Terms of reorganisation in Lithuania: who drafts them, contents, notice

The terms of reorganisation are not drafted by the shareholders. They are drafted by the company’s board or, where there is no board, by the manager. This is done once the general meeting of shareholders has approved it. The Law on Companies lists what the terms must provide for: from the details of the companies involved to the share exchange ratio and the moment from which rights and obligations pass. Public notice is given of the terms once they are drawn up, and they are filed with the register no later than the first day of that notice. The shareholders of a private or public limited company may adopt the reorganisation decision no earlier than 30 days after the day the registrar announces that it has received the terms or the company’s website link.

Who drafts the terms and who approves them

Article 63(1) of the Law on Companies of the Republic of Lithuania (ABĮ) gives the duty to draft the terms to the board of each participating company or, where there is no board, to its manager. The duty arises once the general meeting of shareholders has given its approval. So the first document is the shareholders’ approval to prepare the terms, not the terms themselves.

Proposals on the terms may be made by the supervisory board, the board, the manager and shareholders whose shares have a nominal value of at least 1/3 of the authorised capital (Article 63(7) ABĮ). The amended articles of association of the continuing company, or the articles of the new company, are prepared together with the terms (Article 63(6) ABĮ).

The terms are approved by the general meeting of shareholders, in the same decision on the reorganisation (Article 62(3) ABĮ). This needs a qualified majority of at least 2/3 of the votes of the shareholders taking part in the meeting (Article 28(1)(15) ABĮ). The articles of association may set a higher majority (Article 28(3) ABĮ). If the company has different classes of shares, the decision is adopted only if the holders of each class approve it separately, including holders of non-voting shares (Article 62(1) ABĮ). One of the exceptions is a merger into a company that owns all the shares of the company being merged: under the conditions set by law, the decision is then taken, and the terms approved, by the board or manager of the continuing company (Article 70(3) ABĮ).

For legal entities of other legal forms, the general rule is in Article 2.99(1) of the Civil Code of the Republic of Lithuania (CK): the terms are drafted by the management bodies. For small partnerships the same is laid down in Article 27(2) of the Law on Small Partnerships of the Republic of Lithuania (MBĮ).

What the terms must contain

Article 63(1) ABĮ sets out what the terms must provide for “among other terms”. So the list is a mandatory minimum. Grouped:

• Participants and form. The information set out in Article 2.44 of the Civil Code about each participating company, and the name, legal form and registered office of each new company (Article 63(1)(1) ABĮ). The form of reorganisation: merger by acquisition, merger by formation of a new company, division by acquisition or division by formation of new companies (Article 63(1)(2) ABĮ). Which companies will cease to exist and which will operate after the reorganisation (Article 63(1)(3) ABĮ).
• Shares. The share exchange ratio and its justification, the number of shares of the companies operating after the reorganisation by class, their nominal value and the rules for allocating them to shareholders (Article 63(1)(4) ABĮ). The procedure and time limits for issuing the shares (Article 63(1)(5) ABĮ). Any difference in value between the shares held and the shares received, paid in cash (Article 63(1)(6) ABĮ). The moment from which the shareholders of the company that ceases to exist become entitled to the profit of the continuing company (Article 63(1)(7) ABĮ).
• Moments. From when the rights and obligations of the company that ceases to exist pass to the continuing company (Article 63(1)(8) ABĮ). From when rights and obligations under transactions pass and the transactions are included in the continuing company’s financial accounts (Article 63(1)(9) ABĮ).
• Other rights. The rights granted to holders of separate classes of shares, bonds and other securities (Article 63(1)(10) ABĮ), and special rights granted to members of the companies’ bodies and to the experts assessing the terms (Article 63(1)(12) ABĮ).
• Division. In a division, an exact description of the assets, rights and obligations and their allocation (Article 63(1)(11) ABĮ). How to prepare such a description is covered in Terms of separation: what they must contain and what goes with them.

The general list in Article 2.99(1) CK has five points. It also mentions payments to the members of the legal entity separately (Article 2.99(1)(3) CK). The terms of a small partnership also name the persons who will sign the instruments of incorporation of the small partnerships operating after the reorganisation (Article 27(2)(6) MBĮ).

The terms must be assessed by an auditor or audit firm, unless all the shareholders of each participating company agree that no assessment is carried out (Article 63(2) and (5) ABĮ). No assessment is needed either in the cases set by law: merger of a wholly owned company (Article 70(1) ABĮ), merger of a company in which the continuing company holds at least 90 percent of the shares, if the other shareholders’ shares are bought out (Article 70¹(2) ABĮ), and proportional division (Article 67(3) ABĮ). When a wholly owned company is merged, the terms also need not contain the details under points 4–7 of Article 63(1) (Article 70(1) ABĮ).

