvent or if its insolvency
is actually (provably) expected, or if the available assets of
the enterprise are insufficient to meet the liabilities incumbent
on it.
Documents proving the validity of the petition to institute
enterprise bankruptcy proceedings must be attached to the
petition.
Article 4. Application of Extrajudicial Bankruptcy Procedure
Debtors and creditors may refrain from applying to the court
for the institution of an enterprise bankruptcy proceedings if
the debtor publicly announces that he is unable to satisfy the
liabilities incumbent on him, and notifies every creditor thereof
in writing. The notice must contain the name of the enterprise
and other requisites, as well as the date and place of the first
meeting of creditors.
Decisions concerning the application of extrajudicial
bankruptcy procedure may be adopted by a meeting of creditors
upon agreement with the debtor, provided that the decision is
unanimously approved by all the creditors.
The procedure for implementing the decisions of the meeting
of creditors and satisfying their claims shall be established in
accordance with the judicial procedure and conditions for
investigating bankruptcy cases as established in this Law.
(Amended 28 September 1993)
In the event that the parties fail to reach an agreement
concerning the application of bankruptcy procedure, or if the
meeting of creditors, in pursuance of the procedure established
by this Law, cannot adopt a decision concerning the conditions
and procedure for satisfying the claims, the issue shall be
referred to the court.
The extrajudicial bankruptcy procedure shall be implemented
by the meeting of creditors.
Article 5. Fraudulent Bankruptcy
Fraudulent bankruptcy shall be the activities of an
enterprise as established by a court decision whereby the
enterprise is seeking to evade full or partial settlement with
creditors.
Upon establishing fraudulent bankruptcy of an enterprise, the
court must examine the transactions concluded by the enterprise
within the 12 months prior to the institution of bankruptcy
proceedings and must determine their legality. The assets
transferred in accordance with the transactions declared invalid
by the court must be appropriated for the satisfaction of the
creditors' claims.
Upon establishing fraudulent bankruptcy, creditors whose
financial claims have not yet matured shall have the right to
request the payment of debts from the day of the enforcement of
the court decision.
Fraudulent bankruptcy of enterprises may be established on
the initiative of the court on the basis of petitions filed by
the meeting of creditors or by individual creditors.
In cases of fraudulent bankruptcy, the creditors' claims
shall be satisfied in accordance with the procedure established
by this Law.
Liability for actions which were the cause of fraudulent
bankruptcy shall be established by the laws of the Republic of
Lithuania.
The court decision acknowledging fraudulent bankruptcy may
be appealed in the manner established by the Code of Civil
Procedure.
Chapter 2
Court Investigation of Cases of Enterprise Bankruptcy
Article 6. Instituting Bankruptcy Proceedings in Court
Enterprise bankruptcy proceedings shall be instituted by the
court of the district wherein the main office of the enterprise
is located.
The court shall have the right to refuse to institute
bankruptcy proceedings if the petition was filed by only one
creditor or if the total claims of the creditors are not
substantial in comparison with the enterprise's authorised
capital. In such an event, property claims of the debtor and the
creditors shall be settled in accordance with the general
procedure for settling property disputes.
Upon accepting petitions of the debtor or creditors and
preliminarily determining the validity of claims for instituting
legal action concerning the bankruptcy of an enterprise, the
court shall adopt a decision to institute proceedings within 7
days and must:
1) warn the debtor in writing that he must immediately
inform of changes of the main office of the enterprise;
2) notify the known creditors, the financial and credit
institutions servicing the enterprise, the founder of the
insolvent state or state joint stock enterprise, as well as the
registrar who registered the enterprise, of the instituted
proceedings, and give public notice thereof specifying:
the court which shall investigate the bankruptcy case as
well as the number of the case;
the requisites of the insolvent enterprise;
the date and place of the first meeting of creditors; and
the term within which the creditors may file their claims.
3) appoint a liquidator of the enterprise. If the court has
information that the enterprise's assets are being squandered or
that the rights of the creditors are being violated by other
actions, a provisional liquidator may be appointed by a court
order before instituting the enterprise bankruptcy proceedings;
4) notify the enterprise of the prohibition from terminating
labour relations with its employees at the initiative of the
managing body;
5) suspend other legal actions instituted against the
enterprise in this court, and notify other courts which
investigate any other cases regarding the enterprise of the
bankruptcy proceedings being instituted in order to have other
legal actions brought against the enterprise suspended; and
6) inquire of the body responsible for rehabilitation for
the possibility to apply rehabilitation measures to the
enterprise. If the proceedings are instituted against a state
enterprise or a state joint stock enterprise, the court must also
inquire of the founder thereof. The rehabilitation body and the
founder must respond to the inquiry within one month from its
receipt.
