In addition to other amendments, the Draft Law proposes the following substantive amendments:
- To shorten the duration of the implementation of the plan for the restoration of solvency from 5 to 3 years, with a view to avoiding the forum shopping phenomenon, where natural persons initiate bankruptcy proceedings in other jurisdictions pursuing for a more advantageous legal treatment. This amendment would better protect creditors’ interests, because they would avoid excess costs in asserting their rights before Lithuanian courts.
In the interests of clarity, it is proposed to include the list of assets not for sale in the plan for the restoration of solvency. The natural person is also provided with the possibility of arranging with the pledgee (mortgagee) not to sell the assets pledged (mortgaged) that are necessary for meeting the needs of the natural person and/or his dependents or pursing individual activity, unless such arrangements infringe the interests of other creditors. The claims of such pledgee (mortgagee) would stand first in line for satisfaction and would not be written off after the expiry of the period of the implementation of the plan for the restoration of solvency. This amendment not only allows natural persons to maintain, for example, their housing but also increases the likelihood for mortgage creditors to recover a major part of the debt, without writing off their claims.
- It is suggested establishing that the plan should be put to the vote not in the general procedure, where a decision is considered taken if it has been approved by the creditors whose claims, in terms of value, approved by the court account for at least half of the amount of all the creditors’ claims approved by the court, but in groups where pledgees (mortgagees) and mortgage creditors constitute one group and other creditors constitute the other group. The decision in that case would be considered taken where the creditors whose claims, in terms of value, approved by the court exceed at least half of the amount of the claims (in terms of value, approved by the court) of the creditors attributed to the relevant group, have approved a draft plan in each group.
It is proposed to empower the person pursuing individual activity and/or farmer activities to assume new liabilities for pursuing the relevant activity during the bankruptcy process.
It is proposed to sell at auction not the whole assets pledged (mortgaged) but only that part the initial selling price of which is not below expenses for the auction.
Commentary of Irma Juškauskaitė, Associate at TGS Baltic: the amendments proposed in principle benefit natural persons (a shorter term of the bankruptcy process, a possibility of maintaining housing). The amendments may have an adverse effect on creditors, because due to the shortened duration of the process their claims would be satisfied to a lesser extent, furthermore, only part of the assets of the person involved in bankruptcy proceedings may be subject to recourse. However, the amendments restricting forum shopping and maintaining claims without writing them off after the completion of the process on a case-by-case basis could be advantageous for creditors. It should also be noted that due to the amendments proposed with respect to voting in groups, separate groups of creditors could be given greater influence.
Law firm TGS Baltic provides legal services on matters related to bankruptcy and restructuring, insolvency management, and represents creditors and debtors in bankruptcy and restructuring proceedings. Currently the law firm advises and counsels 37 clients in the above-mentioned areas.