Lietuviškai
THE CONSTITUTIONAL COURT OF
THE REPUBLIC OF LITHUANIA
R U L I N G
On the compliance of the norms of Part 1, Article
10 and Part 1 Article 50 of Company Law of the
Republic of Lithuania and the provisions of Part
2, Article 2 and Part 6, Article 14 of the Law of
the Republic of Lithuania on Initial Privatization
of State Property with the Constitution of the
Republic of Lithuania
24 January 1996, Vilnius
The Constitutional Court of the Republic of Lithuania,
composed of the justices of the Constitutional Court Algirdas
Gailiūnas, Kęstutis Lapinskas, Zigmas Levickis, Vladas
Pavilonis, Pranas Vytautas Rasimavičius, Stasys Stačiokas,
Teodora Staugaitienė, Stasys Šedbaras and Juozas Žilys,
the secretary of the hearing - Daiva Pitrėnaitė,
the petitioner - Kęstutis Skrebys and Gediminas Vagnorius,
the Seimas members, representatives of a group of the Seimas of
the Republic of Lithuania members,
the party concerned - Alfonsas Vileita, the Seimas
representative, the adviser of the Seimas Committee of State
and Law,
pursuant to Part 1, Article 102 of the Constitution of the
Republic of Lithuania and Part 1, Article 1 of the Law on
Constitutional Court of the Republic of Lithuania, in its
public hearing on 4 January 1996 conducted the investigation of
Case No.7/95 subsequent to the petition submitted to the Court
by a group of the Seimas of the Republic of Lithuania members,
requesting to investigate if the norms of Part 1, Article 10
and Part 1, Article 50 of Company Law of the Republic of
Lithuania, as well as the provisions of Part 2, Article 2 and
Part 6, Article 14 of the Law of the Republic of Lithuania on
Initial Privatisation of State Property are in compliance with
the Constitution of the Republic of Lithuania.
The Constitutional Court
has established:
I
The Seimas passed Company Law of the Republic of Lithuania
on 5 July 1994 (Official Gazette "Valstybės Žinios", No.55 -
1046, 102 - 2050, 1994; No.41 - 993, 1995), the Supreme Council
of the Republic of Lithuania adopted the Law of the Republic of
Lithuania on Initial Privatization of State Property on 28
October 1991 (Official Gazette "Valstybės Žinios" No.10 - 261,
1991 together with subsequent amendments). In the laws of 20
July 1994 some articles of the Law on Initial Privatization of
State Property, including those disputed by the petitioner,
were amended (Official Gazette "Valstybės Žinios" No.58 - 1137,
59 - 1159, 1994).
The petitioner requests to investigate if the norm of Part
1, Article 10 of the Company Law "Reorganization is
transformation of a Company as a legal person without
liquidation procedure", the norm of Part 1, Article 50 of the
said law, which provides that "public and private companies
shall have to amend their Articles of Association according to
this law and have them registered according to the procedure
established by the Law on Register of Enterprises within 9
months as of the date of the enactment of this law" (according
to the wording of the Article which is in force at present -
within 12 months), as well as the norm of Part 2, Article 2 of
the Law on the Initial Privatization of State Property which
provides that "companies, which are included either in the list
of the objects, which are subject to privatization for hard
currency, or in that of special purpose companies" shall not be
entitled to increase its share capital and authorised capital
from its own funds which are formed out of the results of its
annual commercial activities, providing the share capital,
including the capital which has been accumulated according to
other laws, exceeds 30% of the authorised capital of the
company, and also the norm of Part 6, Article 14, which
provides that the shares of private joint stock companies which
are disposed of by the state power and government institutions
shall be sold by announcing the close subscription for shares.
II
The petitioner grounds his request with following
arguments.
1. The disputed norms of Company Law do not insist that
companies undergoing reorganization be established legally, i.
e. that the company until reorganization be founded pursuant to
earlier in force Company Law, or according to the prescriptions
of the new Company Law, neither do they insist upon
reregistration of state or state stock enterprise into a
company after it has been privatized according to the procedure
established by the Law on Initial Privatization of State
Property, as well as other legal acts, regulating privatization
of state property. On the contrary, the provision of Part 1,
Article 50 of the said law stipulates making no reservations:
"Public and private companies shall have to amend their
Articles of Association according to this Law and have them
registered according to the procedure established by the Law on
the Register of Enterprises within 12 months as of the date of
the enactment of this law", and, as a matter of fact,
conditions are created to legalize unlawful rewriting of state
and state stock enterprises (without privatization procedure,
nor any official bargain and sale or other type of negotiation
transactions, thus violating the Law on Initial Privatization
of State Property, as well as then in force Law on State
Enterprises) into private companies, as such companies are
already entitled to reorganization and to ostensibly lawfully
register themselves according to the new Company Law.
