Month: August 2026

An unjustified fine does not necessarily have to go to court: the agency can revoke it on its own

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To many, an administrative fine seems like the end of the process: the agency has issued a decision, and the individual is left with the choice of either paying the fine or appealing to court. In practice, however, there is a third option—the authority that imposed the fine, upon receiving the individual’s appeal and evaluating their arguments, may acknowledge its mistake and revoke the unfounded decision before the dispute reaches court.

According to Dainius Antanaitis, an attorney at AVOCAD, this option is important not only for the person facing administrative liability but also for the institution itself, as it helps avoid unnecessary legal proceedings and the associated financial consequences.

From the report to the fine—a few important steps

Administrative offense proceedings typically begin when an official draws up a report of an administrative offense. The case is then heard, and the person subject to administrative liability must be duly informed of the time and place of the hearing.

Both during the preparation of the report and during the examination of the case, the individual has the right to provide explanations, evidence, and arguments as to why they disagree with the violation they are accused of. If the authorities are not convinced by these, a decision is issued and an administrative penalty is imposed. “The imposition of a fine should not be a mere formality at the end of the procedure. When issuing a decision, the authority must have assessed all relevant circumstances and have sufficient grounds to establish the violation. Otherwise, an erroneous decision may result not only in its reversal in court but also in additional costs for the state,” says Dainius Antanaitis, an attorney at AVOCAD.

If the case is won, the party may claim reimbursement of court costs. Upon receiving the decision, the individual essentially has two main options: to accept the imposed penalty or to appeal it. If the dispute reaches court and the person succeeds in proving that the administrative offense proceedings against them should be terminated, they are also entitled to reimbursement of litigation costs from the state. Therefore, according to D. Antanaitis, a government agency’s decision to continue a dispute—even when the arguments presented in the complaint reveal obvious flaws in the initial ruling—can have a concrete financial cost. “If an agency realizes that its decision was unfounded, it is not rational to wait—merely as a formality—until a court confirms this. Legal proceedings cost time and money not only for the individual but ultimately for the state as well,” the attorney notes.

An agency may correct its own error

An important detail: an appeal against a decision rendered out of court in an administrative offense case must be filed with the court through the authority that issued the decision.

It is precisely at this stage that the agency has the opportunity to reassess its decision and the arguments presented by the individual. “Upon receiving a complaint, the agency is not required to automatically forward it to court and await the judge’s verdict. If the arguments in the complaint are well-founded, the agency has the option of revoking its own decision. In other words, the law provides an opportunity to correct the error even before judicial proceedings begin,” explains D. Antanaitis.

If the agency disagrees with the complaint, it is referred to a court for review. However, if it is determined that the fine was imposed unjustifiably, the error can be corrected much more easily.

 Admitting a mistake may be cheaper than defending it in court

 In Antanaitis’s view, such a procedure should encourage institutions to view complaints they receive not as a mere formality to be forwarded to the court, but as a real opportunity to reexamine the legality and validity of their decision. “An agency that realizes it imposed a fine unjustifiably can correct its own mistake—without going to court. This is not only faster for the individual but also more rational for the state itself: it avoids unnecessary litigation and a potential obligation to reimburse the individual for court costs,” summarizes AVOCAD attorney Dainius Antanaitis. Sometimes the best course of action for an agency is not to defend a decision at any cost, but to acknowledge in a timely manner that it was unfounded and to correct the error before it escalates into a legal dispute.

Ticket Validation, Inspection, and Passenger Responsibility: What Do You Need to Know When Traveling on Vilnius Public Transportation?

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Today, you can purchase a public transportation ticket in Vilnius in just a few moments—using a mobile app, a contactless bank card, or another method of your choice. However, simply purchasing a ticket does not always mean that the passenger is traveling legally. Depending on how the ticket was purchased, the circumstances of its activation, the moment it becomes valid, its specified validity period, and the passenger’s actions during the trip all become important factors.

