Month: June 2025

Equal work - different pay: is it always discrimination?

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When two people in a company do the same job but are paid differently, the natural question is: is this legal? Is this situation already discrimination? Or does the employer have a legitimate reason for treating them differently?

Viktorija Dubovskienė, an attorney at AVOCAD, answers these topical employment issues by analysing both national labour law and the case law of the European Court of Human Rights.

According to the senior lawyer, the Labour Code (LC) stipulates that employers must ensure gender equality and not discriminate against employees on any grounds. The Court of Cassation has also clarified that any discrimination, whether direct or indirect, on grounds unrelated to the employee's abilities or statutory criteria, such as membership of a particular organisation, is prohibited.

The Labour Code stipulates that a worker's salary cannot be lower than what is laid down by law, collective agreements or the company's remuneration system. It also makes it clear that the system must be fair and ensure that workers are not discriminated against on grounds of sex or other grounds. Same work means the performance of work activities that are, according to objective criteria, identical or similar to other work activities, to the extent that the two can be interchanged without significant cost to the employer.

A systematic interpretation of the above-mentioned provisions of the LC means that the parties to an employment contract must lay down in the employment contract non-discriminatory rules for calculating wages, which establish equal pay for equal work.

However, the case law of the European Court of Human Rights shows that not all unequal treatment is discrimination. It is only recognised when there is no objective and reasonable explanation for such treatment. If an employee raises a reasonable suspicion of possible discrimination, then the burden of proving that the difference was legitimate lies with the employer, who has access to all the relevant data.

Viktorija Dubovskienė points out that the Supreme Court of Lithuania has examined the employee's complaint in this situation. It stated that the employee had been subject to unequal pay conditions for a certain period of time after the reorganisation, but that this temporary difference in remuneration was objectively justified - it was part of the reorganisation process in order to unify the pay system throughout the employer's company during the transitional period.

"In this case, workers were temporarily treated differently for the good cause of improving their situation. The public authorities decided to apply a transitional period during which salaries were equalised and increased", explains the lawyer.

To achieve this, interim compensatory measures (salary supplements) were applied and the system itself was converged faster than planned, i.e. within 7 months instead of 2 years.

The Court of Cassation noted that the temporary unequal pay was known in advance, the employee had been informed of it, had consented to it, and the differences were not discriminatory. The Court of Cassation emphasised that, according to the case-law of the European Court of Human Rights, where the aim is to improve the situation of all workers and the implementation of the restrictions is not contrary to the fundamental principles of human rights, such restrictions are acceptable.

Thus, according to the lawyer, it is not enough in each case to conclude on the face of it that a provision is discriminatory, but the context of all the circumstances and the ultimate true objectives of the action must be assessed.

 

When a farm is not a UAB: The court has drawn the boundaries of who owns the money

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Can a farmer use the farm's money as he or she sees fit? Is he subject to the same requirements as a company manager - first pay taxes, pay debts, then "you"? Karolina Laura Briliūtė, Senior Associate at AVOCAD, answers these questions by commenting on the recent case law of the Supreme Court of Lithuania. According to her, the Court's decision is particularly important for those who own, transfer or intend to acquire a farm.

Farmer - not a legal person

Although a farm is often seen as a "business unit", it is not a legal entity and cannot be considered as a separate entity. The Court emphasised in its ruling that a farm is not a limited liability company, even if it has a structure, assets and even employees. Legally, everything is managed by the farmer as a natural person. "This is a crucial point of reference: in the absence of separate personality, there is no obligation for the farmer to behave as the managing body of a legal person," notes Karolina Laura Briliūtė.

The Supreme Court noted that neither the Civil Code nor the Farmer's Farm Law creates a separate category of ownership of "farm property". Accounting is designed to record financial flows, but it does not create or limit ownership. Even if the funds are referred to in the accounts as 'farm money', they remain the personal property of the farmer.