2. In the contested provision of Part 2, Article 2 of the
Law on Initial Privatization of State Property certain
enterprises are indicated, which are allowed to increase their
share capital only up to no more than 30% of its authorised
capital share. It means that this provision already does not
prohibit all the remaining state enterprises, i. e. those in
which more than 50% of the authorised capital (shares) belong
to the state (local government) by the property right, and
which are not included into the list of objects subject to
privatization for hard currency, or into the list of special
purpose state enterprises, to increase share capital which
exceeds 30 or even 50% of the authorised capital of the
enterprise. Thereby the privatization of state or public share
enterprise without making bargain and sale or other type of
negotiation transactions is legalized. This violates the
provision of Part 1, Article 2 of the Law on Initial
Privatization of State Property which reads: "enterprises may
be subject to further privatization only in the case that they
have undergone privatization pursuant to the Law of the
Republic of Lithuania on Initial Privatization of State
Property", as well as privatization services are evaded, i. e.
the enterprise is privatized neither with any bargain and sale,
or voucher, or money payments.
Not only does the Law on Initial Privatization of State
Property ban to privatize a state enterprise according to the
Law on State Enterprises which was in force until 31 December
1994 by evading the former, but the Law on State Enterprises
itself prohibited to do so, in Part 4, Article 4 of which it
was indicated that "the share capital of the enterprise cannot
exceed the state capital". Articles 30 and 31 of the said law
stipulated that a state enterprise was entitled to invest a
certain amount of the profit into production by increasing its
share capital, but it was banned to increase the private
capital share to the extent that the latter exceeded the state
capital and thereby the status of the enterprise would be
changed from state into that of private. On the other hand,
when the assets of enterprises were constantly indexed, it was
simply impossible to accumulate such share (private) capital
from the undistributed profit, so that this capital could have
exceeded the state one. But no state enterprise could be
privatized (it could not change its status into that of private
enterprise) according to the Law on State Enterprises.
Therefore such privatization of enterprises, which changed
their status from a state stock enterprise into that of a
joint-stock (private) company by evading the Law on Initial
Privatization of State Property was, and is, illegal, as the
Law on Initial Privatization of State Property, as well as the
Law on State Enterprises were violated, because these laws
prohibit to privatize state property in such manner. Thus, as
if on the grounds of the Law on State Enterprises, but, as a
matter of fact contradicting the said law, state enterprise
would become private, and only persons of a certain social
group could acquire the property of that enterprise, and not
every citizen who was entitled to acquire state property
according to the laws of the Republic of Lithuania. Therefore
the Law on State Enterprises could not be considered equal to
the Law of Initial Privatization of State Property, as only on
the grounds of the latter law every state enterprise or any
other state property may be privatized, and citizens may
acquire the property of state enterprise only subsequent to the
procedure prescribed by this law.
3. The disputed provision of Part 6, Article 14 of the Law
on Initial Privatization of State Property provide certain
persons, on the grounds of their work place and social status,
with privileges to acquire property - shares of the enterprises
where they work - under much more favourable conditions (for
much smaller prices) than other persons. Alongside, this
provision legalizes the arbitrary privatization of state
enterprises by evading the Law on Initial Privatization of
State Property and by violating of then in force Law on State
Enterprises.
As could be seen in document No.1-05-1470 of the
Department of State Control, the enterprises, in which there
existed state capital, would reregister into joint-stock
companies, as well as into private joint-stock companies,
although it is indicated in this document, that state
enterprises "were entitled to reregister only into joint-stock
companies, in which the remaining state possessions are to be
privatized only pursuant to the Law on Initial Privatization of
State Property, i.e. by means of public subscription for
shares, and never into private joint-stock companies. To
privatize state property by close manner only pharmacy, medical
technical service, veterinary offices and enterprises, as well
as information agencies, editorial offices, enterprises of
scientific research of the corresponding profile (pharmacy,
medical technical service) were permitted as established by
Article 20 of the aforesaid law, and also publishing houses of
periodicals (newspapers and magazines) after supplementing the
list by the 17 February 1994 Resolution of the Seimas of the
Republic of Lithuania "On appending item 8 of the Resolution of
the Supreme Council of the Republic of Lithuania "On coming
into force of the Law of the Republic of Lithuania on Initial
Privatization of State Property"". Thus most joint-stock
companies and private joint-stock companies, which have some
state property share the same origin, but by further
privatizing the aforesaid state property - the shares disposed
of by state power and governing institutions, - and by
violating equal personal rights which are guaranteed by the
Constitution, pursuant to the aforementioned law more
favourable conditions are created for the employees of some
enterprises, for those of private joint-stock companies to make
it more precise, than for the employees of other enterprises to
acquire state property: it is employees of private joint-stock
companies who can purchase shares from the state with no market
price, as the initial price by selling shares by close manner
is not raised, whereas the employees from other enterprises can
purchase the shares only with a market price.