Experience shows that passengers often find themselves in situations where they have to pay a fine for their trip not because they are trying to avoid buying a ticket, but because they are unaware of or misunderstand the applicable regulations—such as when the inspection begins, whether a new ticket is required when transferring to another mode of transportation, and how a situation is assessed when a 30-minute ticket is insufficient to complete the journey due to traffic congestion or other circumstances beyond the passenger’s control. “At first glance, the public transportation ticketing system may seem very simple to a passenger—you buy a ticket and ride. However, from a legal standpoint, it is not only the fact of purchasing the ticket that matters. It also matters whether the ticket was activated properly and on time, whether it is still valid at the time of inspection, and—when using a discount—whether the passenger can prove their eligibility for it. “It is precisely these circumstances that, in practice, can determine whether a passenger’s trip will be considered lawful,” says Sandra Mickienė, a senior attorney at the AVOCAD law firm.

Where can a passenger find up-to-date information?

All individuals using public transportation in Vilnius should first familiarize themselves with the rules for using public transportation so that they can properly understand their rights and responsibilities and comply with them while traveling.

Current legislation and other documents regulating passenger transportation and passenger control are available to the public on the JUDU website under the “Legislation” section. There you can find, for example, the Rules for the Carriage of Passengers and Baggage on Vilnius City Municipality Public Transportation, the Rules for Using the “m.Ticket” App, the JUDU (Vilniečio) Card, the procedure for purchasing electronic and paper tickets and/or using and refunding funds in the e-wallet, as well as other documents.

In addition to the regulations, passengers may find it helpful to review the JUDU Frequently Asked Questions (FAQ) section, which provides answers to many specific questions regarding ticket purchase, activation, validity, transfers, discounts, and passenger inspections. Although the FAQ is not a legal document, this information helps provide a better understanding of how the applicable rules work in practice. “Passengers certainly don’t need to know all the legal regulations by heart, but before using a specific type of ticket, it’s worth knowing the basic terms of use. This is especially relevant when using a mobile app, discounted tickets, or planning a longer trip with transfers. The rules and practical explanations published by JUDU allow you to check in advance how you should proceed in a specific situation,” notes S. Mickienė.

Ticket Activation and Start of Passenger Inspection

One of the situations that can lead to disputes between passengers and ticket inspectors is the improper or late activation of a ticket.

According to the Vilnius City Public Transportation Rules, the start of passenger inspection is not tied to the moment when the inspector boards the vehicle or approaches a specific passenger to check their ticket. Passenger inspection begins when the vehicle approaches the entrance to a stop where inspection is conducted, or a stop without an entrance, and the driver or another authorized person activates the ticket validators installed on the vehicle.

Therefore, as soon as a passenger boards a vehicle—and before reaching the next stop where ticket inspections may take place—if they do not have a valid ticket, they must purchase one immediately and activate it properly. The ticket must be validated before the start of the ticket inspection so that, at that moment, the passenger is considered to have a valid ticket. “It is important to understand that the start of the inspection is not the moment when the passenger sees the inspector or when the inspector approaches to check a specific ticket. The rules define this moment differently—it is linked to the vehicle’s arrival at the stop where the inspection is taking place and the locking of the ticket validators. Therefore, validating the ticket only after seeing the inspector may be too late,” notes the senior lawyer at AVOCAD.

The method for activating a ticket depends on how it was purchased.

When using the JUDU / Vilniečio card, you must tap it on the ticket validator, select the ticket you want to activate, and then tap the card again to confirm your selection. If the card contains different types of tickets, the ticket validator allows you to choose which ticket to activate.

An e-ticket purchased via the mobile app is activated within the app itself by completing the activation process. The activation process takes 15 seconds; therefore, the ticket is not considered valid until the activation process is complete and the app confirms that the ticket has been activated. “These 15 seconds may seem like an insignificant technical detail, but they can become very important in the event of an inspection. Passengers who choose to use the mobile app should begin the activation process immediately upon boarding the vehicle. The ticket is considered activated only once the activation process is complete, so you should not wait until the next stop or until an inspector appears,” explains S. Mickienė.

Another option is a contactless bank card. You can use it to purchase a 60-minute ticket on Vilnius public transportation; however, discounts do not currently apply to this ticket. The ticket is purchased by tapping a physical bank card on the ticket validator or by using a phone or watch with the appropriate payment method installed. A successful purchase is confirmed by a message displayed on the ticket validator’s screen and an audible beep.

In practice, there are cases where a passenger, after boarding a public transportation vehicle, forgets to validate their ticket and does so only, for example, upon noticing a ticket inspector boarding the vehicle. In such a case, the mere fact that the ticket has already been validated by the time the ticket inspector checks the passenger does not in itself mean that the passenger had a valid ticket at the time the inspection began.

