Invoices after a merger: when the continuing company takes over

The assets, rights and obligations of the company being absorbed pass to the continuing company when its amended articles are registered, unless the reorganisation terms provide otherwise. Until that day (or the moment set in the terms), the company being absorbed is still the party to its own contracts and issues its own invoices. From that day, the supplier of goods and services is the continuing company, so it issues the invoices for further supplies, in its own name and with its own details. The absorbed company stays on the register until it is deregistered, but that is no reason to keep invoicing customers in its name. The law does not require customers’ consent, and a contract may require a separate notice to customers.

When a reorganisation ends and when the absorbed company ceases to exist is covered in When a reorganisation ends, who becomes a shareholder, is a notary needed. This article is about invoices, contracts and debts.

When rights and obligations pass

Article 68(1) of the Law on Companies of the Republic of Lithuania (ABĮ) provides that all assets, rights and obligations of reorganised companies pass from the registration of the continuing companies’ amended articles, unless the reorganisation terms provide otherwise. On the same day the reorganisation is complete (Article 69(1) ABĮ). Article 2.97(3) of the Civil Code of the Republic of Lithuania (CK) defines absorption: all rights and obligations of the absorbed entity pass to the continuing entity.

So start by opening your reorganisation terms. They state the moment from which rights and obligations pass (Article 63(1)(8) ABĮ). They separately state the moment from which rights and obligations under transactions pass and transactions are entered in the continuing company’s financial accounts (Article 63(1)(9) ABĮ). If the terms set the moment when rights under transactions pass later than the registration of the amended articles, the continuing company invoices customers from that moment. An earlier accounting moment does not change invoices already issued; agree this with your accountant.

Who issues invoices before and after registration

A VAT invoice is issued by the taxable person making the supply (Article 79(1) of the Law on Value Added Tax of the Republic of Lithuania (PVMĮ)). It states the supplier’s VAT code, name and address (Article 80(1)(3) and (5) PVMĮ). This means:

• before rights pass, the supplier is the company being absorbed, so it issues the invoices with its own details;
• after rights pass, the party to the contracts and the supplier is the continuing company, so it issues the invoices with its own details.

Between the registration of the amended articles and deregistration, the absorbed company is still on the register. It ends only on deregistration (Article 69(5) ABĮ; Article 2.95(3) CK). But unless the terms provide otherwise, its rights and obligations have already passed, so no new invoices to customers should be issued in its name. The exception is the transfer of assets to the continuing company under Article 9(3) PVMĮ: the VAT invoice documenting it is issued in the absorbed company’s name, or the buyer may issue it on its behalf (Article 79(1) PVMĮ). Supplies made before rights pass are best invoiced by the company being absorbed before the amended articles are registered.

Contracts, receivables and debts

Contracts do not need to be signed again: they pass by law (Article 2.97(3) CK). The Supreme Court of Lithuania (Lietuvos Aukščiausiasis Teismas, LAT) has held that the rights and obligations of the absorbed entity are taken over by an already existing entity, and the continuing entity becomes the owner of the absorbed entity’s assets (LAT ruling of 19 October 2022 in civil case No. e3K-3-236-823/2022, para. 42). The same ruling recalls that a reorganisation is not in itself a ground to terminate or amend contracts made earlier (para. 45).

Two exceptions come from the law:

• Creditors. A creditor of an entity being reorganised may demand termination or early performance and compensation for losses if the contract provides for this, or if performance will become harder because of the reorganisation and the company did not give additional security (Article 2.101(2) CK). Security may be demanded by a creditor whose rights arose before the public announcement of the terms and had not ended by then, if there is reason to believe performance will become harder (Article 66(1) ABĮ). The creditor may lodge the demand until the general meeting of shareholders (Article 66(2) ABĮ).
• Tenants. A transfer of ownership of the leased property is a ground for the lease to end if the tenant demands it (Article 6.494(3) CK). The LAT held that this right also applies where the owner changes because the landlord ended through reorganisation, and that it is limited only by the general prohibition of abuse of rights (LAT e3K-3-236-823/2022, para. 50). The parties to a commercial lease of non-residential premises may agree in advance, through negotiation, that the tenant will not use this right (LAT e3K-3-236-823/2022, para. 69). If the company being absorbed lets premises, check whether its leases contain such a clause.

Taxes pass too. The tax obligations of a reorganised entity must be fulfilled by its successor (Article 91(1) of the Law on Tax Administration of the Republic of Lithuania (MAĮ)), including amounts that come to light after the reorganisation (Article 91(2) MAĮ). If the entity being reorganised has no tax arrears, its overpayment is refunded or offset to the successor (Article 91(3) MAĮ).

VAT and the transfer of assets on absorption

A transfer of assets because a VAT payer ends through reorganisation is treated as a supply of goods or services for consideration if input or import VAT on those assets, or part of it, was deducted by the ending VAT payer (Article 9(3) PVMĮ). That VAT is calculated and paid by the VAT payer taking over the assets, that is the continuing company (Article 96(1)(1) PVMĮ). It deducts that VAT on the basis of the VAT invoice documenting that supply (Article 64(7) PVMĮ).

Article 9(1) PVMĮ sets the general rule for transferring a business as a going concern, but Article 9(3) is the rule written for reorganisation and, unlike Article 9(2), it does not except the Article 9(1) cases. Taxes on reorganisation are covered in more detail in Tax on company reorganisation in Lithuania: corporate tax, VAT, losses. Agree the VAT accounting for the asset transfer with your accountant.

Do you need to inform customers

The law requires a public announcement of the reorganisation terms. You may announce three times, or once while notifying all creditors in writing (Article 65(1) ABĮ; Article 2.101(1) CK). A customer who only pays the company is not its creditor in this respect, so these provisions do not require a separate notice to it. A customer to whom the company owes unperformed obligations is a creditor (Article 6.1 CK). If you chose the single announcement, such a customer, and a tenant too, must be notified in writing (Article 65(1) ABĮ). A particular contract may impose a duty to notify, so review your contracts’ clauses on notices and change of party. A separate rule applies to leases: a landlord selling or otherwise transferring the leased property must notify the tenant of the planned transfer (Article 6.495 CK). We found no case law on whether this duty applies on a reorganisation, so it is worth notifying the absorbed company’s tenants.

Even where there is no duty, customers need to know whom to pay, and into which account, from the day rights pass. In the notice, state the continuing company’s name, code, VAT code, bank account and the date from which they apply. Creditors and employees are covered in Reorganising a company: do you need the consent of creditors and employees.

More on reorganisation

• Reorganisations and separations of companies: service page
• Merger by acquisition in Lithuania: steps, decisions and time limits
• Tax on company reorganisation in Lithuania: corporate tax, VAT, losses
• When a reorganisation ends, who becomes a shareholder, is a notary needed

How to start

Send us the reorganisation terms, a list of the absorbed company’s key contracts and its leases. We will prepare a plan of invoicing switch-over dates and the text of the notices to contract parties.

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

More about this service: Reorganisations and separations of companies.