How long do you have to recover a debt in court, and what documents do you need?

The principal debt is subject to the general ten-year limitation period – Article 1.125(1) of the Civil Code (CK), unless the CK or another law sets a shortened period for that kind of claim (part 2 of the same Article). For default interest (contractual late-payment penalties) and fines, the limitation period is six months, as laid down in part 5 of the same Article. For interest and other periodic payments it is five years; this is laid down in part 10 of the same Article. This means that the debt itself may still be recoverable, while the limitation period for the claim for accrued default interest has already expired. The list of documents is short, but the translation and the letter of demand can decide when the case gets moving.

Three different limitation periods in one invoice

This is an easy place to go wrong when working out how much can be claimed.

Article 1.125(1) CK sets the general ten-year limitation period. It applies to the claim for the principal debt, unless a shortened period is set for that kind of claim (Article 1.125(2) CK).

Article 1.125(5) CK sets a shortened six-month limitation period for actions to recover contractual penalties – fines and default interest. Six months pass quickly, and default interest can make up a larger part of the claim than the debt itself.

Article 1.125(10) CK sets a shortened five-year limitation period for claims to recover interest and other periodic payments.

The practical conclusion: before the statement of claim is prepared, the claim has to be split into three parts, and each part has its own limitation period applied to it. The court applies limitation only when a party to the dispute asks for it (Article 1.126(2) CK). If the debtor asks, a limitation period that expired before the claim was filed is a ground to reject that part of the claim (Article 1.131(1) CK). So it is worth seeing in advance which part of the claim may be rejected.

What documents are needed

The contract or the order. The invoices. Evidence that the goods were delivered or the services provided – delivery notes, acceptance certificates, correspondence. A reconciliation statement of mutual accounts, if there is one. The letter of demand and proof that it was sent. A calculation of the debt, with dates.

The list looks short, but it should not be taken lightly.

A translation worth knowing about in advance

If the debtor is foreign or the contract was not concluded in Lithuanian, translation adds a separate piece of work and a separate time frame. When the document package consists of the contract, annexes, several dozen invoices and correspondence, translation becomes a project in its own right, with its own schedule.

That is why it is worth finding out in advance: what language the contract is in, what language the invoices are in, what language the correspondence is in. If even one of the answers is not Lithuanian, the translation should go into the timeline straight away.

A letter of demand is not there as a formality

A letter of demand can look like lost time.

A letter of demand is best sent as follows. The letter of demand is sent in writing and in a way that allows you to show it was sent. It states the specific amount, its basis, the document numbers and dates, the deadline for payment and what will be done once that deadline has passed. A copy by email, the original by post.

The point worth making openly: a letter of demand is not there as a formality. It is there to fix a date from which the debtor can no longer claim not to have known. That date is later used in assessing the debtor’s conduct and in deciding on the costs of the proceedings. Where no time for performance was set, the debtor is in breach if it does not pay within the period set in the letter of demand (CK Article 6.63(3)).

A letter of demand is also a filter. After it the debtor may pay or reply, and the reply shows whether the dispute is real or just a delay.

Settlement when the case is already in court

Filing the statement of claim does not close the way back.

The parties may end the case by a settlement agreement at any stage of the proceedings (Article 140(3) of the Code of Civil Procedure, CPK). For example, the parties can agree on a payment schedule and on waiving part of the default interest.

So it is worth leaving room for negotiation in the statement of claim rather than taking the maximum position.

When a corporate debtor goes bankrupt

When insolvency proceedings have been opened against a debtor that is a legal entity and it is being liquidated due to bankruptcy, it matters in which ranking your claim will be satisfied. For an individual’s bankruptcy, the ranking is set by Article 29 of the Law on the Bankruptcy of Natural Persons. Article 94(1) of the Law on Insolvency of Legal Entities (JANĮ) provides that, when a legal entity is liquidated due to bankruptcy, the claims of the pledgee are satisfied first out of the pledged assets. Article 94(2)(1) JANĮ lists the first ranking: creditors that provided new and/or interim financing not secured by a pledge or mortgage, employees’ claims connected with employment relationships, social and compulsory health insurance contributions and contributions to the Guarantee Fund and the Long-term Employment Benefit Fund, and obligations arising from activities carried on during the insolvency proceedings. All remaining claims are satisfied in the second ranking.

Claims are satisfied in two stages: first without accrued interest and penalties, then the interest and penalties (Article 94(3) JANĮ). Within each stage, a later ranking is satisfied only after the earlier ranking of that stage, and where funds are insufficient – pro rata (Article 94(4) JANĮ).

So it is worth assessing straight away in which ranking your claim will fall and whether the funds will be enough to satisfy the preceding rankings. You can then decide in time whether to keep investing in the case.

More on debt recovery

• Debt recovery in court: service page
• Debt limitation period in Lithuania: start, interruption, renewal
• Letter of demand to a debtor in Lithuania: is it required, what it changes
• Interest and late-payment penalties in Lithuania: what the law allows

How to start

Send us the contract, the invoices and the latest correspondence with the debtor. We will tell you which part of the claim is not yet time-barred, what is missing from the documents and whether it is worth starting with a letter of demand.

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

More about this service: debt recovery.