It is determined when the ticket was actually validated and whether this occurred before the start of fare inspection, i.e., before the vehicle arrived at the stop where fare inspectors conduct inspections and the driver or another authorized person locked the ticket validators.

If it is determined that the ticket was activated after the start of the inspection, it is considered that the passenger did not have a valid ticket at the time the inspection began. In such a case, the subsequent activation of the ticket does not change this fact. “In other words, during an inspection, what is assessed is not only what the inspector sees on the passenger’s phone at the exact moment of the check, but also when the ticket actually became valid. If it was activated after the inspection had already begun, the subsequent activation does not negate the fact that there was no valid ticket at the start of the inspection,” the lawyer emphasizes.

However, if it is determined that the passenger had not properly validated their ticket at the time the inspection began, they may be given the opportunity to avoid administrative liability by purchasing an inspection ticket during the inspection. An inspection ticket is intended for cases where it is determined during an inspection that a passenger is traveling without a properly validated or activated ticket.

A fare ticket costs 15 euros and can only be paid for with a bank card. Once purchased, the ticket is valid for two hours from the time of purchase, provided the passenger does not exit the vehicle.

If a passenger is unable to pay for a ticket using non-cash payment methods, the ticket inspector has the right to remove that passenger from the vehicle and, in accordance with the procedure established by law, issue a report of an administrative offense for traveling without a ticket. In such a case, the passenger is subject to the administrative liability set forth in Article 446(4) of the Code of Administrative Offenses of the Republic of Lithuania (ANK)—a fine ranging from 16 to 30 euros.

Discounted ticket: simply being eligible for the discount is not enough

The Law on Transportation Benefits of the Republic of Lithuania establishes the categories of persons who are entitled to use public transportation on preferential terms and to purchase tickets at a fixed discount. These include schoolchildren and students, persons with disabilities, persons who have reached a certain age, their accompanying persons, and other groups of persons specified in the law. However, simply belonging to one of these categories is not enough. A passenger may take advantage of a transportation discount only if they have a valid document confirming their right to the relevant discount and present it upon request by a ticket inspector.

“It’s important to distinguish between two things here—a person’s actual right to a discount and the ability to prove that right during a ticket inspection. For example, a passenger may indeed be a student and be entitled to a discounted ticket, but during a ticket inspection, they must be able to verify this right with the required document. Simply explaining that the document was left at home is not enough,” says S. Mickienė. If a passenger does not have such a document—for example, if they forgot it at home—they cannot properly substantiate their right to a discounted fare during a ticket inspection. In such a case, administrative liability as provided for in Article 446 of the Code of Administrative Offenses may apply. When a passenger does in fact have an objective right to a discount and has purchased the corresponding ticket, but fails to present a document proving this during an inspection, their action is classified under Article 446, Paragraph 2 of the Code of Administrative Offenses, which provides for a lighter fine—ranging from 10 to 14 euros.

When a person is not generally entitled to any discount but travels with a discounted ticket, their action is considered equivalent to traveling without a ticket under Article 446, paragraph 4, of the Code of Administrative Offenses. This carries a stricter fine—ranging from 16 to 30 euros. “These situations should not be conflated. It is one thing to be entitled to a discount but fail to present a document confirming it during an inspection, and quite another to knowingly use a discounted ticket when one is not entitled to a discount at all. The liability provided for in the legislation differs accordingly,” explains an AVOCAD attorney.

Discounted Tickets for Students: What Do You Need to Know?

Students who meet the conditions set forth in the Law on Transportation Discounts of the Republic of Lithuania are eligible for an 80 percent discount on single-ride and multi-ride tickets on Vilnius public transportation.

Students at institutions of higher education enrolled in full-time study programs are eligible for this benefit if they are citizens of the Republic of Lithuania, other European Union member states or European Economic Area states, or are family members of such citizens, and are enrolled in full-time study programs at institutions of higher education in European Union member states or European Economic Area states.

However, simply having the right to a transportation discount is not, in and of itself, sufficient grounds to use a discounted ticket during a trip. A passenger who has purchased and activated a discounted ticket must carry a valid document confirming their eligibility for the applicable transportation discount and, upon request by a ticket inspector during a ticket inspection, present it.

Students may prove their eligibility for the discount by presenting a student ID issued by their school or university, or a valid ISIC card, provided that the educational institution in question is located in the European Union.

