INSOL International. Collection of Practical Issues Important to Small Practitioners - Lithuania. August Small Practice Issues Technical Series

Transcription

1 INSOL International Collection of Practical Issues Important to Small Practitioners - Lithuania August 2014 Small Practice Issues Technical Series

2 Collection of Practical Issues Important to Small Practitioners - Lithuania Contents i Acknowledgement ii 1. How to find information about insolvency practitioners in Lithuania? 1 2. Cross-order issues important to small practitioners 2 3. Marketing of small practices 2 4. Financing options for small businesses 3 5. How do practitioners get remunerated? 3 6. Litigation and funding litigation 4 7. Licensing and regulation of IPs 4 8. Compliance issues 5 9. Best practices 6 INSOL International 6-7 Queen Street, London, EC4N 1SP Tel: +44 (0) Fax: +44 (0) Copyright No part of this document may be reproduced or transmitted in any form or by any means without the prior permission of INSOL International. The publishers and authors accept no responsibility for any loss occasioned to any person acting or refraining from acting as a result of any view expressed herein. i

3 Acknowledgement INSOL International is pleased to present a country study on Lithuania under its Small Practice Technical Papers Series focusing on A Collection of Practical Issues Important to Small Practitioners. The paper was written by Ieva Strunkiene, Lawyer to a Member of Parliament of the Republic of Lithuania. INSOL International sincerely thanks Ieva Strunkiene for writing this paper that provides very useful information to our members seeking information about Lithuania. August 2014 ii

4 Collection of Practical Issues Important to Small Practitioners - Lithuania Ieva Strunkiene Lawyer to a Member of Parliament of the Republic of Lithuania 1. How to find information about insolvency practitioners (IP) in Lithuania? 1.1 How are IP s in Lithuania organised? The Lithuanian Republic Law of Enterprise Bankruptcy (hereinafter referred to as the LEB) applies to all enterprises registered in Lithuania, except for budgetary institutions, political parties, trade unions and religious communities and associations. The Republic of Lithuania Law on Natural Person Bankruptcy (hereinafter referred to as the LNPB ) applies to all natural persons whose main interests are in the Republic of Lithuania. When a company is in financial difficulties an IP plays an important role. An IP is the one who is responsible for the entire process of the bankruptcy proceedings, acts as an enterprise manager and executor of court decisions and orders and / or resolutions of the creditors' meetings, from the date of the court's ruling to the institution of bankruptcy proceedings and throughout the bankruptcy proceedings. An IP in Lithuania can be either a natural or a legal person that is entitled to carry out bankruptcy administration services. For natural persons, legal or economic education is required to take on this role. Practitioners usually have their individual offices which can be found across Lithuania. 1.2 What are the associations to contact and what do these associations do? There are some nationwide and several local organisations and associations The Enterprise Bankruptcy Management Department under the Ministry of Economy provides information about business bankruptcy and restructuring procedures, administrators, and assets of the businesses that are subject to bankruptcy proceedings or assets that are being sold by auction, and also about the administration of the Guarantee Fund. Address: Gedimino av. 2/Odminių str. 1-28, LT Vilnius, Lithuania Tel Fax bankrotas@bankrotodep.lt. Website: The National Association of Bankruptcy Administrators This association seeks to defend the rights of the IP and ensures a fair and transparent appointment process of the IP and also protects the IP s activities. Address: Taikos av , LT-51180, Kaunas, Lithuania Tel./faks: , mob. Tel.: info@bankrotai.lt. Website: The National Association of Business Administrators This organisation is primarily responsible for liaising between an IP that is either a natural or legal persons in Lithuanian and foreign countries. Address: Gedimino av. 28/2 405, LT Vilnius, Lithuania info@nvaa.lt. Website: All of those mentioned have informative websites, but unfortunately they are only in Lithuanian. The views expressed in this article are the views of the author and not of INSOL International, London. 1

