Quarantine may exempt from bankruptcy and restructuring

17.04.2020 Quarantine may exempt from bankruptcy and restructuring

By Associate Vytis Grybauskas

On April 9, the Ministry of Finance of the Republic of Lithuania and the Government prepared a draft law amending the application of the existing Law on Insolvency of Legal Entities. The new regulation focuses on businesses that have experienced financial difficulties as a result of nationwide restrictions caused by the coronavirus, TGS Baltic lawyer Vytis Grybauskas writes.

Financial challenges should be dealt with during a quarantine period and in the following three months

One of the major changes proposed in the draft law is the temporary suspension of the duty of a company head to file for bankruptcy. Earlier, a company head, without reaching an agreement with creditors, had to apply to the court for initiating insolvency proceedings immediately. If the new regulation is approved, the company head will no longer be obliged to go to court to open insolvency proceedings during the quarantine period and in the following three months.

Companies undergoing restructuring will also benefit from a similar extension. The current regulation provides for the termination of a restructuring case if the restructuring plan is not submitted to the court in time or is not implemented for more than three months. The new draft law allows extending this period until the end of the quarantine and for the following three months. However, it is unclear how the new regulation will affect the restructuring processes that have already been initiated and are currently in progress in line with the old regulation.

New law to be applied only to those affected by the pandemic

The Government and the Ministry of Finance intend to apply the new law only to those who have encountered financial difficulties or become insolvent as a result of the spread of the new coronavirus in the world and a subsequent quarantine declared on March 16.

However, this may cause certain problems to those who were in a difficult financial situation before the quarantine, for example, in early March. According to the draft law, such persons will not be able to benefit from the law. However, as the practice and the adoption of a new regulation show, it is supposed that the legislator presumes that courts will address most of the issues.

Creditors should wait until the end of quarantine to initiate restructuring process for debtors

According to the new regulation, creditors are allowed not only to initiate bankruptcy but also restructuring processes for debtors. Before initiating one of the insolvency proceedings, the creditor must approach the debtor and set a deadline for fulfilling their obligation or concluding an aid agreement. Before this deadline, the creditor cannot go to court for insolvency proceedings. The new law provides for the suspension of the calculation of this term during the quarantine period. This means that during the quarantine period, the courts will not receive new applications from creditors to initiate insolvency proceedings. But, on the other hand, regional courts may face an increase in workload in the following weeks after the quarantine.

Vytis Grybauskasbw 2

Vytis Grybauskas