The decision of the court to institute bankruptcy
proceedings may be appealed in the manner established by the Code
of Civil Procedure.
In the event that a case against the enterprise is
dismissed on the grounds of a settlement, reorganisation or
rehabilitation, notice thereof shall be given to the finance and
credit institutions servicing the enterprise, the founder of the
state enterprise or state joint stock enterprise, and the
registrar of the enterprise, and shall be publicly announced as
well.
In the event that the court institutes bankruptcy
proceedings:
the managing bodies of the enterprise shall lose their
powers. If the case against the enterprise is dismissed on the
grounds provided for in this Law, the managing bodies of the
enterprise shall have the right to continue carrying out their
functions;
the payment of all debts, including interest and taxes, as
well as their recovery by suing for claims or without suit shall
be prohibited; the distribution or other allocation of the assets
of the enterprise without a special court order shall also be
prohibited, with the exception of current payments which are
necessary for the enterprise to continue its activities during
the investigation of the case.
Article 7. The Enterprise Liquidator
The liquidator shall be the manager of an enterprise during
the period of the investigation of the bankruptcy case.
Representatives of the debtor (owner(s) of the enterprise,
member of its board, administration head) may not be appointed
liquidator.
During the investigation of enterprise bankruptcy case, the
liquidator shall have the following rights and duties:
1) to represent the enterprise in court, in the meeting of
creditors, and in economic activities;
2) to manage and dispose of the assets of the enterprise
and to direct the current commercial-economic activities of the
enterprise;
3) to examine all the transactions concluded by the
enterprise during the 12 months prior to the institution of
bankruptcy proceedings or public declaration of the enterprise as
insolvent, and to lodge claims to declare the transactions
invalid if they prove to have been detrimental to the enterprise;
4) to compile a list of creditors' claims and submit it to
the court for approval, and to contest ungrounded claims of
creditors;
5) to employ or dismiss employees;
6) to raise new credits and to lease or sell a portion of
the enterprise's property; and
7) to make decisions concerning the further implementation or
termination of the enterprise's prior transactions, the term of
implementation whereof has not yet expired.
Article 8. Approval of the Liquidator's Decisions and his
Responsibility
All decisions of the liquidator which increase the
enterprise's debt as well as those related to the sale or other
transfer of the enterprise's assets must be approved by the
meeting of creditors or, upon the commission of the meeting, by
the chairperson of the meeting, with the exception of cases when
these decisions are necessary to guarantee the activities of the
enterprise. These decisions shall be invalid without the said
approval.
The liquidator shall compensate for losses incurred by the
enterprise while implementing decisions enumerated in Par.1
hereof which were not duly approved.
Article 9. Rights of Creditors upon the Institution of
Enterprise Bankruptcy Proceedings by the Court
Upon the institution of enterprise bankruptcy proceedings by
the court, the creditors shall have the right, within the
courtestablished period which shall be at least 30 days and no
more than 3 months from the day the proceedings are instituted,
to lodge their monetary claims with the liquidator and to specify
securities for the claims.
The court shall have the right, up until the conclusion of
the case investigation, to accept claims of creditors which are
lodged in violation of the term established in Par.1 hereof,
provided that the violations were for valid reasons.
Chapter 3
The Meeting of Creditors
Article 10. The Work Procedure of the Meeting of Creditors
The liquidator shall include, in the creditor list,
creditors who have lodged claims against debtors in accordance
with the procedure established in Article 9 of this Law. The list
shall be approved by the meeting of creditors; in the event that
the enterprise is adjudged to be a bankrupt, the list shall be
approved by the court in accordance with the legal procedure.
All of the creditors shall have equal rights regardless of
their place of registration, the location of their foreign
capital, their form of ownership and their citizenship.
The court shall appoint the chairperson of the creditors'
meeting.
Owners of insolvent enterprises or their representatives,
enterprise liquidators appointed by the court, as well as the
representatives of the founder of state enterprises and state
joint stock enterprises shall have the right to participate in
the sittings of the creditors' meeting. Only creditors (their
representatives) shall be entitled to vote.