5 1.3 Where do you go to get the information either when you are looking for some one, or looking for a solution? Traditionally most IPs in Lithuania receive their case work from a network of contacts. Usually accountants, lawyers or bankers, refer corporations and individuals to them for advice. IPs can be found by geographical location through the Enterprise Bankruptcy Management Department under the Ministry of Economy, which compiles a list of persons providing enterprise and individuals bankruptcy administration services (hereinafter referred to as the List). Natural and legal persons included in the list has the right to provide enterprise bankruptcy administration services with effect from the date the names were entered in the List. There is also an official register of IPs available on the website of the Enterprise Bankruptcy Management Department under the Ministry of Economy. (in Lithuanian only). Online searching is free. The official register does not include legal partnerships. 2. Cross-border issues important to smaller practitioners 2.1 Information about available insolvency laws that apply to cross-border cases The following insolvency laws apply to cross-border cases: - European Parliament and Council Directive 2008/94/EC on the protection of workers in the event of their employer's insolvency, Council Regulation (EC) No 1346/2000 of 29 May 2000 on Insolvency Proceedings (OJ 2004 Special Edition, Chapter 19, Volume 1, p. 191) with the latest amendments adopted by the Council Regulation (EC) No 694/2006 of 27 April 2006 (OJ 2006 L 121, p. 1) amending the lists of insolvency proceedings, winding-up proceedings and liquidators in Annexes A, B and C to Regulation (EC) No 1346/2000 on insolvency proceedings (OJ 2006 L 121, p.1) (hereinafter referred to the insolvency Regulation ). 2.2 How to enforce claims abroad and whom to get advice from? The Insolvency Regulation in insolvency proceedings apply directly (excluding Denmark). Lithuanian courts as well as other parties such as IPs, creditors, debtors, bailiffs etc. have limited experience of Insolvency Regulation. The most common problem of the Insolvency Regulation are derived from situations where the courts of Lithuania and other legal entities had to deal with another EU Member State s insolvency proceedings on or relating to Lithuania. The problem often comes up when the actions by another debtor in EU Member State bankruptcy proceedings are brought against Lithuanian appointed administrators What are the key criteria to consider when tracing and recovering assets in a foreign jurisdiction? The database to access this information can be used free of charge (in some case one may need to pay) and these registers are: real estate register, companies and individual entrepreneurs register, trademarks register, pledge register, place of residence register, vehicles register. Internet searches may be very helpful in most cases. 3. Marketing of small practices There are no marketing strategies in general which are commonly known in Lithuania. Most practitioners do not do any marketing. Those who do usually limit their marketing activities to providing information on their well-designed websites describing the services that are provided. 1 Scientific study - pasiūlymo dėl Europos Parlamento ir tarybos reglamento pakeičiančio 200 m. gegužės 29 d. Tarybos reglamentą (EB) Nr. 1346/2000 Dėl bankroto bylų, nuostatų galima įtaka bankroto procesams Lietuvoje ir galimas poveikis Lietuvos ekonominiams interesams bankroto srityje (Lithuanian only). 2

6 Some practitioners use only press releases about their merits in individual cases. This approach makes sense only if the insolvent company, individual or IP is a topic of common interest, to the public. 4. Financing options for small businesses 4.1 Are there viable financial options for smaller businesses from conventional financing sources? IPs are usually small entrepreneurs and they can benefit from financial options offered to this type of firm. A line of credit from financial institutions may be available but in most cases the financial support will be subject to providing a satisfactory personal guarantee by the IP and / or providing a mortgage guarantee. 5. How do practitioners get remunerated? 5.1 What are the available models to determine fees-percentage based or time based? There is not a percentage based or time based remuneration system. According to the LEB and LPNB, the first meeting of creditors must fix the amount of remuneration to be paid to the administrator for the administration of the enterprise during the bankruptcy process. This includes the period from the date when the court procedure is initiated to initiate enterprise bankruptcy, until the date of conclusion of a contract of agency with the administrator for or the date of the first meeting of creditors. The amount of remuneration payable to the administrator (having regard to whether or not the enterprise in bankruptcy and / or the bankrupt enterprise continues (carries on) its activities, the type and amount of the assets of the enterprise being sold, also the complexity and number of proceedings initiated and the civil claims brought against the enterprise) and the procedure for payment of remuneration (the remuneration may be paid in a lump sum upon completion of the bankruptcy process or by instalments in the course of the bankruptcy process) shall be established in the contract of agency (the insolvent company and the IP s management agreement). The administrator has to submit to the court a detailed invoice (if it is judicial procedure). The amount of remuneration could be paid in full immediately upon completion of bankruptcy proceedings or in parts during the bankruptcy process. The court cannot state the salary for the IP, but in the event of a dispute, the court ipso iure will assess whether the remuneration meets the fairness, reasonableness and good faith criteria. Administrative expenses and related issues will be determined by the creditors' committee, and it is not the court's discretion. The creditors' committee could establish a monthly expenditure limit for the IP and his team. In cases where the company has no assets or insufficient funds to pay the administrative expenses, the court must order the person who submitted the application for bankruptcy proceedings against the company, to pay to the courts escrow account the amount set by the court (up to ,00 litas, 3 000,00 Euro). This amount is used by the judge hearing the case of bankruptcy, the court orders the administrative expenses. The interpretation of those provisions are intended to ensure that the IP could have the motivation and financial ability to administer a bankrupt company. Such procedures may not last longer than one year from the day of entry into force of the ruling to apply the simplified bankruptcy procedures. According to the LPNB, the amount set in a contract for the period from the day the court makes an order to open personal bankruptcy proceedings and to the day a decision is made approving the plan shall not exceed 3 MMWs (750 EUR). Bankruptcy expenses shall be covered using all types of funds owned by a natural person, including proceeds from the sale and / or transfer of the assets of the natural person, debts paid to the natural person, proceeds from individual activity and / or former activities and other amounts received during the personal bankruptcy process. Upon the sale or transfer of the pledged assets, no more than 15% of the proceeds or the value of such assets may be used to pay bankruptcy administrative expenses, unless the pledge or mortgage creditor agrees otherwise. The bankruptcy administrative expenses shall be covered first. 3

