Out of court bankruptcy of a legal person: When it is permissible

05.06.2020 Out of court bankruptcy of a legal person: When it is permissible

By Associate Vytis Grybauskas

It is often unknown that out of court bankruptcy of a legal person is possible. It means that bankruptcy proceedings take place out of court and, in this case, all issues which are dealt with by the court are settled by creditors.

In this way, bankruptcy proceedings are faster and more efficient. However, in order to qualify for an out-of-court procedure, a legal person must meet three criteria:

  • there are no cases pending before any courts (or there is no preliminary examination of disputes), in which property claims have been made against the legal person (including employment-related claims);
  • no enforcement arrangements are in progress;
  • no tax inspection is being carried out.

It is also important to know that only a 3/4 majority of creditors may initiate out-of-court bankruptcy proceedings.

The benefit of out-of-court bankruptcy proceedings compared to a traditional process:

  • the process is more operational;
  • creditors themselves appoint insolvency administrators;
  • creditors play a role of the court.

The percentage of out-of-court bankruptcy processes in QI 2020 does not change and is comparable to QI 2019 (7.8% v. 11.6% of the total number of bankruptcy cases).

Prepared according to: Authority of Audit, Accounting, Property Valuation and Insolvency Management.

Vytis Grybauskas bw 2

Vytis Grybauskas