According to AVOCAD's lawyer, the Court of Justice took a hard look at the Court of Appeal's attempt to apply business law analogies. The attempt to treat the farmer as the manager of the company, who only disposes of the funds after the "profit balance" is left, was found to be inappropriate and dangerous to the precedent. A farmer's activity is not a collective activity, but an individual activity under the Personal Income Tax Act (PITA), where all the assets generated belong to the person running the activity. The purpose of the funds - payment of taxes, fulfilment of obligations - is important, but it does not restrict the owner's right to use the property, unless otherwise stipulated in the contract.

Taxes: an obligation on the state, not on the other party to the contract

The Supreme Court has also given a detailed assessment on taxes. Although a farmer is subject to VAT and GPT on the income he receives, this does not mean that he is not entitled to use the money until he has paid these taxes. These are two separate lines of liability: one against the State (tax liability) and the other against the contractor (contractual liability). The applicant could not rely on tax arguments to recover the funds as 'misappropriated'.

The Court's position is clear: the farmer may dispose of all the funds in the farm account as his own property, unless the contract expressly provides otherwise. Unless the parties have agreed that the funds are to be used for certain payments prior to the transfer, there is no reason to believe that the farmer was obliged not to use them.

According to the lawyer, this Supreme Court ruling makes it clear that a farmer's activity, although governed by accounting rules, loses any legal personality when it comes to property rights:

  • If you want to use certain farm funds specifically (e.g. to pay debts or taxes), agree this clearly and in writing - only a written agreement creates obligations on the part of the farmer in favour of the partner.
  • Don't overestimate accounting terms such as "farm money" or "farm account" - these are used in accounting but do not give money a separate legal status.
  • Tax law (VAT, GPT) cannot be invoked to restrict the farmer's right to dispose of his money - taxes must be paid, but the obligation to do so lies with the farmer in his relationship with the State and not with the other party to the contract.
  • A farmer is not a director of a company, so the business law analogy of holding funds "outside" his control until taxes have been paid and debts settled does not apply. When a farm is transferred, the exact use of the assets, debts and money must be defined in advance - otherwise the court will consider that the farmer was free to use the money as he saw fit.

 

Can a shareholder be convicted of credit fraud?

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With the information in the public domain that law enforcement authorities have opened a pre-trial investigation into suspected credit fraud in a company owned by the Prime Minister, questions arise as to what the allegations mean, who can be prosecuted, and whether only the head of the company is liable, or whether the shareholder is also liable.

There are a number of cases of farmers and entrepreneurs who have been tried for fraudulently obtaining loans or aid, so this case is neither new nor exceptional.

What constitutes credit fraud?

According to the Criminal Code of the Republic of Lithuania, credit fraud is a situation where a loan, aid, subsidy or grant is obtained by fraud. Such acts are qualified as a criminal offence under Article 207 of the CC.

Fraud usually involves misrepresentation, including information about the borrower's financial situation. However, such information is only considered fraudulent if it was decisive for the creditor's decision to grant financing.

The objective part of Article 207 of the Criminal Code is that the perpetrator obtains a loan or credit by deceiving the victim. The person must be aware that he or she is acting fraudulently and is seeking a pecuniary advantage or knowingly allowing damage to occur. It should be noted that the fact that a loan has been illegally obtained, irrespective of how it has been used, is sufficient for criminal liability.

For example, if a person knows that his or her existing company does not qualify for soft loans, but sets up a new company, obtains a loan and uses the funds to operate the old company, this could amount to credit fraud.

Setting up companies or selling assets is not prohibited. However, if such transactions are carried out with the criminal intent of obtaining financing by deception, they may be considered a crime.

Who can be prosecuted?

As a rule, specific natural persons acting on behalf of a legal person are prosecuted. This can include:

CEO - if he or she decided to apply for a loan and then used the funds for the benefit of another company;

  • Company staff responsible for drafting or signing documents;
  • Shareholders - if they gave instructions to carry out unlawful acts or took other decisions related to the offence.

Can a shareholder be convicted?

