After bankruptcy opens: CEO duties and what shareholders can still do

When the court order opening bankruptcy proceedings becomes final, the company’s management bodies lose their powers, and their rights and duties are exercised by the insolvency administrator (Article 56(1) and (2) of the Law on Insolvency of Legal Entities of the Republic of Lithuania (JANĮ)). The former manager, or the liquidator of a company in liquidation, must hand the assets, documents and information over to the administrator within the time limit set by the court (JANĮ Article 57(1)). Failing to do so risks a fine and liability for damages and, for a manager, a ban on acting as a manager. The shareholders no longer decide about the company’s assets, but no settlement agreement can be made without their approval, and what remains once the creditors are satisfied is handed to them.

How a liquidator stops payments and initiates bankruptcy is explained in Liquidation or bankruptcy: what to do when a company runs short of assets, and who can start bankruptcy in Does bankruptcy need shareholder consent? How insolvency is established. This article covers what happens after the case has been opened.

Who runs the company once the case is opened

From the day the order opening bankruptcy becomes final, the company’s management bodies lose their powers (JANĮ Article 56(1)). Their rights and duties during the bankruptcy are exercised by the insolvency administrator (JANĮ Article 56(2)). Transactions made in breach of these rules are null and void (JANĮ Article 56(3)). The administrator manages, uses and disposes of the company’s assets in the manner set by JANĮ (JANĮ Article 66(1), point 2).

If bankruptcy is opened for a company that is already in liquidation, this also applies to the liquidator. The liquidator has the rights and duties of the legal entity’s management body (Article 2.110(2) of the Civil Code of the Republic of Lithuania (CK)), so from the day the order opening bankruptcy becomes final the liquidator no longer acts on the company’s behalf. If the company is later liquidated due to bankruptcy, the liquidator’s functions are performed by the insolvency administrator (JANĮ Article 84(1)).

The general meeting of shareholders is not a management body: the law treats them as separate bodies of a legal entity (CK Article 2.82(2); for companies, also ABĮ Article 19(1)). So JANĮ Article 56 does not abolish the shareholders’ meeting, but its role changes (see below).

What the former manager or liquidator must hand over

Management bodies that have lost their powers must, within the time limit set by the court, hand over to the appointed insolvency administrator:

• the assets managed and used by the company, according to the data as at the day the order opening bankruptcy became final (JANĮ Article 57(1), point 1);
• all of the company’s documents, financial accounting registers and other information relating to its activities (JANĮ Article 57(1), point 2).

The court sets the handover time limits in the order opening bankruptcy itself (JANĮ Article 26(3), point 2), so read the order as soon as you receive it. The administrator, for its part, must without delay organise the taking over and safekeeping of the assets and documents (JANĮ Article 59, point 1). It is worth recording the handover in a handover deed listing the documents and assets: it is your evidence of what you handed over and when.

The restrictions reach more people than the manager. Once bankruptcy is opened, persons who rent, have borrowed, keep or otherwise use or hold the company’s assets may not enter into transactions concerning those assets with third parties (JANĮ Article 58(1)), and such transactions are null and void (JANĮ Article 58(2)).

What follows if assets or documents are not handed over

A fine. If the assets or information are not handed over within the time limit set by the court, the court may impose a fine of up to one minimum monthly wage (MMA) for each day of non-compliance (JANĮ Article 57(3)).

A ban on acting as a manager. The court may, for 1 to 5 years, restrict the manager’s right to act as a manager or be a member of a collegial management body if, after the order opening bankruptcy became final, the manager did not hand over assets, documents and/or information to the administrator (JANĮ Article 13(2), point 3). The court decides this on its own initiative or on a reasoned request of the insolvency administrator, the creditors’ meeting or a creditor (JANĮ Article 13(3)).

Damages. The person responsible must compensate damage in full (CK Article 6.263(2)). The Supreme Court of Lithuania has held that a manager’s civil liability is tortious, that it requires unlawful acts, damage, a causal link and fault, and that once unlawful acts are established the manager’s fault is presumed (ruling of the Supreme Court of Lithuania of 29 December 2022 in civil case No e3K-3-300-823/2022, paragraph 33). In the same ruling the court noted that the mere failure to preserve the assets and their accounting documents, where the defendant does not prove that the assets were lawfully transferred or did not exist, allows unlawful acts to be found (ibid., paragraph 37). The damage itself, however, is not presumed: the claimant must prove its existence and amount with evidence (ibid., paragraph 34). Such a claim is brought on the company’s behalf by the administrator, who represents the company in court (JANĮ Article 66(1), point 10). Creditors whose claims have been approved by the court have the right to claim compensation for damage caused by the fault of the management bodies (JANĮ Article 43, point 5).

