When company debts become the director's – what accountants see first

Two suppliers have gone unpaid for three months, an instalment agreed with the State Tax Inspectorate (VMI) has been missed, and the next contract would be easier to sign in another company's name. A director does not answer with personal assets for a business that did not work out. For what they do once the company can no longer pay, they may have to. The line between those two situations shows in the books well before it reaches a court – if someone looks at them every month.

Am I personally liable for my UAB's debts?

Not merely because the company – a private limited company (UAB) – can no longer pay. For a director's civil liability to apply, the necessary conditions must be established: unlawful action or inaction, damage, a causal link and fault. It also matters who is claiming the damages – the company itself or one of its creditors.

Business decisions are taken without guarantees. A new line of business may not pay off, an investment may take longer to pay back, a key client may walk away. That is why the courts apply the “business judgement rule”: when a director's liability to the company is assessed, the director is presumed to have acted in its interests, and whoever brings the claim must show that the director breached their duties. In its ruling of 14 November 2024 in civil case No. e3K-3-199-381/2024, the Supreme Court of Lithuania focused on whether the director had the necessary information, weighed the possible consequences, acted in good faith and kept their own interests apart from the company's. An unfavourable outcome does not by itself prove that the decision was unlawful.

This rule is no licence to ignore mandatory legal requirements. For example, the duty to pay taxes properly does not fall within the category of an ordinary business decision.

Who suffered the damage also matters. If a director unlawfully reduces the company's assets, the company itself suffers the damage first, and the creditors lose out because less is left to meet their claims. In that case a creditor's loss is usually derivative: an unpaid invoice alone is not enough for a direct claim against the director. A direct claim by a creditor rests on dishonest conduct aimed at that particular creditor – deliberately misleading them or giving them false information – through which that creditor suffered an individual loss. Where the damage is done to the company or to the creditors as a group, their interests are protected through the insolvency administrator.

A director must know how the company is doing

The law does not demand success from a director, but it does demand knowledge. Article 2.87 of the Civil Code obliges a director to act honestly, reasonably and loyally towards the company, and the court, as the 2024 ruling shows, asks whether the director had the necessary information and weighed the consequences. A director who sees the balance sheet once a year, when the annual financial statements are prepared, cannot answer that question.

We recommend one habit: once a month, sit down with your accountant over the profit and loss account and the balance sheet and go through the five figures described below. It takes half an hour. If it ever came to court, it is exactly these meetings and their conclusions that show the director knew the position and responded to it.

Five figures we go through with the director every month

Overdue debts to suppliers. The list of supplier debts by days overdue is the first figure your creditors see before you do: a supplier you are 60 days late with is already on the phone. If the overdue total grows three months in a row, that is not a bad month, it is a direction. At the meeting we ask which receipts will cover it, and when.

If the accounts show a profit but there is no cash to pay with, first read Karolina's article “Profit on paper, no cash in the bank. Where did it go?”.

Taxes and Sodra. A debt for taxes and contributions differs from a debt to a supplier: it is set by law, not by contract, and VMI and Sodra (the state social insurance fund) publish their debtors' names. Paying taxes is not a business decision, so a court does not treat the choice “wages first, VMI can wait” as a risk the director was entitled to take. If a tax debt recurs for a second month in a row, we recommend agreeing a deferral or an instalment plan with VMI while the sums are still small.

Equity and share capital. Equity is assets minus all liabilities – the balance sheet line that directors check least often. Article 38 of the Law on Companies provides: when equity falls below half of the share capital, the board, or the director if there is no board, must convene a general meeting of shareholders to remedy the position no later than 3 months from the day they learned, or should have learned, of it. This is the first legal duty triggered by a figure on the balance sheet, and it arises well before insolvency. The minutes of that meeting are the first document showing that the director saw the position.

Payments to yourself and related parties. Repaying a shareholder loan, paying a relative's company or yourself while suppliers and VMI wait – all of it is visible in the books at once: these are payments that jump the queue. Courts treat paying selected creditors first and moving the business to a related company as signs of intentional bankruptcy. If a new contract is signed in the name of another of your companies for work the old one did, the old company's books are left with the costs and none of the income. That mismatch is the first thing an insolvency administrator finds.

Missing documents and unfiled statements. Invoices with nothing behind them, unexplained write-offs of cash, annual financial statements not filed with the Centre of Registers. In the 2024 case, among the grounds for intentional bankruptcy, the court also noted that the director had not ensured that all mandatory accounting documents were drawn up, and had not handed them over to the insolvency administrator. When the company stops trading, the duty to hand over its assets and documents to the administrator remains. To a court, missing documents look hidden, not forgotten.

None of these five figures needs an audit – only a balance sheet as of today and half an hour.

When does waiting become a breach?

The Law on Insolvency of Legal Entities treats a company as insolvent when it cannot meet its financial obligations on time or its liabilities exceed the value of its assets. Once the company is insolvent, the director must start the insolvency process without delay. At the same time, the director must inform the shareholders of the insolvency without delay and propose that they decide how solvency is to be restored.

Starting the insolvency process does not yet mean going straight to court. First, the director notifies the creditors in writing which obligations are unmet and sets a deadline of 15–30 days, counted from delivery of the notice. If no help is agreed within that time (deferring payments, waiving part of the claims or changing the obligations) and the creditors do not decide to run the bankruptcy out of court, the company applies to the court to open restructuring or bankruptcy proceedings. From 1 January 2027 the law says so directly: if no agreement is reached, the director must file the application with the court without delay.