The court, the owner(s) of an enterprise which has declared
that it is not in position to satisfy its liabilities, or the
managing body which has the competence to adopt decisions
concerning the reorganisation or liquidation of the enterprise,
shall have the right to call the first meeting of creditors. The
first meeting of creditors shall be called within 30 days of:
1) the day that enterprise bankruptcy proceedings are
instituted, when the case is raised in court; and
2) the day that the enterprise publicly declares itself
bankrupt.
The court and the chairperson of the creditors' meeting
shall have the right to call subsequent sittings of the
creditors' meeting. Groups of creditors whose sum of claims
amounts to at least one-third of the total claims lodged by
creditors shall have the right to apply for the convocation of a
meeting.
Written notices of the convocation of a creditors' meeting
sitting must be sent to participants of the meeting no later than
10 days prior to the commencement of the sitting.
Article 11. Procedure for Adopting Decisions of the Meeting
of Creditors
Decisions of the meeting of creditors shall be deemed
adopted when, in an open vote, they are voted in favour of by
creditors whose total amount of claims is more than half of the
total amount of claims lodged by all creditors, not including
claims of creditors who are absent from the meeting without due
cause.
The procedure for adopting decisions provided in Par.1
hereof shall be valid for settling all issues, with the
exception of cases specially provided for in this Law.
Decisions of the meeting of creditors shall be binding to
all creditors. The meeting of creditors must, within 5 days,
notify all known creditors as well as the court if the
proceedings are instituted in court, of its adopted decisions.
If creditors, having received a notice, fail for the second
time to attend a meeting without a valid reason, the court shall
not investigate the bankruptcy case.
Article 12. The Rights of the Meeting of Creditors
Upon the institution of bankruptcy proceedings, the meeting
of creditors shall have the right to:
1) request that the court replace the liquidator who has
already been appointed;
2) demand that the liquidators give accounts of their
activities, and to approve said accounts. If the meeting of
creditors does not approve a liquidator's account, it may be
approved by the court at the request of the interested persons;
3) grant permission to the liquidator to conclude
transactions related to the sale or other transfer of the
enterprise's assets, for which, in the cases provided for in this
Law, the consent of the creditors' meeting is requisite;
4) determine liquidators' salaries. The court may increase
enterprise liquidators' salaries which have been established by
a meeting of creditors;
5) conclude the settlement with debtors;
6) propose that enterprises be reorganised or rehabilitated;
and
7) request the liquidation of enterprises.
Article 13. Dismissal of Bankruptcy Cases upon the
Relinquishment of Creditors' Claims
Creditors shall have the right to abandon their claims. Upon
the relinquishment of claims by a creditor, the bankruptcy case
shall be shall be dismissed at that point.
Enterprise bankruptcy cases shall be dismissed when all of
the creditors abandon their claims. The court shall not dismiss
the case if this contradicts the law or violates a person's
rights or legal interests.
Chapter 4
The Settlement
Article 14. The Rights of Creditors in Concluding
Settlements
A creditor or group of creditors may conclude a settlement
with debtors.
The concluded settlement document must contain the balance
of the enterprise and the list of debts, the conditions for the
remission or reduction of debts or for the postponement of
payment thereof as agreed upon by the parties, as well as the
term and procedure for fulfilling liabilities.
Article 15. The Term for Concluding Settlements
Settlements between debtors and creditors may be concluded
at any stage of the investigation of the enterprise bankruptcy
case.
Article 16. The Procedure for Adopting and Approving
Settlements
A settlement shall be deemed concluded when it has been
approved at the creditors' meeting by all of the creditors whose
claims are not secured by mortgage.
A settlement may not be concluded if the court has
established a fraudulent bankruptcy.
Creditors shall have the right to appeal to court to declare
a settlement invalid if they believe that it was concluded in
violation of the requirements of the law, or of their rights or
interests which are protected by law.
A settlements shall become effective upon its approval by
the court. In the event that a settlement is concluded during the
implementation of extrajudicial bankruptcy procedure, it must
also be approved in court.
Article 17. Invalidation of Settlements
The court may declare a settlement invalid if it was
concluded in violation of the law or of the rights or interests
of other persons which are protected by law.
In the event that a settlement is declared invalid, all
financial liabilities of the enterprise which were valid prior to
the conclusion of the settlement shall become enforceable.
Article 18. Dismissal of Cases of Enterprise Bankruptcy upon
the Conclusion of a Settlement
Upon the approval of a settlement by the court, cases of
enterprise bankruptcy shall be dismissed.
