COVID-19 related amendments to insolvency regulations in Lithuania

The Lithuanian Parliament has enacted the Law on the Impact of the Effects of the New Coronavirus (COVID-19) on the Application of the Lithuanian Law on the Insolvency of Legal Entities (the “Lithuanian COVID-19 Law”), effective as of 25 April 2020. The Lithuanian COVID-19 Law applies only to companies that have experienced financial difficulties and / or become insolvent as a result of the COVID-19 crisis.

Suspension of managers’ duty to file for insolvency proceedings

• Managers’ obligation to file for insolvency is suspended. However, not automatically.
• Managers must contact creditors in writing and offer to conclude an agreement on support (In Lithuanian: Susitarimas dėl pagalbos) which would postpone the company’s obligation terms, change the type of obligation, terminate obligations to creditors, etc. The notice to creditors must specify a term of at least 15 days for taking a decision on the conclusion of such an agreement.
• The Lithuanian COVID-19 Law suspends calculation of the 15 day term and the obligation of managers to apply to the court for insolvency proceedings during the quarantine period and for 3 months from revocation of the quarantine. But this applies only if a notice to creditors was sent.
• After the end of the 3 month period from revocation of quarantine, calculation of the 15 day term will be renewed. Then managers will have to reach an agreement on support. Managers who fail to do so will be obliged to initiate insolvency proceedings.
• The COVID-19 law also allows the Government to extend the term of suspension (e.g. quarantine period + 3 months) taking into account the economic situation in the country, but not beyond 31 December 2020.

Suspension of creditors’ right to file for insolvency

• Under the Law on Insolvency of Legal Entities, creditors acquire the right to apply to a court to initiate insolvency proceedings against a debtor if they have previously set a term of at least 15 days to fulfil obligations, to agree on assistance or decide on out-of-court bankruptcy proceedings.
• The Lithuanian COVID-19 law suspends the 15-day term during the quarantine. This means that the courts will not open insolvency proceedings during quarantine, although the term will not be considered expired.

Termination of restructuring case

• The Lithuanian Law on Insolvency of Legal Entities provides several grounds for terminating a restructuring proceedings, among them (i) if the restructuring plan is not properly implemented; (ii) if a legal person fails to pay all or part of taxes due. However, the court may terminate restructuring proceedings only if circumstances forming such grounds continue for more than 3 months.
• According to the Lithuanian COVID-19 Law, the courts will not be able to terminate a restructuring proceedings based on the above grounds during the quarantine period and for 3 months from its revocation.
• The Lithuanian COVID-19 law also enables the government to extend the suspension period of quarantine period plus 3 months from its revocation taking into account the economic situation in the country, but not beyond 31 December 2020.