The manager must also compensate damage caused by failing to perform other duties set by JANĮ (JANĮ Article 13(1)), for example by not initiating the insolvency process in time. That ground is discussed in Are shareholders and the CEO liable for debts after deregistration?.

From 1 January 2027 the creditors’ meeting will decide whether to approve the terms of an agreement between the insolvency administrator and the former manager and/or the participants on reducing or waiving the bankrupt company’s claim (JANĮ Article 44, point 11, version from 2027-01-01). This applies to agreements made from that date.

What shareholders can still do

The administrator calls the meeting. The administrator calls meetings of the participants when their decisions are needed (JANĮ Article 66(1), point 5). At the creditors’ meeting only creditors whose claims have been approved by the court vote (JANĮ Article 45(1)), so a shareholder votes there only if it is such a creditor itself.

Settlement agreement. A proposal to make a settlement agreement or to restructure the company may also be put to the creditors’ meeting by the company’s participants: in the manner set by the law governing their legal form or, if that law sets no such procedure, in the manner set by the founding documents, by a 2/3 majority of the votes of the participants present at the meeting (JANĮ Article 79(1), point 3). The draft settlement agreement or restructuring plan is attached to the proposal (JANĮ Article 79(4)). The settlement agreement is deemed made when it is signed by all the creditors and by the administrator, having obtained the participants’ approval (JANĮ Article 80(3)). The participants approve the settlement agreement in the manner set by the law governing their legal form or, if that law sets no such procedure, by a 2/3 majority of the votes of the participants present at the meeting (JANĮ Article 80(4)). It takes effect when the court order terminating the bankruptcy case becomes final (JANĮ Article 80(6)).

Restructuring. For the bankruptcy case to be terminated and a restructuring case opened, the draft restructuring plan must be approved by the participants’ meeting and by the creditors (JANĮ Article 81(3)).

Paying all creditors. The case is also terminated where the company settles with all its creditors (JANĮ Article 78(1), point 2).

Time is limited. The court orders the company’s liquidation due to bankruptcy 3 months after the order approving the creditors’ claims becomes final, if during that time the administrator has not applied for restructuring or for approval of a settlement agreement (JANĮ Article 83(1)). The court may extend this period once, by no more than 3 months, on a reasoned request of the administrator or the creditors’ meeting (JANĮ Article 83(2)). On a reasoned request of the creditors’ meeting the court may order the liquidation due to bankruptcy before the 3 months have passed (JANĮ Article 83(3)). A restructuring case can be opened and the bankruptcy case terminated only until the order liquidating the company due to bankruptcy becomes final (JANĮ Article 78(3)).

Annual statements. Where the company is being liquidated on a decision of the court or of the creditors’ meeting due to bankruptcy (CK Article 2.106, point 2), that is, from the day the order liquidating the company due to bankruptcy becomes final (JANĮ Article 83(5)), the general meeting of shareholders does not approve the annual financial statements (Article 20(1), point 11 of the Law on Companies of the Republic of Lithuania (ABĮ)).

JANĮ does not list separately which other decisions the general meeting of shareholders may still take during bankruptcy, and we found no case law on this point, so it is worth agreeing any such decision with the insolvency administrator in advance.

What is left for shareholders at the end

The assets left after the creditors’ claims have been satisfied and the bankruptcy costs paid are handed by the administrator to the participants under the law governing the company’s legal form (JANĮ Article 93(3)). The decision on the end of the company is taken by the court (JANĮ Article 100(1)), and the manager of the Register of Legal Entities deregisters the company on the basis of that decision (JANĮ Article 101(1)).

More on liquidation

• Liquidation of companies: service page
• Liquidation or bankruptcy: what to do when a company runs short of assets
• Does bankruptcy need shareholder consent? How insolvency is established
• Are shareholders and the CEO liable for debts after deregistration?
• Who can be a company liquidator in Lithuania, and what are they liable for?
• Debtor company in liquidation: how a creditor claims the debt in Lithuania
• Liquidating a UAB with a shareholder abroad: what can be done remotely
• Liquidation in Lithuania: archive certificate and state land lease tax
• Liquidation in Lithuania: annual financial statements and the AGM
• Shares in other companies during liquidation: act before deregistration

How to start

Send us the order opening bankruptcy, the insolvency administrator’s letters and a list of the documents and assets you have already handed over or plan to hand over. We will assess whether the handover meets the order and prepare the handover deed, a reply to the administrator or the shareholders’ proposal to the creditors.

Phone +370 5 212 1506, email info@linden.lt

More about this service: Liquidation of companies.