In practice, there is also the case of students who are just beginning their studies and have not yet been issued a student ID. The mere fact that a student does not yet have a student ID card does not in itself prevent them from taking advantage of student transportation discounts. Generally, until October 1, it is sufficient to have a certificate issued by the educational institution confirming student status and to present it during a fare inspection.

“This is particularly relevant at the start of the new academic year. A first-year student may have been legally admitted to a program but may not yet have received their student ID card. In such cases, it is important to obtain a certificate from the educational institution in advance, which would allow the student’s status to be verified during an inspection. So it is not only the student status itself that matters, but also the ability to properly prove it,” notes S. Mickienė.

If a student is actually entitled to a transportation discount but fails to present a document confirming this entitlement during an inspection, he or she may be subject to a fine of 10 to 14 euros, as provided for in Article 446(2) of the Code of Administrative Offenses.

The ticket's validity period is not the same as the duration of the trip

Another common misconception is that a ticket purchased and activated on time remains valid until the end of the trip, even if the trip itself lasts longer than the ticket’s validity period. However, a ticket’s validity period is not tied to the duration of the passenger’s trip. It is calculated from the moment the ticket is activated and depends on the type of ticket selected. For example, a 30-minute ticket is valid for 30 minutes from the moment it is activated, and a 60-minute ticket is valid for 60 minutes. “Passengers naturally sometimes expect that if they board a vehicle with a valid ticket, they will be able to ride to the final stop with it. However, the rules work differently—a ticket is valid for a specific period of time. Therefore, even if the trip is delayed due to traffic congestion or other circumstances beyond the passenger’s control, a new ticket must be purchased and activated once the old one expires,” explains S. Mickienė.

Therefore, if the trip is delayed due to traffic congestion or other reasons and the ticket expires before the passenger reaches the final stop, the mere fact that the ticket was purchased and activated on time does not entitle the passenger to continue the journey. In such a case, the passenger must purchase and properly validate a new ticket in order to continue the journey. On the other hand, the validity period of a ticket is not tied to a specific vehicle. For example, a passenger who has activated a 60-minute ticket may transfer from one bus or trolleybus to another during that time and continue using the same ticket, provided it has not expired.

“Transferring to another bus or trolleybus does not automatically mean you have to buy a new ticket. If a 30- or 60-minute ticket is still valid, the passenger may transfer to another bus or trolleybus within its validity period. The key criterion is not the number of vehicles, but whether the ticket’s validity period has expired,” the lawyer emphasizes.

What's the most important thing for a passenger to remember?

In summary, S. Mickienė highlights several of the most important rules from a practical standpoint that passengers should keep in mind:

  1. You must not only purchase a ticket but also activate it properly. This is especially important when using the mobile app, as ticket activation is not instantaneous—15 seconds must pass after confirmation of activation. Only then is the ticket considered activated, and the passenger has a valid ticket.
  2. The start of the inspection is not the moment when the inspector approaches a passenger. The start of the inspection is linked to the vehicle’s arrival at the relevant stop and the activation of the ticket validators, rather than the moment when the inspector physically boards the vehicle or approaches a specific passenger being inspected. Therefore, the ticket must be purchased and validated before the vehicle arrives at the stop where the inspection will take place and before the ticket validators are activated.
  3. When using a discounted ticket, you must have a document confirming your eligibility for the discount. Passengers eligible for a specific discount must present a document confirming this fact upon request by the ticket inspector during a ticket inspection. Failure to have or present such a document may result in a fine.
  4. When transferring to another vehicle, it is not necessary to purchase a new ticket if your current ticket is still valid. 30- and 60-minute tickets allow for unlimited transfers to another bus or trolleybus during their validity period, so simply transferring to another vehicle does not in itself mean you need to buy a new ticket.
  5. The validity period of a ticket is not tied to the actual duration of the trip. The passenger must take note of the ticket’s validity period—no grace period applies. Once the specified validity period has expired, the passenger may no longer use the same ticket solely because the trip was objectively delayed through no fault of the passenger or for reasons beyond their control. In such a case, a new ticket must be purchased and activated.

“Most of these situations arise not because passengers intentionally try to ride without a ticket, but because they are unaware of the practical rules. Therefore, the simplest way to avoid an unpleasant dispute during an inspection is to validate your ticket immediately upon boarding, keep track of its validity period, and, if you’re using a discount, always have the document confirming it on hand,” summarizes Sandra Mickienė, a senior lawyer at AVOCAD.

