The Individual Creditor’s Right to Hold a Corporate Shareholder Liable for an Insolvent Company’s Obligations Outside Bankruptcy Proceedings: The Lithuanian View

Abstract

Lively discussions on civil liability of companies’ directors towards the creditors of financially distressed companies have been going on for decades. Recent trends in Lithuanian case law, however, show that, in parallel, creditors of private limited liability companies have also shifted their focus to other real masters of business—controlling shareholders—by, rather aggressively, enforcing shareholders’ liability for obligations of insolvent companies. Since recovery rates of unsecured creditors in insolvent liquidations are rather modest, creditors seek to by-pass collective bankruptcy proceedings and bring actions against the abusive shareholder exclusively for their own benefit outside bankruptcy proceedings. Based on comparative examples, the article aims to analyse and evaluate the Lithuanian legal framework by addressing the standing of an individual creditor to hold an abusive corporate shareholder liable for an insolvent company’s obligations from the perspective of competing damage claims between an individual creditor and a bankruptcy administrator. The analysis includes both ordinary and fraudulent bankruptcies.