How notice is given and what it must say

Each participating company gives public notice of the terms in the medium named in its articles of association, in one of two ways (Article 65(1) ABĮ):

1. three times, at intervals of at least 30 days; or
2. once, no later than 30 days before the general meeting, while also notifying all the company’s creditors in writing.

The notice states the details under points 1, 2, 3, 8 and 9 of Article 63(1) ABĮ: the participating companies, the form of reorganisation, which companies cease to exist and which continue, and both moments at which rights and obligations pass. It also states where and when the reorganisation documents can be inspected (Article 65(1) ABĮ). The share exchange ratio (point 4) is not part of the mandatory content of the notice. The general Civil Code rule requires the details under points 1, 2 and 4 of Article 2.99(1) CK and where and from when the documents can be inspected (Article 2.101(1) CK).

The terms are filed with the register no later than the first day of public notice in the medium named in the articles, together with the assessment report if one is prepared (Article 63(8) ABĮ). The registrar announces that it has received the terms (Article 63(9) ABĮ). Instead, the company may file a link to its own website where the terms and their publication date are posted (Article 63(10) ABĮ). In that case the terms must stay on the website until the end of the reorganisation (Article 63(11) ABĮ).

From the day of public notice, the company that will cease to exist acquires the status of a company being reorganised, and the continuing company the status of a company participating in the reorganisation (Article 63(13) ABĮ). What rights creditors then have, and why their consent is not needed, is covered in Company reorganisation: creditor and employee consent.

The 30-day rule: from which day to count

The Civil Code allows the reorganisation decision to be adopted only once 30 days have passed since the public notice that the terms have been drawn up (Article 2.96(3) CK). The Law on Companies counts the same period from a different event: from the day the registrar announces that it has received the terms, or announces the company’s website link (Article 62(2) ABĮ).

A private or public limited company is well advised to meet both rules. Since the ABĮ period starts from the registrar’s announcement, not from your own notice, count from the later of these dates. If you chose a single notice plus letters to creditors, the notice must be given no later than 30 days before the meeting (Article 65(1) ABĮ). One more limit: the documents must be available to shareholders and creditors no later than 30 days before the meeting (Article 65(2) ABĮ). If an assessment report is prepared, it is filed with the register together with the terms (Article 63(8) ABĮ), so it must be ready by the first day of public notice. In any case it must be given to the company no later than 30 days before the meeting (Article 63(4) ABĮ). The board’s or manager’s report on the proposed reorganisation, if prepared, is filed with the register no later than 30 days before the meeting (Article 64(1) ABĮ). All these periods must be met together.

In a small partnership the decision may be adopted only once 30 days have passed since public notice of the terms (Article 27(8) MBĮ). If a single notice is given, it is given no later than 30 days before the decision and all creditors are notified in writing (Article 27(3) MBĮ).

What shareholders and creditors must be able to see

From no later than 30 days before the meeting until the end of the reorganisation, every shareholder and creditor must be able to inspect, at the company’s registered office or on its website (Article 65(2) ABĮ):

• the terms of reorganisation;
• the amended articles or the articles of the new companies;
• the annual financial statements and management reports for the last three years, and interim financial statements if they are prepared;
• the reports assessing the terms, if prepared;
• the board’s or manager’s reports on the proposed reorganisation, if prepared.

At the request of a shareholder or creditor the company must provide copies of these documents, and a shareholder receives them without payment (Article 65(3) ABĮ). This duty does not apply if the documents can be downloaded without payment for the whole period. Even then, they must also be available for inspection at the registered office (Article 65(4) ABĮ).

If the assets, rights or obligations changed materially between the drawing up of the terms and the meeting, the manager informs the shareholders in writing and orally at the meeting (Article 65(5) ABĮ). This notice is not needed if all the shareholders of each participating company agree (Article 65(6) ABĮ). A similar general rule for all legal entities is set out in Article 2.96(4) CK for the documents and in Article 2.96(5) CK for material changes.

More on reorganisation

• Reorganisations and separations of companies: service page
• Does a reorganisation need an audit? Auditor’s assessment and accounts
• Creditors’ rights in a Lithuanian company reorganisation: what to demand
• Reorganisation filings with the Centre of Registers: steps and time limits

How to start

Send us the articles of association of the participating companies, the lists of shareholders and the latest annual financial statements. Tell us which form of reorganisation you want and when you plan the shareholders’ meeting, and we will set out the content of the terms and the notice periods.

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

More about this service: Reorganisations and separations of companies.