An employee caused damage to the company: when can the employer demand compensation?

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Damaged company equipment, financial losses resulting from an employee’s mistake, the loss of a client, or the disclosure of confidential information—there are many situations in which an employee’s actions can cost a business real money. However, even when an employee’s fault seems obvious, an employer cannot always demand compensation for the full amount of the damage incurred.

Rokas Puodžiūnas, an attorney at the AVOCAD law firm, points out that under labor law, an employee’s financial liability is deliberately limited; therefore, the mere fact that the company suffered losses is not sufficient. “In business, it’s natural to think that if an employee’s mistake cost the company money, the employee should cover those losses. However, legally, the situation is not that simple. The employer bears the burden of proving not only the damage itself, but also the employee’s unlawful actions, fault, and a causal link between the employee’s actions and the resulting losses,” says the lawyer.

Losses alone are not enough

The Labor Code stipulates that each party to an employment contract must compensate the other party for any pecuniary and non-pecuniary damages caused by a breach of employment duties for which the party is at fault. In practice, the circumstances leading to damage can vary greatly: an employee may damage work equipment entrusted to them, fail to comply with occupational safety or other mandatory rules, cause financial losses through their actions, or harm the employer’s reputation. However, for an employee to be liable to compensate for damages, all the conditions for liability must be met. First, the employer must have actually suffered damages—which may consist of both direct losses and lost revenue. Furthermore, the employee’s unlawful actions or omissions must be established. For example, the employee may have violated work procedures, safety requirements, job descriptions, or the duties established by law for a specific profession.

A causal link is also required—the losses incurred by the employer must be the result of a specific violation by the employee. Finally, the employee’s fault must be established.

Furthermore, the injury must be directly related to the employment relationship and the employee’s work activities. If the injury did not occur while the employee was performing his or her job duties, compensation for it may be governed not by the Labor Code but by other legal provisions.

“The most important thing for employers to understand is that an employee’s liability is not presumed simply because the company has suffered a loss. The employer seeking compensation for damages must prove all the necessary elements of liability. If even one of these conditions is missing, the claim against the employee may be unfounded,” emphasizes R. Puodžiūnas.

Even if the employee's fault is proven, it may not be possible to recover the full amount

Another important consideration for businesses is that the Labor Code limits the amount of property damage for which an employee is liable. As a general rule, an employee must compensate for any property damage caused, but not more than three times their average monthly salary. If it is determined that the damage was caused by the employee’s gross negligence, this limit increases to six times their average monthly salary.

Gross negligence is understood as an extremely pronounced lack of care—when a person fails to exercise even the degree of caution that is clearly necessary under the specific circumstances. “This means that even in cases where an employee’s actions have caused significantly greater financial losses to the company, the employer does not automatically acquire the right to recover the entire amount from the employee. The legislature deliberately sets limits on liability, since wages are usually a person’s primary source of livelihood,” explains an AVOCAD attorney.

When might an employee be required to pay for the full amount of the damages?

However, the limitation on an employee’s liability is not absolute. The Labor Code provides for specific cases in which an employee may be required to compensate the employer for the full amount of the damage incurred. Full compensation for damages may be required when the damage was caused intentionally or when the employee’s actions constitute a criminal offense. The same rule applies when the damage is caused by an employee who is intoxicated or under the influence of narcotic, toxic, or psychotropic substances.

The employee may also be required to compensate for the full amount of damages in the event of a breach of the duty to protect confidential information or a non-compete agreement, if the employer has suffered non-pecuniary damage, or in cases where full compensation for damages is provided for in a collective bargaining agreement. “It is precisely in these situations that the financial consequences for the employee can be significantly more severe. For example, the deliberate disclosure of confidential business information to a competitor could result in losses amounting to hundreds of thousands, and the standard cap of three or six times the average salary would not necessarily protect the employee in such a case,” notes R. Puodžiūnas.

