Statistical data shows that in the last two years, 2022-2024, approximately 75,000 inactive legal entities that failed to submit mandatory data and documents have been removed from the Register of Legal Entities in Lithuania. In 2024, more than 22,000 legal entities were deregistered from the Register of Legal Entities. The majority of these, almost 19,000, were private limited liability companies.
According to the data of the Centre of Registers, a significant number of legal entities are liquidated automatically due to failure to submit mandatory financial statements. We will briefly discuss the possible legal means of protecting the rights of creditors and how to recover a debt when the debtor is a legal entity that has already been deregistered at the initiative of the register administrator.
The protection of creditors’ interests is one of the fundamental principles enshrined in the civil law of the Republic of Lithuania. However, in practice, questions often arise regarding the enforcement of creditors’ rights in cases where a legal entity has already been liquidated. It should be noted that in practice there are often situations where a legal entity that has entered into a contract and assumed obligations but fails to perform them seeks to avoid contractual liability by taking advantage of the liquidation procedure initiated by the administrator of the Register of Legal Entities (Article 2.70 of the Civil Code of the Republic of Lithuania (hereinafter referred to as the CC)). In such a case, the legal entity is formally eliminated from civil legal relations. This scheme is particularly often used in relation to legal entities that do not carry out any real activities and have no assets. In such a case, the creditor has the right to take action to recover damages, including the possibility of bringing claims against the former managers or participants of the legal entity if it is established that the liquidation procedure is intended to avoid the fulfillment of obligations. Article 2.70(9) of the Civil Code clearly states that the participants of a terminated legal entity are jointly and severally liable for three years and must compensate the creditors for the damage they have suffered as a result of the legal entity was liquidated on the initiative of the administrator of the register of legal entities due to the dishonest actions of the participants of the legal entity.
This means that the application of liability to a participant of a liquidated legal entity is conditioned by two circumstances:
a) the basis for the deregistration of the legal entity;
b) whether the deregistration was caused by dishonest actions of the participants of the legal entity.
Thus, in practice, it is important for the creditor to prove that:
– the debt existed before the deregistration of the legal entity;
– the member of the legal entity knew or should have known about the debt;
– that the creditor suffered damage as a result of the liquidation of the legal entity.
In summary, it should be emphasized that the liquidation of a legal entity at the initiative of the administrator of the Register of Legal Entities pursuant to Article 2.70 of the Civil Code does not grant dishonest participants in the legal entity “immunity” from liability. If such liquidation is used as a means of avoiding contractual obligations, the creditor has the right to defend its interests in court and claim damages from the former participants or managers of the legal entity. To this end, it must be proven that the debt existed prior to the liquidation, that the participant knew or should have known about it, and that the liquidation caused actual damage to the creditor. If the action is brought properly and in a timely manner – within three years of the legal entity’s deregistration – this can be an effective tool to prevent abuse and ensure that the debtor’s obligations to the creditor are fulfilled even after the legal entity has ceased to exist.