Chapter 5
Reorganisation of Enterprises
Article 19. Conditions for the Reorganisation of Enterprises
The reorganisation of an enterprise shall be the
transformation of the enterprise's structure by dividing or
transferring its assets (or part thereof) to other economic
entities and the alteration of the character of the enterprise's
activities in order to satisfy the claims of creditors, as
implemented by the creditors, the liquidator, and the owner(s) of
the enterprise or his authorised representative.
Upon the proposal of the meeting of creditors or the
enterprise, the court may adopt a decision concerning the
reorganisation of the enterprise, provided that there is a
possibility of attaining one of the following objectives:
1) restitution of the enterprise's solvency; or
2) realisation of a part of the enterprise's assets with the
aim of fully satisfying its debts to creditors without suspending
economic activities.
In order to adopt a decision to reorganise an enterprise, no
less than two-thirds of the creditors according to the total
amount of the claims lodged must vote by open ballot in favour of
the decision.
Article 20. Plan for the Reorganisation of Enterprises
The plan for the reorganisation of an enterprise may be
worked out by the creditors, the liquidator, or the debtor.
The plan for the reorganisation of an enterprise must be
prepared and submitted to the court within 3 months of the
adoption of the decision concerning the implementation of
bankruptcy procedures.
The meeting of creditors shall determine the length of
reorganisation of the enterprise.
The plan for the reorganisation of an enterprise must
indicate:
1) the object of reorganisation, as well as its objectives
and term;
2) the rights and duties of the liquidator conducting the
reorganisation of the enterprise, but not exceeding the powers
established in Article 7 of this Law;
3) the rights of the meeting of creditors;
4) the rights granted to the enterprise; and
5) the procedure for the liquidator's account to the
meeting of creditors.
The plan for reorganisation of an enterprise shall become
valid from the day of its approval in the court.
Upon approval of the plan for reorganisation of an
enterprise by the court, the meeting of creditors and the
enterprise shall only have the rights provided for in the plan.
Investigation of the bankruptcy case in court shall be suspended
for the period during which the plan is valid.
Article 21. Termination and Completion of the Reorganisation
of Enterprises
Reorganisation of an enterprise shall be completed upon
attaining the objectives specified in the plan for reorganisation,
and the enterprise bankruptcy case shall be dismissed.
Reorganisation of an enterprise or its activities may be
terminated by court decision if:
1) the meeting of creditors concludes that the objectives of
reorganisation shall not be attained; or
2) the enterprise implements actions which violate or may
violate the interests of individual creditors.
When the court terminates the reorganisation of an
enterprise, the initial claims of the creditors shall be restored
and the bankruptcy case shall be reinstated.
Chapter 6
Rehabilitation of Enterprises
Article 22. Rehabilitation of Insolvent Enterprises
The rehabilitation of an enterprise shall be the
administrative, economic, and financial measures applied to the
enterprise with the financial security furnished by the State or
by third parties with the aim of preventing its bankruptcy.
Rehabilitation may be applied to an enterprise if, during
the investigation of its bankruptcy case in court, the enterprise
fails to conclude a settlement or the court does not approve
either the settlement or the plan for the reorganisation of the
enterprise or its activities.
The court, foreseeing a possibility of applying
rehabilitation measures to an enterprise, may publicly announce a
contest for the participation of legal and natural persons in the
rehabilitation of the enterprise.
Enterprises shall either be rehabilitated by a State
rehabilitation agency or by natural or legal persons chosen in
the rehabilitation contest on the basis of submitted plans.
Petitions for the rehabilitation of an enterprise may be
submitted to the court within 2 months of the announcement of
the contest for rehabilitation.
Petitions concerning the rehabilitation of an enterprise
must contain the names of legal or natural persons who wish to
rehabilitate it as well as basic information about them, and
must define the nature of existing economic ties with the
enterprise, the character, objectives, and duration of
rehabilitation measures, and the term for satisfaction of
creditors' claims.
Article 23. Conditions of Enterprise Rehabilitation
The period allotted for enterprise rehabilitation may not
exceed 18 months. Upon the proposal of the persons carrying out
rehabilitation, the court may extend the period for up to 6
months. The day that the court adopts the decision for
rehabilitation shall be considered the beginning of
rehabilitation.
At least one-third of the total creditor claims must be
satisfied within 12 months of the beginning of rehabilitation.
During the rehabilitation period, the creditors' claims must
be satisfied in the same sequence as provided in the event that
an enterprise is liquidated.
Article 24. Fulfillment of the Liquidator's Functions during
the Rehabilitation Period and Account to the
Creditors
During the rehabilitation period, a representative of the
persons implementing rehabilitation shall perform the functions
of the liquidator.