Being a shareholder in a company that has received credit does not automatically mean that you will be prosecuted. However, if it is established that the shareholder not only invested, but also effectively controlled the company, exercised shareholder rights, gave instructions or encouraged fraudulent conduct, he or she may be liable.

Evidence of shareholder-manager communication, shareholder decisions and shareholder knowledge of activities is crucial in such investigations. It also assesses whether the manager was not merely a formal figure (a figurehead).

A shareholder can only be prosecuted if his role goes beyond that of a passive shareholder to active participation in the illegal activity - especially if he acts as a de facto manager.

What are the possible consequences?

In addition to personal criminal liability (fines, imprisonment or restriction of liberty), the company itself can also be sentenced. It can be fined, restricted or even wound up. It may also be liable to claim damages.

Egidijus Kieras, Attorney at Law, AVOCAD

How can I recover my debt without a lengthy litigation process?

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In life, it is often the case that a debtor refuses to repay a debt for a variety of reasons and does not respond to your calls to fulfil his/her obligation. In such cases, going to court may seem like the only option, but litigation is often lengthy and expensive. The Civil Procedure Code introduces the institution of a court order to ensure a faster and simpler way of collecting debts. Rokas Puodžiūnas, a lawyer at AVOCAD, talks about its objectives and advantages .

What is the characteristic of the process of issuing a court order? Here, a uniform form of application is submitted. No evidence is attached to the application. These cases are dealt with by the district courts. The stamp duty is a quarter of the application fee, but not less than €10. There is no pre-litigation stage.

A court order is a procedural document issued by a court to a creditor. If the debtor does not object to the order or does not pay the debt within 20 days of service of the order, the order enters into force and becomes an enforceable document that can be submitted to a bailiff. It should be noted that a court order can only be issued in respect of pecuniary claims, irrespective of the grounds on which they arise.

How do I apply for an injunction? A person seeking a court order must file an application. Its content is set out in Article 433 of the Code of Civil Procedure. However, it is most convenient to use the standard form approved by the Minister of Justice, which can be submitted to the court of the debtor's place of residence both on paper and electronically.

When can the application be heard? The necessary conditions are that the creditor has fulfilled its obligations (in the case of a bilateral obligation), that a part of the obligation is claimed (in the case of a split obligation), and that the debtor is resident or has its registered office in Lithuania. The court order cannot be issued if the claim arises from a consumer credit agreement with an annual percentage rate of charge that does not comply with the statutory requirements, and if the interest requested exceeds the statutory maximum rate of interest for late payment (under the Commercial Contracts Act).

Is it necessary to provide evidence? Formally, no. The creditor is not obliged to substantiate the claim with evidence, and the court does not check its validity. However, the court will refuse to accept a manifestly unfounded claim. It is therefore advisable to enclose at least basic documents supporting the monetary claim with the application.

The procedure is as follows: the court will first issue the injunction no later than the next working day after the application is accepted. Copies of the creditor's application and the court order are sent to the debtor. The debtor has 20 days to either: pay the debt and inform the court, or object (without giving reasons). If no objections are lodged, the order becomes final and is forwarded to the bailiff for execution. If the debtor objects, the creditor has 14 days to bring an action under the general rules and to pay the missing stamp duty.

The biggest risk in initiating proceedings for the issuance of an injunction is that the debtor, even if he knows that the debt claimed from him is justified, may deliberately raise objections before the court, thus starting a lengthy litigation process. Therefore, it is advisable to restrict the application for an injunction to 'clear' monetary claims, i.e. disputes where it is unlikely that the debtor has evidence to counter the claim for payment. If you are in doubt about whether it is worth applying to court for an injunction in your situation, rather than going straight to court, it is advisable to seek legal advice.

 

Inaccurate shareholder data - a fine or even criminal liability?

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While it may seem that formal registers are just "paperwork", it is worth remembering that mistakes or delays in submitting shareholder data to JADIS (the Information System of Legal Entities Participants) can cost money and have far more serious legal consequences.

