Lithuania is currently experiencing a severe economic downturn. Decreasing company incomes and questionable future perspectives for business have forced shareholders and owners to consider the option of shutting down the business. Such a legal procedure is called 'Liquidation of Legal Person.'
This article (in 2 parts) shall provide an outline on the legal conditions for a liquidation.
Laws and procedures regulating company liquidation in Lithuania are mainly laid down in the Civil Code of the Republic of Lithuania and Law on Companies.
Grounds for liquidation of a legal person may only be the following:
1) resolution by members of a legal person to terminate the activities of a legal person has been passed;
2) the court or the creditor's meeting has passed a decision to liquidate a bankrupt legal person;
3) the court has passed a judgement to liquidate a legal person;
4) the term of the legal person has expired;
5) the number of members of a legal person has decreased more than the permitted minimum prescribed by law, where a member of a legal person fails to pass a decision within six months following the decrease to reorganise or restructure a legal person;
6) incorporation of a legal person has been declared invalid subject to the provisions of Article 2.114 of the Civil Code.
The Resolution to liquidate a legal person shall be passed by a qualified majority vote of members of a legal person. It shall be established in incorporation documents of a legal person and may not be less than 2/3 of all votes of the participants of the general meeting.
Because the majority of private legal persons are companies, the detailed liquidation procedure is laid down in the Law on Companies. Law on Companies defines that a company may be liquidated on the (above-mentioned) grounds laid down in the Civil Code for the liquidation of legal persons. The decision to liquidate a company shall be adopted by the General Meeting, or the court, in the cases specified in the Civil Code. The General Meeting may not adopt the decision to liquidate an insolvent company.
A bankrupt company shall be liquidated according to the procedure laid down in the Enterprise Bankruptcy Law. Having adopted a decision to liquidate the company, the General Meeting or the court or the manager of the Register of Legal Entities, where the decision to liquidate the company is adopted by the court on the initiative of the administrator, must elect (appoint) the liquidator. From the day of adoption by the General Meeting of the decision to liquidate, the company shall acquire the status of a company in liquidation. Upon his election (appointment) the liquidator shall assume the rights and duties of the manager and the Board of the company. The manager and the Board shall lose their powers after the appointment of the liquidator.
The General Meeting may be convened according to the procedure laid down in the Law on Companies. The documents of the company in liquidation which are used in dealings with third persons must, inter alia, indicate its legal status as "in liquidation". The General Meeting may fix another date (other than the date of the decision) as of which the decision to liquidate the company shall become effective. This date, however, may not precede the date on which the decision to liquidate the company was adopted. If a company is liquidated because of the expiry of the duration of the company, the General Meeting, at least 3 months before such expiry, must adopt the decision to liquidate the company and elect the liquidator, or adopt the decision to extend the duration and amend the Articles of Association of the company.
In this case, if the decision to liquidate the company is adopted, the company shall acquire the status of a company in liquidation on the next day after the expiry of its duration laid down in the Articles of Association. If the General Meeting fails to elect the liquidator within the prescribed time limits, the shareholders whose holdings in the company entitle them to at least 1/10 of all votes, as well as the manager of the Register of Legal Entities, shall be entitled to apply to the court for the appointment of the liquidator.
See part 2 next week.
