According to the 2002 World Bank Report on the Observance of Standards and Codes (ROSC), which assessed the insolvency and creditors rights systems in Lithuania against the 2001 World Bank Principles and Guidelines for Effective Insolvency and Creditor Rights Systems, the Lithuanian legal framework governing creditor rights, debt enforcement, as well as registration and enforcement of collateral was essentially complete and well-functioning. However, some shortcomings primarily related to institutional or procedural inefficiencies existed. With respect to the Lithuanian corporate insolvency regime, the World Bank pointed out that the amendments to the Enterprise Bankruptcy Law led to the law's full or almost full compliance with international best practices. At the same time, however, the World Bank made clear that the inefficiency of the administration and the extremely low returns for creditors resulted in an overall downgrading of the law with respect to its effectiveness. In 2006, an assessment of the commercial laws in Lithuania conducted by the European Bank for Reconstruction and Development (EBRD) disclosed similar deficiencies and stressed again the ineffectiveness of the law. In the same year, Mahesh Uttamchandani published a comparative assessment of insolvency practices in European transition countries for the EBRD and confirmed the above results. According to his assessment, which provided an overall assessment and then looked at five focus areas, Lithuania scored "very low compliance" with international best practices in the general area of legislation.

General Overview

As part of a joint initiative of the International Monetary Fund (IMF) and the World Bank on monitoring countries' progress in observance of Standards and Codes, the World Bank in 2001 conducted an assessment of the insolvency and creditors rights systems in Lithuania using its 2001 Principles and Guidelines for Effective Insolvency & Creditor Rights Systems (the Principles) as a benchmark. The results of the review were presented in the Report on the Observance of Standards and Codes (ROSC) published in February 2002. In assessing the insolvency and creditors rights systems in a country, the World Bank focuses on the following four areas: (1) creditors rights and enforcement procedures; (2) legal framework for corporate insolvency; (3) regulatory framework for insolvency; and (4) credit risk management and informal corporate workouts .

In its 2002 ROSC, the World Bank concluded that the legal framework governing creditor rights, debt enforcement, as well as registration and enforcement of collateral was "essentially complete and well-functioning" (p. 12). However, some shortcomings primarily related to institutional or procedural inefficiencies existed. With respect to corporate insolvencies, Lithuanian legislation improved, particularly with the adoption of the 2001 amendments to the Enterprise Bankruptcy Law. Consequently, the amended law fully or largely complied with international best practices. At the same time, however, the World Bank pointed out that the "overall rating of the effectiveness of the law [was] downgraded to materially non-observed due to historically poor performance in the efficiency of the administration (averaging over 3 years, and in some cases 7-8 years) and the extremely low returns for creditors" (2002, p. 13).

The World Bank revealed several more shortcomings in the corporate insolvency framework, particularly with respect to the access of creditors and debtors to the insolvency process, the role of creditors and the creditors committee, asset disposition, netting and offset for derivative-type contracts, transactions and transfers at a time of insolvency where there is no intent to defraud, treatment of creditors, and rehabilitation procedures . Overall, the 2002 ROSC considered the regulatory framework the weakest part of the insolvency regime in Lithuania , stating that courts were inefficient, mainly because of overloaded and non-specialized judges, and that the administrative profession in general was materially non compliant with international best practices .

According to the European Bank for Reconstruction and Development's (EBRD) "Commercial Law Assessment" of Lithuania published in 2006, Lithuania's bankruptcy and insolvency regime is legislatively backed up by the Enterprise Bankruptcy Law (as amended in 2003). The report cites the results of the EBRD Country Insolvency Law Assessments Survey conducted in 2003 which concluded that insolvency law in Lithuania "achieved 'very low compliance' when compared with international standards and... is one of the least extensive insolvency laws in the EBRD's countries of operations" (p. 12). Specific deficiencies of the law cited by the assessment include the failure to recognize debts until they are three months past due, nor does it employ a "balance sheet" means of testing for insolvency. The law does not provide any legal requirement that insolvency administrators are professionally qualified to act in that capacity, nor need they be licensed. The 2006 EBRD assessment further explains that the reorganization process for enterprises in Lithuania is regulated by the Law on Restructuring of Enterprises enacted in 2001. The EBRD assessment notes that this law has been found to be vague. It was recommended to address the issues of financing during the restructuring process, provisions for set-off, and cross-border insolvency .

The EBRD's 2004 Legal Indicator Survey on Insolvency looked at both creditor- and debtor- initiated insolvencies to evaluate the effectiveness of a country's insolvency regime. The survey disclosed that Lithuania's system was ineffective in practice. There are no specialized insolvency courts, access is difficult for creditors and debtors, alike, and public confidence in the system, judges, and administrators is not high. Overall, the EBRD concludes that "all of these factors, together with the legislation's deficiencies, militate against the insolvency regime functioning properly as a 'stick' to persuade debtors to act in good faith and as a 'carrot' to induce insolvency debtors, with businesses that are fundamentally viable, to try to promote the rescue of such businesses" (p. 14).

In a 2006 report prepared for the EBRD, Mahesh Uttamchandani offered a comparative assessment of insolvency practice in European transition countries. The results of the survey confirmed the earlier findings of the EBRD. According to the Uttamchandani's assessment, Lithuania scored "very low compliance" with international best practice in the general area of legislation. Under the category "Effectiveness of Legal Regimes in Creditor-Initiated Proceedings," Lithuania scored about 55%, putting it in about the middle of the pack of countries that were assessed. Under "Effectiveness of Legal Regime in Debtor-Induced Proceedings," Lithuania achieved a similar score, 55%, which put it in the bottom third of performers. In the composite category of "speed, efficiency, and transparency" of insolvency regimes under creditor-initiated proceedings, Lithuania ranked a little above the middle of the pack, with percentage scores of approximately 60%, 41%, and 55%, respectively. For the same elements under debtor-initiated proceedings, Lithuania's overall ranking was similar to its performance in creditor-initiated actions, with scores of about 68%, 41%, and 60%, respectively. Finally, under the heading of "extensiveness and effectiveness of insolvency regimes," Lithuania scored about 61% and 62%, respectively, again landing just above the mean performance of surveyed countries.

In 2002, the World Bank ROSC reported that it could take as long as seven or eight years for an action to reach completion, and returns for creditors were very low . The World Bank's "Doing Business Guide" for Lithuania in 2007, on the subject of "closing a business," registers substantial improvement over the 2002 performance. Average time from inception to resolution of an insolvency action in Lithuania is shown as 1.7 years, which compares favorably to 3.2 years for the region and 1.3 years for all Organization for Economic Cooperation and Development (OECD) countries. The cost of such actions, expressed in a percentage of the estate, is 7.0%, or more than half the 13.7% average for the region, and marginally less than the 7.5% averaged by all OECD countries. However, the return to creditors, expressed in terms of cents on the dollar, remains extremely low. In Lithuania, it is only 49.2 cents on the dollar, compared to 7.1 cents for the region, and 74 cents for the OECD average.