According to the Companies Act, as soon as a private limited liability company is established or its shareholders change, all relevant information on the shareholders must be submitted to JADIS within 5 working days: their details, the number of shares, the date of acquisition etc.

Although the manager may delegate this responsibility to another person, the responsibility remains with the manager. This means that if data is not provided, is provided late or is incorrect, it is the manager who is responsible.

Domantas Velykis, a lawyer at AVOCAD, explains what legal liability may be imposed on the head of a company for failure to provide shareholder data of a private limited liability company, late provision of data, or provision of incorrect data .

According to the lawyer, in a standard case, a company manager who violates the obligation or procedure for submitting shareholder data to the JADIS is subject to an administrative penalty of between six hundred and one thousand four hundred and fifty euros, i.e. administrative liability.

The legal basis for this penalty is established in the Code of Administrative Offences, which stipulates that, firstly, the submission of incorrect data of a legal entity and other information to be provided to the data manager of the Register of Legal Entities, the information system manager of participants of legal entities, and secondly, the failure to provide data of a legal entity and other information to be provided to the data manager of the Register of Legal Entities, the information system manager of participants of legal entities in due time according to the procedure provided for by the legal acts, shall entail the aforementioned administrative liability for the head of the legal entity.

Given the similarities between administrative liability and criminal liability, a reasonable question arises - can the head of a company be held criminally liable for failure to provide shareholder data, late provision of data, or provision of incorrect data?

Domantas Velykis reminds that the Supreme Court of Lithuania has heard a case in which a question was raised about the possibility of applying two criminal offences for false information of shareholders in the public register, when the head of the company, being the sole shareholder and head of the company, sold 50 shares of the company to another person by a share sale and purchase agreement in 2014, but in 2017 the head of the company submitted an application to the Centre for Registers to register himself as the sole shareholder of the company, falsely stating that he had acquired the entire number of shares in 2016, when in fact he had not recovered the shares from another person.

First of all, the Supreme Court of Lithuania found that the Share Purchase and Sale Agreement concluded in 2014 was valid - it was neither annulled nor declared invalid. Therefore, the Court assessed whether the company's CEO could have committed a crime by submitting an application to the Centre of Registers to register himself as the sole shareholder, i.e. whether he had illegally acquired someone else's property, in this case, 50 shares which were already owned by another person.

In this situation, the lawyer said, it is important to know that company shares can only be transferred after a certain transaction (for example, a sale or a gift) has been concluded and an entry has been made in the securities accounts. In contrast, the JADIS is only an information system that registers changes in shareholders that have already taken place, but the entry in it does not in itself create ownership rights.

"Therefore, a manager's mere request to register himself as the sole shareholder does not guarantee that he has legally acquired those shares. As such entries do not reflect a real transaction, the court concluded that this action cannot be considered fraud - the manager did not actually acquire shares or rights related to them that do not belong to him," says Domantas Velykis, lawyer at AVOCAD.

Secondly, the issue was whether the company's director, by submitting an application to the Centre of Registers to register himself as the sole shareholder and by providing false information, could be considered as the creator or user of a forged document - in other words, whether his actions fall within the offence of forgery of a document.

In assessing whether such an act is genuinely dangerous, it is important to take into account whether the provision of false information has led to real legal consequences - whether the rights or interests of others have been violated.

The Supreme Court of Lithuania noted that in this case only a formal situation had been created which gave the impression that the CEO was the sole shareholder. However, such an entry is not sufficient on its own - it did not produce any real effects. Although, in theory, such information could have been used, for example, in transactions with third parties, there was no evidence that the manager intended to harm or actually took advantage of it.

In conclusion, the court concluded that although the manager's application to the Centre of Registers contained incorrect information, it was not sufficiently dangerous or harmful to give rise to criminal liability. His actions did not cause real damage to other persons or to the legal system and did not therefore amount to falsification of a document.