7 Case law has recognised that the creditors and the administrator agree on the amount of remuneration of the administrator, so it should encourage the administrator to carry out bankruptcy procedures, and also that there will be no breach of the creditor s interests. 6. Litigation & funding litigation 6.1 Funding causes of actions - who are the best funders? In Lithuania funding litigations are very rare. 6.2 Are there alternatives to litigation, for example arbitration or mediation? Creditors can initiate extra-judicial bankruptcy procedures by the chief executive officer or the owner (owners) of the enterprise. However, an extra-judicial bankruptcy process cannot take place if an action has been brought in court in which claims have been entered against the enterprise, or execution is levied on the enterprise under writs of execution issued by the courts or other institutions. There have been however, no actual extra-judicial enterprise bankruptcy proceedings in Lithuania within the last decade. From the last few years there is a possibility to apply for arbitration to resolve final disputes between parties (which Lithuanians use very rarely). Arbitration may be initiated, if the parties to the contract have chosen this method of resolving disputes. It is important to note that participation in arbitration requires the obligation to pay arbitration fees by the parties (contrary to judicial procedures) Enforcing judgments - local and foreign Local judgments are enforced under the regulations of the Code of Civil Procedure of the Republic of Lithuania, and the LEB and the LNPB. 7. Licensing and regulation of IPs 7.1 How are IPs regulated? IPs are regulated by the Enterprise Bankruptcy Management Department under the Ministry of Economy by training and regular inspection and monitoring. In Lithuania there is an IPs Code of Ethics, which could be found in the following links. (in Lithuanian only) (in Lithuanian only). 7.2 Who can become an IP or which professionals regularly work as IPs? A natural person seeking to acquire the right to provide bankruptcy administration services for enterprises or individuals in Lithuania must: be of good repute (i); hold a social science degree or equivalent degree in law or economics (a bachelor s qualification degree in law or economics and a master s qualification degree in law or economics) or a lawyer s professional qualification degree (one - cycle university education in law) (ii); have a work record of at least two years as an assistant administrator over the last three years or a work record of at least five years as a head of an enterprise over the last seven years or be recognised as an advocate in accordance with the procedure established by legal acts (iii); pass a qualification exam (iv); have a command of the Lithuanian language (v). Once a natural person satisfies all these requirements, that person shall have the right to provide bankruptcy administration services as an IP, or as an assistant IP and will receive a certificate to this effect. Certificates shall be issued to a citizen of the Republic of Lithuania, another European Union Member State or a state of the European Economic Area (hereinafter referred to as the Member State) or any other natural person who exercises the rights of free movement within the Member States conferred upon him by the European Union legal Acts. 4

