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28.11.2019

Is there a possibility to recover your credit claim or at least part of it during the bankruptcy process in Lithuania without a queue?

Those, who have nothing to do with the law, definitely have heard about those three rows of creditors of bankrupt companies. Article 35 of Enterprise Bankruptcy Law of the Republic of Lithuania (hereinafter – the “EBL”) regulates that the front-row of creditors includes claims of employees in the employment relationships, claims for mutilation or other type of body injury, etc. The second row is reserved in advance for the state and all its taxes under the EBL. Finally, all the creditors that are not employees neither the “state” remains in the third row and it is definitely clear, that the most distant third-row creditors usually do not retrieve anything from the company that went bankrupt.

The importance of the position in the row of creditors shall remain relevant even from 1 January, 2020, when the Corporate Insolvency Act of the Republic of Lithuania (hereinafter – “CIA“) enters into force. However, there will only be two rows of creditors in this legal act. The front-row of creditors will include both employees’ and the state, whereas all the other creditors of the bankrupt company will be in the second one. Either way in both EBL, which is currently valid, and CIA, which enters into force from 1 January, 2020, the position in the row of creditors still has the essential impact while making decisions regarding the actual possibility to retrieve your creditors claim. Nevertheless, is there any possibility to retrieve your creditors claim or at least a part of it in Lithuania despite a row of creditors? The following insights and analysis of EBL, CIA and the relevant case law shall confirm that the possibility of it is absolutely real.

Article 36 Part 1 of the EBL regulates the company bankruptcy administration costs that are paid from all types of company funds, such as obtained from the sale of the company’s assets, including the pledge, debts, economic commercial activities and other proceeds of the bankruptcy proceedings, shall be refunded first in the process of bankruptcy. Both EBL and CIA do not provide us with the definition of bankruptcy administration costs. However, there is a list of the bankruptcy administration costs submitted in the Article 73 Part 2 of CIA which enters into force on 1 January 2020, that details what exactly these costs consist of.

Detailed definition of bankruptcy administration costs is also provided in the case law of the Supreme Court of Lithuania as well. In one of its reviews[1] the court of cassation has stated that the costs incurred by a company in bankruptcy shall be those that are incurred after the bankruptcy proceedings have started and are intended for the execution of transactions relating to the bankruptcy proceedings. What is more, in the same review the Supreme Court of Lithuania also stated that the company bankruptcy administration costs shall be refunded on a priority basis from the assets of the bankrupt company, i.e. ahead of any other creditors in the row.

So, the row of creditors is not relevant while refunding company bankruptcy administration costs, as the claims for these costs shall be refunded on a priority basis. Furthermore, this conclusion shall remain relevant even after CIA enters into force, as the company bankruptcy administration costs shall still remain refunded on a priority basis. Though the question of when the creditor may require his creditors claim to be refunded from the costs of bankruptcy administration is still to be clarified. Regarding the case-law of the court of cassation set out above, it is clear that two conditions must be met: a) the claim has to be incurred after the bankruptcy proceedings have started; b) the costs of creditors claim shall be intended to the bankruptcy proceedings. However, while the first criterion is purely a question of fact, the existence of the second one must be proved by appropriate justification.

An example of reimbursement from bankruptcy administrative costs could be property custody service or lease arrangements. The lessee company had a lease contract with the lessor company prior to the bankruptcy. After the bankruptcy proceedings of the tenant company have started, the bankruptcy administrator informs the lessor company about the termination of the lease contract within the period set out in EBL, however, does not return the premises for another couple of months. Meantime all the property of the bankrupt tenant company still is kept in the premises owned by the lessor company. So, can the lessor company make a claim against the bankrupt tenant company in order to refund this claim from bankruptcy administrative costs, if the claim refers to the fee of rent, that incurred from the beginning of the bankruptcy proceedings to the full return of the premises? The answer is yes, as both criteria clarified by the Supreme Court of Lithuania are met: a) the rent incurred after the bankruptcy proceedings have started; b) the rent was essential to the bankruptcy proceedings, as the property of the bankrupt tenant company was stored in the premises and the bankrupt tenant company shall be able to return its debts to creditors after the realization of this property.

The fact that the above-mentioned possibilities of being a priority creditor despite the row are not only theoretical considerations is validated by the relevant case-law of Lithuanian courts. The Supreme Court of Lithuania has already heard the cases, that are by their nature very similar to the situations analysed here above. So, in one case that was heard[2] the residents’ association demanded an order to recover the debt form the bankrupt company, that resulted from the provision of necessary property maintenance services to real estate owned by a bankrupt company. The court of cassation stated, that in this case the bankrupt company must account for the property maintenance services provided by the residents’ association, i.e. the bankrupt company cannot avoid these costs while owning this property.

There was another civil case heard[3] by the Lithuanian Court of Appeal, which decided, that the obligation of the bankrupt company to pay for the electricity supplied to its premises arose already after the initiation of the bankruptcy proceedings. In relation to this, the court of cassation stated, the electricity the bankrupt company’s premises were supplied in order to maintain the value of the property. According to this, the Lithuanian Court of Appeal finally decided that the expenses on the electricity shall be recognized as the bankruptcy administrative costs.

All in all, the “despite the row” creditors do exist under both EBL, which is currently valid, and CSI, which enters into force on 1 January, 2020. In order to be such creditor, two criteria must be met. The first one (the claim has to be incurred after the bankruptcy proceedings have started) is easy to estimate, as it is a matter of a fact. Whereas the second one (the costs of creditors claim shall be intended to the bankruptcy proceedings) must be proved by appropriate justification, still proving it should not cause too much trouble. Thus, in case you found out, that your business partner went bankrupt, do not despair and do not consider the debt as a desperate one. If the conditions discussed in this article are met, you still have the actual possibility to become a privileged “despite the row” creditor and retrieve your claim or at least a part of it from the bankruptcy administrative costs.

Article by: Andrius Lukašonokas, senior associate, attorney at law.


[1] Lietuvos Aukščiausiojo Teismo 2015-08-28 „Įmonių bankroto ir restruktūrizavimo bylų iškėlimo teisines pasekmes reglamentuojančių teisės normų taikymo Lietuvos teismų praktikoje apžvalga Nr. AC-42-1. Teismų praktika. 2015, 42;
[2] Lietuvos Aukščiausiojo Teismo 2013-10-25 nutartis, priimta civilinėje byloje Nr. 3K-3-518/2013;
[3] Lietuvos apeliacinio teismo 2014 m. spalio 9 d. nutartis, priimta civilinėje byloje Nr. 2A-1283/2014;
[4] Lietuvos Aukščiausiojo Teismo 2015-08-28 „Įmonių bankroto ir restruktūrizavimo bylų iškėlimo teisines pasekmes reglamentuojančių teisės normų taikymo Lietuvos teismų praktikoje apžvalga Nr. AC-42-1. Teismų praktika. 2015, 42;
[5] Lietuvos Aukščiausiojo Teismo 2013-10-25 nutartis, priimta civilinėje byloje Nr. 3K-3-518/2013;
[6] Lietuvos apeliacinio teismo 2014 m. spalio 9 d. nutartis, priimta civilinėje byloje Nr. 2A-1283/2014.