Thus, when inaccurate shareholder data is entered in JADIS, the most common administrative liability is a fine of between €600 and €1,450. Meanwhile, criminal liability can only be imposed in exceptional cases where it is clear that the director has deliberately provided incorrect data and has used it to his advantage, for example, to enter into transactions or to deceive others.

 

 

Business trick: How does restructuring help you escape debt?

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The restructuring of legal entities in Lithuania is an emergency measure for companies that are still viable but facing financial difficulties. Unfortunately, it is increasingly being used not to cure, but to stall for time. There is a tendency for some companies to initiate restructuring proceedings just to postpone the payment of existing debts - without even having a realistic plan for recovery or reorganisation.

 Restructuring - too easy to achieve? 

Restructuring proceedings are initiated if all the following conditions are met: 1) the legal entity is in financial difficulties; 2) it is viable; 3) it is not being wound up as a result of bankruptcy. In addition, the court shall refuse to open a restructuring case if the restructuring plan is defective.

The conditions are set out in the law, but the courts do not look too closely at them when deciding on the restructuring issue and assess them in a rather formalistic manner.

For example, a company's ownership of luxury cars and creditors with links to the company itself are often not an issue for the court. It would seem that there is no problem because no one will be hurt anyway - after all, this is a restructuring, not a bankruptcy, and no debts will be written off.

Yes, debts are not written off, but the mere filing of a restructuring petition with the court automatically stops the recovery of debts. Creditors are left to wait for the court to decide whether the company has grounds for restructuring proceedings. Once the case has been opened, the payment of debts can be postponed for another five years.

Thus, a dismissive approach to restructuring, which saves one company, can drown others, i.e. those that cannot wait five years to recover their debts from the company being restructured.

One step from aid to fiction 

In practice, there are a growing number of cases where companies know in advance that their business model is no longer viable, but initiate a restructuring process anyway. Usually to:

  • suspend enforcement of debts;
  • maintain management control within the company;
  • to protect against bankruptcy initiated by creditors;
  • buying time for negotiations with creditors without a real restructuring plan;
  • ultimately avoid repaying some debts.

This practice distorts the whole essence of the restructuring system: instead of saving viable businesses, it supports a fictitious rescue of companies at the expense of creditors.

Who is to blame: entrepreneurs or regulation? 

Although formally speaking the law does not allow anyone to initiate a restructuring, as it requires proof of solvency, a plan and a business perspective, in practice these criteria are applied too formally. Courts often rely only on figures "on paper" and not on the real situation of the company. This allows even hopelessly indebted companies to formally meet the criteria - especially if they are advised by experienced lawyers.

Creditors are powerless in this situation. While the court is deliberating whether to proceed with restructuring, they are deprived of the opportunity to defend their interests, and later it is too late: the assets have been distributed, the documents are "lost", and the responsibility is dissolved among the former directors.

Another increasingly common form of abuse is the artificial creation of creditors who are artificially created or closely linked to the owners of the company. These "creditors" are often related companies, relatives, legal entities controlled by the company's managers or simply "paper" companies to which loans are formally granted without any real money movement.

Their main objective is to obtain a majority of votes at creditors' meetings. As the law often requires a certain majority (based on the size of the financial claims) for creditors' decisions to be taken, it is easier to "push through" decisions that are beneficial - such as the approval of a restructuring plan - by creating "friendly" creditors.

This puts the real creditors - the ones to whom the company really owes money - in the minority, losing real influence over the process. Worse still, sometimes they are not even aware of the creditors' meetings, as official communication is with the alleged main creditors. This practice fundamentally distorts the whole restructuring mechanism and raises legitimate questions about the transparency and fairness of the process.

In summary, the restructuring process has gaps and the question is whether these gaps are in the legal framework or in the interpretations already given by the courts.

However, it should be remembered that restructuring was essentially designed as a last resort for businesses, but in practice it is often also used as a debt avoidance tool.

 

Prepared by AVOCAD lawyer Egidijus Kieras