Trying to save the business does not by itself cancel this duty. What matters when liability is assessed is whether the director's actions were grounded in specific circumstances: real orders, financing options, negotiations with creditors or likely receipts. Hope alone that “next month will be better” is not enough.

Planning for higher income and knowingly presenting false figures are different situations. In judging a director's conduct, what counts is what they knew at the time of the decision. A forecast that later fails does not automatically show that the director already knew, when borrowing, that the company would not meet its obligations. So what the forecast rested on matters: contracts, orders, financial calculations or other data. It is a different matter when a creditor is given information the director knows to be false.

Nor does every delay in itself create a duty to compensate – the conditions of civil liability and the losses caused by the unjustified delay must be established. Not all of a company's debts automatically become the director's. Whether your delay is already a breach is for a lawyer to say, not us. What we do say is from which month the figures show signs of insolvency.

When nobody was looking – two court cases

By its ruling of 3 April 2024 in civil case No. e2A-162-790/2024, the Court of Appeal of Lithuania upheld a judgment ordering a former director to pay €123,304 in damages. The claim was brought by the company itself through its insolvency administrator. The courts found that the insolvent company's business had been moved to another company: the latter received €18,813 for work the former company had done, while the debts stayed in the old one. The director had also been late in initiating bankruptcy proceedings, and during the period of delay under review the liabilities to creditors and employees grew. The company's bankruptcy was declared intentional. Liability followed from specific breaches: diverting income to a related company and initiating bankruptcy late, which worsened the creditors' chances of recovering their money.

By its ruling of 11 December 2025 in civil case No. e2A-488-1097/2025, the Court of Appeal of Lithuania, on a creditor's claim, ordered a former director to pay €800,917 in damages – the whole part of the claim left unsatisfied in the bankruptcy. The company's bankruptcy had earlier been declared intentional because of the director's actions: failing to initiate bankruptcy, loss-making transactions, paying selected creditors first and moving the business to a related company. The director did not rebut the presumed conditions of civil liability and did not prove any ground for reducing the damages.

Intentional bankruptcy changes how liability is assessed. Once a bankruptcy is declared intentional and the director responsible for it is identified, a creditor can claim the part of their claim left unsatisfied in the bankruptcy without separately proving deception aimed at them in particular. The director's unlawful actions and fault established by a final judgment are not re-examined in the damages case, and the creditor's losses and their causal link to the intentional bankruptcy are presumed. The director can defend themselves by proving that all or part of the claim would have gone unsatisfied even without their unlawful actions. Both cases concern civil liability and compensation; that is not the same as a criminal conviction.

In both cases the signs – overdue debts, payments to selected creditors, income in another company – were visible in the books months before they reached the court.

An example from practice

For example, a UAB with share capital of €2,500 accumulated €30,000 of profit in earlier years and made a loss of €40,000 last year.

The threshold at which the director must convene the shareholders was crossed as soon as the loss exceeded €31,250 – well before equity turned negative.

The same company's balance sheet shows assets of €85,000 (trade receivables €50,000, stock €25,000, cash €10,000) and liabilities of €92,500. Liabilities exceed assets: €92,500 − €85,000 = €7,500. That is the sign of insolvency described in the law. If €60,000 of the €92,500 of liabilities is overdue, the second sign is met too: the company is not meeting its obligations on time. From this balance sheet onwards, “next month will be better” has to rest on a document – a signed order, a loan agreement or a payment schedule with VMI.

Without a monthly review, the director does not see such a balance sheet in the month it arises, but when the annual financial statements are prepared – several months later. Those few months are the period a court later calls delay.

What to do

• Ask your accountant for a balance sheet as of today and a list of overdue debts by days overdue – this week (you ask, we prepare it).
• Compare equity with half of the share capital; if it is lower, convene a shareholders' meeting within 3 months (you).
• Stop payments to yourself, relatives and related companies while you are late paying others – from today (you).
• Do not sign contracts in another company's name for the old company's work until you have spoken to a lawyer (you; we put you in touch with a partner).
• Write down what your decision to carry on trading rests on: orders, financing, negotiations, dates – this month (you).
• If liabilities exceed assets or you can no longer pay on time, see a lawyer about the notice to creditors – without delay (you with the partner; we prepare the figures).
• File the overdue annual financial statements and put the missing documents in order (us; catching up on neglected books is quoted separately).

We recommend talking to a lawyer not when you receive a claim, but the first time you answer “yes” to the question about overdue debts and to one more question in the self-check. Which figures the lawyer will need, and when, is for us to tell you.

Frequently asked questions

Can I open a new company and move my clients to it while the old one still owes money? Only after talking to a lawyer, and not so that the debts stay in the old one. In both cases described, it was precisely the moving of income to a related company that was one of the grounds for intentional bankruptcy.

Can I repay my shareholder loan to myself first? Not while you are late paying suppliers and VMI. Paying selected creditors first was one of the grounds in the 2025 case, and a shareholder loan is the most common example of such preference.

Does a shareholders' decision to carry on trading protect me? Not entirely. The director and the shareholder may be the same person, but the grounds of liability for the two roles differ. The shareholders' or the board's approval of a decision does not by itself release the director from liability if the law was breached, material information was withheld or there was a conflict of interest.

Could I face criminal liability? The cases described are about civil liability, that is, compensation in money. Whether specific actions also have the features of a criminal offence is for a lawyer to assess; we do not answer that question.

Who runs the insolvency process? Not us. Insolvency proceedings, bankruptcy administration and liquidation are handled by our partners – lawyers and liquidators. We prepare the balance sheet, the lists of debts and the documents they will ask for first.