If an employee causes damage to a customer, the company may be the first to be held liable

Situations in which an employee’s actions cause damage not to the employer itself, but to a client, partner, or other third party, are also relevant to business. In such cases, the employer is generally required to compensate the affected party for the damage. However, after compensating for the damage caused by the employee, the employer may acquire a right of recourse against the employee at fault for the damage. In such cases, the conditions and limits of the employee’s liability as set forth in the Labor Code are taken into account.“This is particularly relevant for employers in operations where employees work directly with clients’ property, operate vehicles, make financial decisions, or perform other actions where mistakes could result in losses that the company itself would bear first. Therefore, it is important not only to properly regulate employees’ duties but also to ensure that work processes, responsibilities, and internal rules are clearly documented,” says R. Puodžiūnas, a lawyer at AVOCAD.

An employer cannot simply decide to deduct the full amount of the loss from an employee's salary

In practice, the issue of recovering damages is also important. The employee and the employer may first agree, by mutual consent, on the amount, procedure, and deadlines for compensation for damages. In certain cases, the employer may issue a written order to deduct the damages from the employee’s wages; however, the Labor Code also imposes specific restrictions on this procedure. If the dispute cannot be resolved through an agreement or if a larger amount is claimed, the employer may have to turn to the authorities that handle labor disputes. Therefore, the mere fact that the employer has calculated the damages caused by the employee does not, in and of itself, grant the employer the right to unilaterally deduct the full amount from the employee’s wages.

“I would recommend that employers avoid the ‘let’s deduct first, then figure it out later’ approach. Before making a decision on recovering damages, it is essential to assess the basis for the employee’s liability, the limits of that liability, and the recovery procedure itself. A procedural error can lead to an additional labor dispute even when the employee did in fact contribute to the damage,” notes an AVOCAD attorney.

According to R. Puodžiūnas, the restrictions set forth in the Labor Code do not mean that an employee can avoid liability for his or her actions. They are intended to maintain a balance between the employer’s right to recover losses incurred due to the employee’s fault and the protection of the employee, as the economically weaker party in the employment relationship. “Each such case must be evaluated on a case-by-case basis. If a company has suffered significant damage, before making a claim against the employee, it is advisable to first gather evidence, accurately calculate the losses, and assess what limit of liability applies in the specific case. And for an employee who has received a claim for a large sum, it is worth verifying whether the employer’s claim actually meets the conditions set forth in the Labor Code,” summarizes AVOCAD attorney Rokas Puodžiūnas.

When a business failure leaves hundreds of customers out of pocket: where does a manager’s responsibility begin?

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The story that has come to light in Lithuania—involving nine door showrooms that suddenly ceased operations and hundreds of customers left not only without the goods they had ordered but also without their advance payments—raises questions that go beyond business risk. It also serves as a reminder of the threshold beyond which a company’s financial difficulties can become a matter of legal liability for its CEO.

Customers who had ordered doors from the three affiliated companies had paid advance payments ranging from a few hundred to a few thousand euros. At the end of July, all three companies reported financial difficulties and insolvency. There may be several hundred victims, some of whom have already contacted the relevant authorities regarding the situation.

Egidijus Langys, managing partner and attorney at the AVOCAD law firm, says that in such situations, it is very important to distinguish between ordinary business failure and actions taken by a manager who is already aware of the company’s critical financial situation. “Business is inherently a risky endeavor. A company may lose customers, face supply issues, incur losses, or ultimately become insolvent. The mere fact that a business has failed and failed to settle its debts with creditors does not, in and of itself, imply personal liability on the part of the manager. However, the situation changes fundamentally when a manager knows or should know that the company will no longer be able to meet its obligations, yet continues to enter into new contracts and accept payments from customers,” says E. Langys.

A leader's responsibility is not only to grow the business but also to assess its status in a timely manner

A company director’s responsibilities are not limited to the day-to-day management of operations or the pursuit of business results. A director must act honestly and prudently, be loyal to the company, manage its assets properly, avoid conflicts of interest, and take the company’s actual financial situation into account when making decisions. These duties become particularly important when the company faces financial difficulties. The manager must assess whether the company is capable of meeting its obligations on time, whether its liabilities are being increased unreasonably, and whether newly entered into contracts can actually be fulfilled.

According to E. Langis, in practice, a manager cannot simply argue that he or she hoped the situation would improve. “A manager must constantly understand the company’s actual financial situation—what its obligations are, how much assets it has, which payments are overdue, and whether there are realistic possibilities to fulfill newly assumed obligations. As insolvency approaches, a manager’s decisions are scrutinized much more closely. This is especially true when new orders and advance payments continue to be accepted, even though the objective ability to fulfill the contracts may already be highly questionable,” the attorney notes.

