When a company doesn’t deliver desired results in spite of having tried to put it back on its feet or when all the strategic goals have been reached, and you’re keen to move on, it might be the time to think about official closure. Knowing how to go about it is imperative as liquidating a business is an intricate process that may put its stakeholders – investors, employees, suppliers, clients – at risk.
This is precisely why it requires qualified support who would assist you in avoiding unfortunate mistakes and would help you to adhere to the mandatory procedures plus save you a lot of precious time that could be used for initiating new exciting ventures.
Not sure what a company liquidation exactly means? It’s a procedure during which the activities of a legal entity are stopped and completely terminated, it’s deregistered from the State Enterprise Centre of Registers, and its existing responsibilities are not transferred to anyone else.
Now, if you’ve made the decision to terminate a business and want to find out which way of termination suits you best, read on, as in this article we’ll review the most common ways of liquidating a company in Lithuania.
Members’ Voluntary Liquidation
This solution is available to those who intend to close a solvent company, which means that it owns sufficient assets to meet its liabilities – pay debts, interest, etc. Only then can the company’s shareholders or owners voluntarily decide to terminate their business. For a Lithuanian UAB, the decision on voluntary liquidation is generally adopted by the general meeting of shareholders with a qualified majority of at least two-thirds of the votes attached to the shares represented at the meeting, unless the articles of association require a higher majority. Where the company has a sole shareholder, the decision may be adopted by that shareholder in writing.
Also, a liquidator(s) – who must be a natural person – has to be appointed by the decision of the members. They can choose from the company’s directors, shareholders, employees or other internal stakeholders.
Once the shareholders adopt a valid decision to liquidate the company and appoint a liquidator, the liquidator assumes the powers of the company’s management bodies. The company may continue carrying out activities and entering into transactions necessary for its liquidation, including collecting receivables, disposing of assets and settling outstanding obligations. Throughout the process, which may take anywhere from a few months to several years, the responsibilities and requirements of the head of the company will apply to this person. When the division of shareholders or owners elects such a person or group of persons, the former director loses decision-making authority, as all responsibilities are transferred to the liquidator.
The liquidation must be publicly announced three times at intervals of at least 30 days in the publication source specified in the company’s articles of association, or announced once in that source with individual written notification to all creditors. The liquidator must submit the required documents to the Lithuanian Register of Legal Entities no later than the first day of public announcement of the liquidation.
On the same day, the liquidator must contact the State Enterprise Centre of Registers with the document proving the decision to liquidate the company and request to change the status of the company to “in liquidation”.
The liquidator must submit the required documents to the Lithuanian Register of Legal Entities, prepare the necessary financial statements, settle the company’s outstanding liabilities and arrange for the transfer of documents subject to statutory retention requirements to the competent territorial archive. The archive issues confirmation that the required documents have been transferred or that no documents require transfer. The liquidator must also complete applicable tax reporting and deregistration procedures before requesting the company’s removal from the Register of Legal Entities.
After the company has settled its outstanding liabilities and completed the required tax, accounting and archival procedures, the State Tax Inspectorate (VMI) confirms settlement with the relevant public budgets and funds to the Register of Legal Entities. Once the required tax clearance and archival confirmations have been received, the liquidator submits the application for deregistration together with the liquidation deed and final financial statements. The company ceases to exist upon deregistration from the Register of Legal Entities. There is no general statutory obligation to delete the company’s website, although associated contracts, domain registrations and digital services should be terminated or transferred as appropriate.
Creditors’ Voluntary Liquidation
If a Lithuanian company is insolvent, its closure is generally governed by the Law on Insolvency of Legal Persons rather than the ordinary voluntary liquidation procedure applicable to solvent companies. Depending on the circumstances, insolvency may be addressed through judicial bankruptcy proceedings, out-of-court bankruptcy proceedings where the statutory conditions are met, or restructuring if the company is viable. The appointment and powers of an insolvency administrator are governed by the applicable insolvency rules, and company directors cannot simply appoint a liquidator to retain control over an insolvent company’s closure.
Again, the liquidator must make a public announcement about the initiated liquidation, contact the State Enterprise Centre of Registers, deal with the State Tax Inspectorate and carry out other responsibilities handed over by the company’s directors.
In Lithuania, an insolvent company’s liabilities are addressed through the procedures established by the Law on Insolvency of Legal Persons. Out-of-court bankruptcy may be conducted where the statutory requirements are satisfied and the necessary creditor approval is obtained. During bankruptcy, the insolvency administrator manages the realisation of the company’s assets and the satisfaction of creditors’ claims in accordance with the legally prescribed order of priority. Shareholders may receive any remaining assets only after creditors’ claims and applicable insolvency expenses have been satisfied.
In Lithuanian bankruptcy proceedings, secured creditors are generally satisfied from the proceeds of the assets securing their claims, subject to applicable insolvency expenses and statutory rules. Other creditors’ claims are satisfied according to the ranking established by the Law on Insolvency of Legal Persons. First-priority claims include certain financing claims, employee-related claims, specified social insurance and compulsory health insurance contributions, and certain obligations arising during bankruptcy. Remaining creditors’ claims, including ordinary unsecured tax claims, are generally satisfied in the second priority. Claims are also subject to statutory rules concerning principal amounts, interest and penalties.
Compulsory Liquidation
The closure of an insolvent Lithuanian company may take place through judicial bankruptcy proceedings initiated by an eligible creditor or another person authorised under the Law on Insolvency of Legal Persons. Separately, the Lithuanian Register of Legal Entities may initiate the liquidation of a legal entity on statutory grounds, such as certain failures to comply with registration or reporting obligations. Administrative liquidation initiated by the Register of Legal Entities and bankruptcy proceedings are distinct legal procedures, subject to different requirements, decision-making processes and rules concerning the appointment of a liquidator or insolvency administrator.
Compulsory liquidation typically signals that the company’s directors are either unaware of the financial difficulties or disregard them, which is why it casts a shadow on their reputation. It’s highly advised not to leave a company’s finances for freewheeling and take an initiative by opting for a voluntary liquidation.
What Step to Take Next?
Company liquidation is a complex, sometimes overwhelming process, and you shouldn’t be left alone in it. It’s crucial to receive support from someone who’s apt at Lithuanian legislation and can help you to make informed decisions.
We strive to manage the termination of a company’s operations in an orderly and timely manner so that our greatly valued clients can focus on building a new future without having to worry about wrapping up the past.
In order to minimise the stress of your company liquidation, you should seek guidance from the team of experienced Company in Lithuania UAB professionals, who will be glad to take this burden off your shoulders by guiding you through the process and dealing with the stakeholders on your behalf. We offer fully remote business termination services in accordance with local legislation and practice. Please kontaktas Company in Lithuania UAB for further guidance.
