Restructuring and Bankruptcy of Enterprises

In 2003, the Ministry continued the implementation of the Programme for Enterprise Restructuring and Bankruptcy aiming to reduce the number of companies in temporary financial difficulties and still continuing their business activities, and to speed up the bankruptcy processes of insolvent enterprises.

The way to achieve this goal is to use the measures of improvement of the legal and economic environment as well as organisational measures for implementation of the laws and accompanying legislation.

Legal and economic measures mean improvement of legal framework in the area of company restructuring and bankruptcy. The main measures are as follows:

•  amendments to the Enterprise Bankruptcy Law and the Law on the Restructuring of Enterprises adopted in 2003 in order to adjust these laws to the provisions of the Labour Code, and the opportunity to launch bankruptcy proceedings for companies that are in arrears on wages to their employees;

•  resolutions of the Lithuanian Government allowing the companies Gražtai AB, Kauno Šiltnamiai AB, Karklenai LŽUB , Klaipedos Laivu Remontas AB, Pavenciu Cukrus LAB, Mažeikiai District Consumer Cooperative Association, Minera UAB, and Alytaus Keramika AB to use their assets to pay for tax debts;

•  the amended Procedure for Submitting and Publishing the Data on Enterprises under Restructuring and the Process of Restructuring, Procedure for Authorising Natural and Legal Persons to Provide Services of Enterprise Bankruptcy and Restructuring Administration as well as the adopted Procedure for Agreeing on the Candidacy of the Administrator of Enterprises in Bankruptcy and Bankrupt Enterprises.

Organisational measures:

•  The international Phare project LT 0002.01 Promotion of Competetiveness /Enforcement of Financial Discipline for Enterprises was implemented in the Ministry from 4 April 2002 to 30 September 2003 . One of the composite parts of the project was bankruptcy and enterprise management. Around 50 per cent of the output of the project was targeted at the improvement of the processes of bankruptcy and restructuring in Lithuania . The project gave the following outputs:

•  Supplementing provisions proposed to the bankruptcy and restructuring laws;

•  Comparative analysis of insolvency processes was done in line with the best in the EU ( Denmark , Ireland and UK and Hungary ). These countries were chosen because experts believed that they best reflected the similarities and differences between bankruptcy and restructuring processes;

•  Analysis of the performance specifics of judges and institutions administering insolvency processes, and proposals submitted on the improvement of the performance thereof;

•  Sixty judges and 150 other experts from the Enterprise Bankruptcy Management Department under the Ministry, State Tax Inspectorate, SoDra and company administrators took part in training and seminars dedicated to bankruptcy and restructuring issues. Twelve representatives of different institutions went on a study tour to Ireland ;

•  Around 50 participants from the Ministry, State Tax Inspectorate, Lithuanian Confederation of Industrialists and other institutions took part in training on financial enterprise management;

•  Methodology for restructuring enterprises was introduced, serving as an outline for restructuring plans of companies of all types and industries;

•  Guidelines for enterprise bankruptcy and restructuring management have been prepared embracing laws, principal accompanying legislation of the laws and examples of documents needed for these processes.

In September 2003, the Ministry hosted a short-term mutual aid international project PPA03/LT/8/8 International Insolvency funded by the Dutch Government. The main purpose of the project was to introduce institutions involved in the processes of enterprise bankruptcy and restructuring to the principles of international insolvency and the Council Regulation on Insolvency Proceedings 1346/2000/EC adopted on 29 May 2000 . The goal of the project was implemented during a two-day seminar in Vilnius .

The first stage of modernisation of information analytical databases containing information on enterprises in bankruptcy and under restructuring, and administrators of enterprise bankruptcy and restructuring was wrapped up. The databases are used for analysis of enterprise bankruptcy and restructuring processes. During the process of upgrading there were efforts to better inform the public, especially business entities, state and municipal institutions about enterprise bankruptcy and restructuring processes.

In 2003, the Enterprise Bankruptcy Management Department under the Ministry considered 109 complaints and requests. Upon finding legal violations the Department addressed the Commission Certifying Bankruptcy and Restructuring Administrators on fines to be imposed on seven administrators. The right to supply the services of bankruptcy administration was taken away from two natural and one legal person.

In 2003, 611 companies started bankruptcy proceedings, including 26 companies that launched bankruptcy out of court. Bankruptcy proceedings of 703 enterprises were completed, including 68 enterprises with bankruptcy proceedings that started and finished in 2003 (Table 4).

Table 4

Duration of Enterprise Bankruptcy Proceedings ( 1 January 2004 )

* Preliminary data.

Analysis of enterprise bankruptcy proceedings leads to the conclusion that the number of bankruptcy related civil cases is decreasing and the number of completed enterprise bankruptcies is rising (Figure 17). A trend was observed that the number of completed bankruptcy proceedings almost doubled as compared with the preceding year. The process of implementation of enterprise bankruptcy proceedings became faster. In 2003, bankruptcy proceedings of 68 companies took less than 12 months. More than 600 enterprises had their bankruptcy proceedings completed after launching them in 2002 and before.

Figure 17

*Preliminary data

The Law on the Restructuring of Enterprises provides better terms to develop prospective business, regulate relations with creditors without resorting to bankruptcy proceedings, to restore the profitability of enterprises and preserve jobs.

The Law on the Restructuring of Enterprises sets forth that restructuring proceedings to restore solvency are applicable only to these enterprises which develop their activities, have markets in which to sell their products and which, in the opinion of creditors, should not be subject to bankruptcy proceedings. Nine companies took advantage of this in 2003.

In 2003, 75 natural persons were issued qualification certificates of administrators of enterprises in bankruptcy, 16 legal persons were granted licences to provide services of administration of enterprise bankruptcies, eight natural persons were issued qualification certificates of administrators of enterprises under restructuring and three legal persons were issued licences to provide enterprise restructuring services.

In order to share experience accumulated and continue to improve, the Enterprise Bankruptcy Management Department under the Ministry became an active participant in enterprise restructuring and bankruptcy seminars and conferences held in Lithuania and abroad.