The issue of a manager’s civil liability may arise if he or she fails to respond in a timely manner to the company’s insolvency, unreasonably increases the company’s liabilities, enters into transactions that are detrimental to the company or its creditors, provides misleading information, or causes harm to the company or its creditors through other unlawful actions. In certain cases, the manager’s direct liability to specific creditors may also be considered. Relevant circumstances in this regard may include whether the manager, through his or her actions, misled specific clients, provided information that did not correspond to reality, or encouraged them to enter into contracts or make advance payments, even though he or she was already aware of circumstances that made the fulfillment of the obligations highly doubtful.

When can financial difficulties exceed the limits of civil liability?

In this case, one of the legally significant circumstances is that orders and customer advance payments were accepted by three affiliated companies, which reported their insolvency at nearly the same time. Therefore, when assessing the situation, it is not only the fact of insolvency itself that becomes important, but also when it actually became clear that the companies would no longer be able to fulfill their obligations and what their managers knew at that time. According to E. Langis, it is precisely the chronology of events that becomes particularly significant in such situations. “The fundamental question would be very simple: what did the company executives know about the companies’ financial situation at the time when new orders and payments were still being accepted from customers? If it were determined that advance payments were accepted while already knowing that it would no longer be possible to actually fulfill the orders, this would no longer be merely a story of business failure. Such circumstances could also be evaluated in the context of potential signs of fraud. However, only the authorities conducting the pre-trial investigation and the court can determine this, after evaluating the specific evidence, the flow of funds, the timing of order acceptance, and the actual financial condition of the companies,” emphasizes E. Langys.

An unfulfilled contract, an unpaid advance, or a bankrupt company does not in and of itself constitute fraud. For such an assessment, it is important to determine what the individuals’ intent was at the time the money was accepted, whether customers were provided with misleading information, and whether, at the time their money was accepted, there was a genuine intention and ability to fulfill the obligations undertaken. “This should serve as a very clear reminder to business leaders: when a company is approaching the point beyond which it will no longer be able to meet its obligations, the decision to continue financing operations with advances from new customers can lead to legal consequences that are entirely different from those of a simple business failure. The hope that the situation will improve tomorrow does not replace a manager’s duty to act responsibly today,” says E. Langys.

For a consumer, bankruptcy may mean that it will not be possible to recover the money

The biggest problem for the consumer in such a situation is that even if they have a completely legitimate claim to a refund of the advance payment, that does not mean the money will actually be returned.

In insolvency proceedings, the client becomes one of the company’s creditors. If the company’s assets are insufficient to cover all of its liabilities, the chances of recovering the full amount of the advance payment may be very limited.

The situation is even more complicated when the consumer incurs additional expenses: removing the old door, scheduling other work, hiring contractors, adjusting the repair or construction schedule, and then having to urgently purchase the product from another supplier. Such losses may have to be proven separately, and even a recognized claim does not in itself guarantee actual compensation if the insolvent company does not have sufficient assets.

Therefore, according to E. Langis, consumer protection must begin even before a large advance payment is made.

How can users reduce the risk?

“We often choose the product itself very carefully, but we pay far less attention to who we’re transferring money to. When an advance payment amounts to a thousand, two thousand, or several thousand euros, taking a few minutes to verify the company can be just as important as reading the terms of the contract,” says E. Langys.

Before paying a larger down payment, it's a good idea to:

  • Verify the legal entity. Make sure you know exactly which company you are paying and that it matches the seller specified in the contract. It’s also worth finding out how long the company has been in business, whether there is any public information about its financial difficulties, insolvency proceedings, or a significant increase in the number of customer complaints.
  • Be cautious about making large advance payments. If the goods will not be manufactured or delivered for several months, it is worth negotiating a smaller initial payment.
  • Negotiate installment payments. A portion of the price can be paid at the time of the order, another portion upon receiving confirmation that the goods have been manufactured or delivered, and the balance upon receipt or installation of the goods.
  • Carefully evaluate any sudden changes to a contract or payment terms. If, after a contract has been signed, you are asked to pay another company or into a different account, or if the contracting party changes, you should find out the reasons for such a change.
  • Keep all documents and correspondence on file. This includes contracts, invoices, payment orders, order confirmations, emails, and messages regarding production and delivery dates. In the event of a dispute, this information may serve as important evidence.
  • Respond to the first warning signs. Repeatedly delayed deliveries, unanswered phone calls, recurring promises of “next week,” vague explanations regarding production, or requests for additional payments may be a sign that you shouldn’t wait any longer and should take action.

