Company separation: about three months, and one thing you will not be able to transfer

A company separation takes about three months from start to finish. Registering the final documents accounts for roughly three working days of that – the rest is time limits and coordination. And there is one thing you will not be able to transfer: an existing bank account cannot be transferred to the new company established by way of separation. Two major banks have confirmed this. The new company opens an account from scratch, and this has to go into the timetable, because payments and the transfer of contracts depend on the account.

What makes up those three months

A single time limit takes up most of the time. Article 2.96(3) of the Civil Code (CK) and the Law on Companies (ABĮ) provide that at least 30 days must pass between the publication of the terms of separation and the adoption of the decision – Article 62(2) ABĮ. This time limit cannot be shortened, and there is no negotiating it.

Before these 30 days comes the preparation: drafting the terms of separation, dividing the assets and liabilities, and preparing the draft decisions. After them come the adoption of the decisions and the filing of documents with the register. Registration itself is quick: registering the final documents takes about three working days. Clients often plan the other way round: they assume the register will take longest, and are disappointed to learn that the longest part is the waiting.

In practice, we have described the whole process to a client as roughly three months. Within that time, more than just the legal steps has to be planned.

The 30 days after publication are not idle time

These 30 days look like downtime. In our practice they are not – if this time is wasted, the separation is registered and the business then stands still.

Here is what actually gets done during these 30 days. Bank consents are agreed if liabilities are being transferred. Employees are informed. Partners and suppliers whose contracts will have to be re-signed in the new company’s name are informed. The documents that will be needed immediately after the decision are prepared.

Anyone who does not use this time gets it a second time – only then it comes after the separation, with a company that is up and running but cannot yet do anything.

The bank account: this cannot be done

This is the one point worth reading twice.

Two major banks were consulted about transferring an existing bank account to the new company established after the separation. Both banks confirmed the same thing: it cannot be done. Not difficult, not slow – it cannot be done.

The new company opens an account from scratch, in the usual way, with all the usual procedures. The consequences for the timetable are concrete. Until the account is opened, the new company cannot receive payments. Nor can it make them. In the contracts transferred to the new company, the payment details will be different, so counterparties have to be notified of this separately. If the purpose of the separation was to transfer an operating business unit, the date the account is opened becomes the real starting point of operations, not the registration date.

That is why we raise the bank question in the first week, not the last.

The list of creditors: the head of the company is responsible for it

Creditors’ rights in a reorganisation are governed by Article 2.101 CK and Article 66(1) ABĮ.

The practical side that often comes as a surprise: the person submitting documents and data to the register is responsible for their accuracy (point 41.2 of the Regulations of the Register of Legal Entities (JAR nuostatai)), and in the case of a company that person is its management body (point 38.2 JAR nuostatai). The notary certifies that the obligations laid down by law have been fulfilled (point 54 JAR nuostatai), but does so on the basis of the documents provided. From those documents the notary cannot tell whether everyone is on the list, whether the amounts are correct, or whether someone has been forgotten – someone whose dealings with the company ended six months ago but whose debt remained.

This means that compiling the list is not a formality but work that has to be done together with the accounts department. A creditor who is left out does not disappear – they turn up later, and with a claim.

The document most often forgotten

When preparing separation documents, the first thing we give the client is a numbered list of the information required. The aim is simple: the data are collected in one go, not one item at a time over three weeks.

One item on this list stands on its own: the interim set of financial statements. It is needed when the terms of separation are drawn up 6 or more months after the end of the financial year; the set must be drawn up no earlier than 3 months before the terms are prepared. It need not be prepared if all the shareholders agree to that (Article 65(2)(3) ABĮ, which applies to separation under Article 71(2) ABĮ). This is the document most often forgotten – people remember it when everything else is already prepared, and it alone pushes back the whole process.

If you will be drawing up the terms once six months have passed since the end of the financial year, order this set from your accountants in the same week as you decide to begin, or collect the consent of all the shareholders not to prepare it straight away.

Why the bank question is noticed too late

A bank account is not a legal document. It does not appear in the terms of separation, in the draft decisions or in the list of documents submitted to the register. In every place anyone looks during these three months, it is simply not there.

So it goes unnoticed until the day the new company needs to receive its first payment. Then it turns out that, legally, everything has been done, but the company cannot operate yet.

In the timetable we put this point on a separate line alongside the legal steps. We answer three questions in advance: who approaches the bank, when, and how the company operates on the days when it does not yet have an account.

What to decide in advance

• When the terms of separation will be drawn up. This determines whether an interim set of financial statements will be needed.
• Which contracts pass to the new company, and which of them require the consent of the counterparty or the bank.
• When the new company’s bank account is opened, and who is dealing with it.
• Who compiles the list of creditors, and by what date.

How to start

Tell us which part of the business you want to separate and when it needs to start operating on its own. A preliminary answer on whether this is possible within your target time frame, and which steps are on the critical path, is free of charge.

Tel. +370 5 212 1506, email info@linden.lt

More about this service: reorganisations and separations of companies.