8 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, a natural person may act as the bankruptcy administrator's representative for an unlimited number of bankrupt enterprises. The head of a corporate organisation seeking to provide enterprise bankruptcy administration services must be entitled to provide bankruptcy administration services. Seeking to acquire the right to provide bankruptcy administration services, by a corporate entity, it must ensure that at least two employees including the owner (where the legal person is an individual enterprise) or a general member (where the legal person is a partnership), holds a bankruptcy administrator certificate. 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 administrators. In addition, the appointed administrator may not be - a creditor or 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; be the owner of the enterprise or its subsidiary enterprise; be a member of the supervisory board or the board, chief officer of the administration or the 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 who have been dismissed from office within 12 months immediately preceding the initiation of bankruptcy proceedings. The most important rule is that the administrator should not have a legal interest in the outcome of the bankruptcy proceedings. 7.3 What kind of work is carried out by IPs in Lithuania? The scope of IPs work is published in LEB article 11 part 3 and in LNPB article Who appoints an IP? Both in judicial and in extra-judicial procedures the creditors meeting decide on a suitable person to be the IP. In extra-judicial procedures an IP is appointed by creditors at a meeting and in a judicial procedure, the court appoints the administrator of the enterprise or a natural person, who was suggested by creditors. 7.5 Is an IP who gets court appointments as an administrator allowed to do advisory work as well? Yes, an IP is authorised to act in all types of insolvency procedures (exept cassation, if that person does not have a law degree). Court insolvency procedures where IPs are appointed include administration, as well as bankruptcy and liquidation. 8. Compliance issues 8.1 Tax requirements relevant to smaller practices There are no tax requirements relevant to smaller practices. 8.2 Money laundering and financial crimes IPs must obey the general Lithuanian and the EU money laundering regulations. There are no specific regulations applicable to IPs. Financial Crime Investigation Service is responsible to prevent money laundering and terrorist financing controls relating to IPs activities. 5

9 8.3 The right to access information An IP is entitled to obtain information from the State Tax Inspectorate, the administration agencies of the State Social Insurance Fund, Statistics Lithuania, The State Enterprise Centre of Registers as well as banks and other credit institutions, financial and insurance companies, in the manner prescribed by legal Acts. The information may include all the necessary details about the previous and current activities of the enterprise in bankruptcy or the bankrupt enterprise under the administration, its former and current employees, previously held and current assets, information obtained from the persons specified above copies of the enterprise s documents, submitted reports, information, verification reports, etc. In cases where the enterprise is an entity of unlimited civil liability, it shall be entitled to receive, free of charge, from the institutions registering assets (securities) according to the procedure established by laws information relating to the assets (securities) registered in the name of the owner (owners) of the enterprise and from banks, other credit institutions and insurance companies information about the funds held or to be received by them. Creditors have a right to ask for information on the progress made by the administrator on any case in which they are creditors. 8.4 Corporate governance There are no corporate governance provisions in the law that is applicable to small practices. 8.5 Regulatory authorities IPs activities are controlled by government authority i.e the - Enterprise Bankruptcy Management Department under the Ministry of Economy. The main aspects of the IP s activities are established in the Republic of Lithuania Law on Public Administration ( (English version) in the fourth chapter Supervision of activities of economic entities, is also in bankruptcy administrators control rules ( Lithuanian only). 8.6 Disciplinary matters and the complaints systems in operation Both disciplinary and complaints are handled by the Enterprise Bankruptcy Management Department under the Ministry of Economy. An IP may be subject to a penalty in accordance with the procedure established by the government or an institution authorised by it for failure to execute or properly execute the requirements laid down in the legal Acts regulating enterprise bankruptcy, procedural court documents (decisions, orders, rulings and resolutions), resolutions of the meeting of creditors and committee of creditors or other violations discovered in the course of inspection of the administrator s activities. The institution authorised by the government specified by the LEB shall impose the following penalties: a warning; a public warning which shall be, not later than five working days from the date of adoption of the decision, be announced on the website of the institution authorised by the government. Upon establishing repeated violations with the penalty being still in force or failure to comply with the requirements of good repute, the institution authorised by the government must apply to the commission regarding the decision, and propose to cancel the validity of the bankruptcy administrator s certificate and to remove the office holder from the List. The penalty imposed on the administrator shall be valid for one year. 9. Best practices In 1992, the Supreme Court of the Republic of Lithuania passed the first bankruptcy law - the LEB. This law, after several revisions as well as some inconsistencies with the practice of the Lithuanian courts, was replaced by a completely new LEB which came into force on 1 July

