Skip to content
Insolvency lawyerTadas Ugintas
LT

Directors and shareholders

Help for directors and shareholders when a company becomes insolvent

We represent current and former directors and shareholders of Lithuanian companies, including foreign nationals, when a company’s insolvency creates a risk of personal liability:

  1. the insolvency administrator is claiming damages;
  2. there is an application to declare the bankruptcy intentional and to name you as the person responsible;
  3. transactions or payments made while you were in charge are being challenged;
  4. you are accused of starting insolvency proceedings too late;
  5. there is a dispute about handing over the company’s assets, accounting records or documents;
  6. you have received court documents or a demand from the insolvency administrator;
  7. other situations.

We correspond and advise in English. Most of the work can be done remotely, with documents exchanged electronically.

ArticleDirectorsAn insolvency administrator has sued a former director: why it pays not to waitAn insolvency administrator's claim against a former director of a Lithuanian company can lead to personal liability. The risks, and why acting early matters.ArticleDirectorsDirector liability when a Lithuanian company goes bankruptWhen can a director become personally liable for a Lithuanian company's insolvency? The grounds for liability, how damage is assessed and how to defend.ArticleDirectorsShareholder liability when a Lithuanian company goes bankruptA shareholder's liability for a company's insolvency depends on when he or she knew or should have known of it. A Supreme Court of Lithuania ruling explained.

Frequently asked questions

What has to be proved before I, as a director, can be held liable?

As a rule, three things must be established: unlawful acts or omissions, damage to the company or its creditors, and a causal link between them. It is not enough to say in general terms that the company went bankrupt and creditors were left unpaid. The claimant must identify the specific duty breached, when it was breached and what financial consequences followed from that breach. Lithuanian courts leave directors reasonable room for business judgement: a decision that turned out badly but was taken in good faith is not unlawful in itself.

Can the administrator claim damages simply because one creditor was paid before the bankruptcy and others were not?

Not automatically. In a case we handled, the insolvency administrator claimed more than EUR 101,000 from a former director, challenging 42 payments made by the company. The court dismissed the claim because the facts of insolvency and the payments themselves proved neither unlawful conduct by the director nor damage. The court looks at what was paid for, whether the company received real value, whether the payment was needed to keep trading and whether it was used to strip assets.

What is a de facto director, and why does it matter if liability is being placed on me as the registered director?

Lithuanian case law accepts that the person liable for an intentional bankruptcy may be the de facto director rather than the one named in the register: someone who systematically ran the company in practice, negotiated the key contracts, controlled the bank accounts and gave binding instructions to the registered director. In one of our cases the registered former director was cleared on exactly this basis, and liability was placed on the person who actually controlled the company's finances and negotiations even though he had no formal role. Official status and a signature on a contract do not in themselves show who really took the decisions.

Can a creditor sue me personally even after the company's insolvency proceedings have ended?

Yes. The Supreme Court of Lithuania has held that where the insolvency proceedings of a legal person have ended and a creditor's claim remains unpaid, the creditor may, under the conditions set by law, bring a direct claim against the person responsible for the intentional bankruptcy. The risk does not disappear when the company is struck off the register. It is worth assessing in advance whether the facts established in the insolvency case about your conduct could support such a claim.

Does a finding of intentional bankruptcy automatically mean I will be barred from acting as a director in future?

No. A restriction on acting as the head of a legal person is not an automatic consequence of every ruling on intentional bankruptcy; its grounds and proportionality are assessed separately. Nor does a finding of intentional bankruptcy in itself mean criminal liability. The ruling is passed to the prosecutor, and criminal liability is assessed under the separate rules of evidence that apply in criminal proceedings.

Is a shareholder's liability for filing for bankruptcy too late the same as a director's?

No, they are separate questions. The court of cassation has held that the case must establish separately when the director and when the shareholder learned (or should have learned) that the company was insolvent. Only then can it be decided which defendant breached the duty to start insolvency proceedings, and from when. If the director knew earlier than the shareholder, the shareholder's liability may cover a shorter period (Supreme Court of Lithuania ruling of 12 July 2018 in civil case No. e3K-3-286-421/2018). A claim against a shareholder therefore has to be assessed on its own, not automatically on the same period and grounds as the claim against the director.

Other services