At the request of the creditors' meeting, the liquidator
shall give an account of the enterprise's rehabilitation.
Article 25. Procedure for Rehabilitating State Enterprises
and State Joint Stock Enterprises
The Government of the Republic of Lithuania may establish
other procedures for rehabilitating state enterprises and state
joint stock enterprises.
Article 26. Termination and Completion of Enterprise
Rehabilitation
During rehabilitation, creditors or the owner(s) of the
enterprise shall have the right to apply to court to terminate
rehabilitation because it is ineffective or because the actions
of the persons implementing rehabilitation are unlawful and by
reason thereof the enterprise is suffering, or may suffer,
losses.
Upon acknowledging the validity of the creditors' or
enterprise's request to terminate rehabilitation, the court may
terminate rehabilitation of the enterprise. Rehabilitation may
also be terminated by a court decision on the grounds of
violations of rehabilitation conditions specified in Article 23.
Upon attaining the objectives set forth in the
rehabilitation plan during the period of rehabilitation, the
procedure shall be terminated by a court decision and the
enterprise bankruptcy case shall be dismissed.
Upon the completion of rehabilitation, the persons who
implemented the procedure shall acquire the right of ownership to
the portion of property invested in the enterprise during
rehabilitation.
Chapter 7
Liquidation of Bankrupt Enterprises
Article 27. Decision Concerning the Liquidation of Bankrupt
Enterprises
Liquidation of an enterprise on the grounds of bankruptcy
shall be the termination of activities of a bankrupt enterprise
on the decision of the court or the creditors' meeting by fully
or partially fulfilling the creditors' claims against the
assets of the enterprise in liquidation.
A decision to liquidate a bankrupt enterprise shall be
adopted if:
1) the settlement is not concluded or is declared invalid;
2) the enterprise is not reorganised pursuant to the
decision of the creditors' meeting or the reorganisation of the
enterprise is terminated on the decision of the court; and
3) the rehabilitation procedure is not applied to the
enterprise.
A decision concerning the compulsory liquidation of an
enterprise may be adopted no earlier than 3 months from the
institution of the enterprise bankruptcy proceedings.
The decision of the court concerning the compulsory
liquidation of an enterprise may be appealed against according to
the procedure established by the Code of Civil Procedure.
Upon the liquidation of a bankrupt enterprise, all terms of
debts payable by and to the enterprise shall be considered
expired.
Article 28. Announcement of Decisions Concerning the
Liquidation of Bankrupt Enterprises
Upon adopting a decision to liquidate a bankrupt enterprise,
the court must:
1) make a public announcement thereof; and
2) notify the creditors, the owners of the bankrupt
enterprise, the founders of the bankrupt state enterprise or
state joint stock enterprise, and the institutions of finance and
banking servicing the enterprise of the adopted decision.
Article 29. Sequence of and Procedure for Fulfilling
Creditors' Claims
Priority in fulfilling creditors' claims shall be given to
claims secured by mortgage, to employees' claims connected with
labour relations, and to claims of compensation for maiming or
other physical injuries, as well as for the deprivation of life.
Second in sequence for the satisfaction of claims shall be:
1) court and administrative expenses connected with
investigations of bankruptcy cases; and
2) unpaid claims for goods supplied during the period from
the institution of the bankruptcy proceedings or the public
announcement of its bankruptcy to the day that the decision is
adopted by the court or the creditors' meeting to liquidate the
enterprise, as well as other claims arising from decisions
adopted by the liquidator during the investigation of the case.
Third in sequence for the satisfaction of claims shall be
taxes and other payments to the budget, as well as compulsory
state social insurance.
Fourth in sequence for the satisfaction of claims shall be
creditors' claims which are not secured by mortgage, and other
claims of creditors.
The claims of creditors (claimants) of each successive
sequence shall be fulfilled upon fully satisfying the claims of
the creditors (claimants) of the preceding sequence. If assets
are insufficient to fulfill all of the claims of one sequence in
full, said claims shall be satisfied in proportion to the amount
of claims due to each creditor (claimant).
Article 30. The Procedure for Liquidating Bankrupt
Enterprises
Bankrupt enterprises shall be liquidated in accordance with
the laws regulating the activities of corresponding types of
enterprises, with the exception of cases provided for in this
Law.
Vytautas Landsbergis
President
Supreme Council
Republic of Lithuania
Vilnius
15 September 1992
No. I-2880