Lithuania Report: Avoidance actions and good faith – what to observe when doing business with Lithuanian companies

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Recent Lithuanian case law confirms that businesses ought to be very cautious and take active steps before entering into transactions with Lithuanian companies potentially facing difficulties.

Otherwise, they risk having to return what they received from the transaction if insolvency proceedings are opened against the company and the administrator brings a claw-back claim.

Lithuanian insolvency administrators examine the debtor’s transactions concluded within the 36 months before the opening of the proceedings. They must start avoidance actions against the debtor’s counterparty if the conditions for an actio pauliana claim are met. One of the conditions is the bad faith of the debtor’s counterparty at the moment of the transaction. A counterparty acted in bad faith if it knew or should have known that the transaction would violate other creditors’ rights. This is the case if it can be shown that the counterparty knew or should have known that the transaction will cause or aggravate the debtor’s insolvency.

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