“This case demonstrates once again that a limited liability company does not mean that its manager remains beyond liability under any circumstances. An honest business failure is one thing. Deliberately taking on new obligations and accepting other people’s money while knowing that it will likely be impossible to fulfill them is something else entirely. “Where this line lies in a specific situation is determined by the authorities and the court, but every business leader must recognize it well before the company’s doors close for good,” concludes the AVOCAD attorney.

Is it possible to discharge a debt owed to a former spouse through personal bankruptcy?

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A settlement agreement reached during a divorce is generally considered the final resolution of the dispute between the former spouses. However, can one of the spouses later avoid the financial obligations assumed therein by filing for personal bankruptcy? This very dispute was heard in Lithuanian courts. In the case, in which the creditor’s interests were represented by AVOCAD associate partner Egidijus Kieras, the court had to determine whether personal bankruptcy could serve as a basis for discharging a debt that arose not from a business or a loan, but from a settlement agreement reached during a divorce.

What makes this case unique is that the applicant’s largest debt did not arise from a failed business venture, a consumer loan, or a guarantee. When they divorced, the former spouses entered into a settlement agreement under which the husband undertook to pay his former wife 50,000 euros in compensation within 60 days. This agreement did not come about by chance. Prior to its conclusion, claims had been filed in the divorce proceedings seeking a reduction in the spouses’ joint property. The complaint alleged that during the marriage, part of the joint property had been concealed, while another part had been transferred in violation of one of the spouses’ interests.

In an effort to avoid a lengthy legal process, the parties reached a compromise—instead of significantly higher claims, they agreed on 50,000 euros in compensation and a penalty for failure to pay it.

However, the compensation was never paid.

A few years later—a petition to file for personal bankruptcy

 A few years later, the debtor filed a petition with the court requesting that a personal bankruptcy case be initiated.

Essentially, this would mean that, once the bankruptcy proceedings were concluded, he would seek to be released from the obligation arising under the settlement agreement entered into at the time of the divorce.

The creditor’s position in the case was clear—the bankruptcy of a natural person cannot be used as a means to avoid liability for obligations assumed in order to finally resolve a dispute over the spouses’ joint property.

The courts took into account not only the debts but also the debtor's conduct

 Both courts that heard the cases emphasized that insolvency alone is not sufficient grounds for initiating bankruptcy proceedings against a natural person.

The courts assessed the applicant’s conduct as a whole. It was established that the applicant had undertaken to pay 50,000 euros in compensation without realistically assessing his financial ability to do so. More importantly, he subsequently failed to take active steps to restore his solvency.

The case also established that the petitioner had no intention of looking for a better-paying job, refused to reduce his regular expenses, and fulfilled the majority of his obligation only through compulsory collection.

After evaluating these circumstances, the courts concluded that such conduct does not meet the standard of a bona fide debtor.

“Personal bankruptcy is not a mechanism for shirking inconvenient obligations. This legal institution is intended for honest debtors who genuinely seek to settle their debts with creditors and make every effort to restore their solvency. Courts are increasingly looking not only at formal insolvency but also at how the individual behaved when assuming and fulfilling their obligations,” comments Egidijus Kieras, an attorney at AVOCAD.

An Important Note on Divorce Cases

The significance of this case extends beyond the mere application of the institution of personal bankruptcy. In practice, when entering into settlement agreements regarding divorce, it is not uncommon for one spouse to agree to pay monetary compensation for the other spouse’s share of the joint property. The other party reasonably expects that such an agreement will be honored.

If such obligations could be easily discharged through personal bankruptcy proceedings, this would undermine confidence in settlement agreements and encourage abuse of this legal mechanism.

“In the case at hand, both the trial court and the appellate court clearly noted that personal bankruptcy is not a means of renouncing obligations assumed during a divorce simply because they have become inconvenient.”

This case has once again demonstrated that the courts consider not only the amount of the debt or formal insolvency, but also the debtor’s conduct both in assuming obligations and in fulfilling them. “Therefore, in cases where it is determined that the debtor acted in bad faith, personal bankruptcy cannot be used as a means to negate obligations assumed during a divorce,” notes Egidijus Kieras.