10 along with a set of other new corporate laws. From 1 March 2012, the LNPB came into force ( English versijon). The best practice about bankruptcy in Lithuania may be found in the courts (Supreme Court) decisions ( Lithuanian only). 9.1 Client money rules There must be a clear separation of client s and IP s / IP s firm money. Best practice is to have separate case accounts for each appointment, and the IP may have a global clients account to clear funds which are then allocated to case specific accounts. 9.2 IT security There are no accepted best practices on IT security. 9.3 Licensing requirements There are no licensing requirements that directly apply to bankruptcy administrators. 9.4 Insider dealing Information about the bankruptcy proceedings is public. It aims to make information about bankruptcy proceedings available to all interested parties and to promote responsible borrowing and lending. It is a criminal offence to become involved in insider dealings. Such bad practices would likely lead to the loss of authorisation. 9.5 Local employment law requirements The IP as an employer must comply with Lithuanian employment law, and in his dealings as an IP must observe current legislation. In Lithuania there could be an extra-judicial bankruptcy proceeding and a judicial bankruptcy procedure. Creditors can be offered to implement extra-judicial bankruptcy procedures by the head or an owner (owners) of the enterprise. In this situation the bankruptcy administrator shall be appointed by the meeting of creditors in accordance with the provisions of the LEB. However, an extra-judicial bankruptcy process can not take place if action has been brought in court in which claims have been entered against the enterprise, or execution is levied on the enterprise under writs of execution issued by the courts or other institutions 2. In judicial enterprises and in all cases of individual bankruptcy procedures, only the court can appoint the bankruptcy administrator. When filing with the court, a petition for the initiation of enterprise bankruptcy proceedings, creditors, owner (owners), the head of the company have the right to nominate a person to hold office as a bankruptcy administrator. The court may, on a reasoned basis, reject the nominated candidate for the position of the administrator and request that another candidate for the position of the administrator be nominated. Where an individual is made bankrupt in such bankruptcy cases the court appoints a bankruptcy administrator if the individual does not suggest anyone. The legal obligation to comply with the bankruptcy administrator's operational control is given to the court and the creditors' meeting. Also the activities of the administrator shall be supervised and information about the enterprise bankruptcy process shall be submitted for publishing to the supplement Informaciniai pranešimai to the official gazette Valstybės žinios by the institution authorised by the Government. The activities are supervised and controlled by the Enterprise Bankruptcy Management Department under the Ministry of Economy: Corporate Restructuring enterprise bankruptcy in Lithuania ( , English version). 7

11 and Bankruptcy Department, Enterprise Business Intelligence Unit, the Guarantee Fund Administration Unit. The bankruptcy administrator s nomination rules relating to enterprise bankruptcy may be seen via the link below. ( Lithuanian only). The bankruptcy administrator s nomination rules relating to personal bankruptcy cases may be seen via the link below. ( Lithuanian only). 9.6 Codes of ethics Bankruptcy and restructuring administrators Code of conduct may be found at (Lithuanian only). 9.7 Time management for IPs There are no time management for IPs. There is only time management for the bankruptcy procedures in courts. Examining the duration of enterprise bankruptcy procedures shows that most bankruptcies last for about two or three years. There is no maximum duration provided in Lithuanian Law on Insolvency, and sometimes there are proceedings that last 10 years. Only simplified bankruptcy proceedings cannot last more than one year with the extension of six months. The LPB, provides that an individual bankruptcy may not last longer than five years. (The period of implementation of the plan shall be no more than five years). Where pre - trial investigations are addressed in relation to the establishment of the actions of a natural person corresponding to the elements of a criminal act, a court may, taking into account the facts of the case, extend the period of implementation of the plan until declining to launch a pre - trial investigation or the termination of a pre - trial investigation, or the effect of a judgment in a criminal case. 8

12 14 AlixPartners LLP Allen & Overy LLP Alvarez & Marsal LLC Baker & McKenzie LLP BDO LLP Begbies Traynor Bingham McCutchen LLP Cadwalader Wickersham & Taft LLP Chadbourne & Parke LLP Clayton Utz Cleary Gottlieb Steen & Hamilton LLP Clifford Chance Davis Polk & Wardwell De Brauw Blackstone Westbroek Deloitte LLP DLA Piper EY Ferrier Hodgson Freshfields Bruckhaus Deringer Goodmans LLP Grant Thornton Greenberg Traurig LLP Hogan Lovells Huron Consulting Group Jones Day Kaye Scholer LLP Kirkland & Ellis LLP KPMG LLP Linklaters LLP Norton Rose Fulbright Pepper Hamilton LLP PPB Advisory PwC RBS Rajah & Tann LLP RSM Skadden, Arps, Slate, Meagher & Flom LLP Shearman & Sterling LLP Weil, Gotshal & Manges LLP White & Case LLP Zolfo Cooper LLP 9