III
When preparing the case for the public hearing of the
Constitutional Court, Pranciškus Vitkevičus, the Chairman of
the Seimas Committee of State and Law, Julius Veselka, a member
the Seimas, Alfonsas Vileita, the adviser of the Seimas
Committee of State and Law, submitted their considerations as
to the arguments set forth in the request.
In the opinion of the said persons, the disputed
provisions are in compliance with the Constitution. In Part 1,
Article 10 of Company Law only the notion of the enterprise
reorganization was established, it regulates neither
privileges, nor restrictions, nor other matters concerning the
management, utilisation, or disposal of state property. Part 1,
Article 50 has no such provisions either, in which the
stipulation to amend their Articles of Association according
with Company Law and that of the specified time during which it
has to be done are indicated. The disputed provisions of
Articles 2 and 14 of the Law on Initial Privatization of State
Property regulate the rights of state as the owner to
correspondingly manage, utilise, or dispose of its property,
but the aforesaid articles do not establish any privileges or
restrictions which might violate Article 29 of the
Constitution. And the fact that some matters concerning the
management, utilisation, or disposal of state property is just
precisely in compliance with the provisions of Article 128 of
the Constitution.
IV
1. In the process of judicial investigation Gediminas
Vagnorius, a representative of the petitioner, explained that,
according to the data of the privatization offices, 32.9% of
state property which had been planned to privatize in the
initial stage of the privatization, was privatized. In other
words, the vouchers have been used, it was allowed to purchase
with them, or it was purchased in fact, only one third of the
possessions previously assigned to back them. The Law of
Initial Privatization of State Property provided for the
privatization for vouchers of two thirds of the property
subject to privatization, and that for money - of one third.
According to the Government data, 72% of the property which was
foreseen in the programme of initial privatization, have been
privatized. But these numbers cannot differ to such a degree.
Such conflict of the data indicates what share of state
property is transferred without any bargain and sale
transactions. The greater part of the property foreseen in the
programme of initial privatization has been transferred to
other owners, i.e. it has been privatized without any payments,
transactions, and without any voucher or money payments. The
aim of the petitioner's request is to achieve that the
Constitutional Court suspended the further illegal
privatization, as the remaining property is being privatized at
present as well, without making any bargain and sale
transactions. In the opinion of the petitioner, the collectives
of enterprises who took part in the privatization of state
property are innocent because laws and government resolutions
created diverse circumstances to make use of them, and the
institutions of power, as well as the officials who made
amendments to the laws and government resolutions are fully
responsible. Political decisions are needed which may eliminate
the effects of illegal privatization taking into account that
it was because of the decisions of the State, the Government
and the Seimas that the said effects appeared.
With what we can agree is that formally Articles 10 and 50
of Company Law are in conformity with the Constitution and the
laws. But the most important problems is, and which made
question the aforesaid articles, that the requirements set
forth in them are not complete, e.g. as to the reorganization:
the aforementioned articles do not contain provisions as to
what shares or capital is recognized legally or illegally
acquired. If an enterprise belonged to the state, and later on
it was reregistered as a company after the laws had been
changed, therefore, in the opinion of the petitioner, the said
articles had to prescribe as to what basis, to what bargain and
sale transaction, to what bylaw of privatization on the grounds
of which it was permitted to reorganize the state enterprise
into a company. These articles contain no such prescriptions
and essentially they are based on the register data control.
Certain privileges may be established for some groups of
persons, but different privileges may not be established for
the same groups of persons. In this case the collectives of
enterprises are meant, which may actually have privileges, but
the problem is that some collectives have privileges, whereas
others have no privileges whatsoever. The collectives and the
people who followed the Law on Initial Privatization of State
Property and acquired shares when participating in open
subscription for shares (through privatization offices), had to
pay their own vouchers and money for these shares ten or forty
times, and in some cases one hundred times as much as their
nominal value. Persons from the enterprises which were not
specially included into the privatization programmes had the
opportunity to acquire shares the price of which was a great
many times less than their real price. Thus there appears
inequality which is forbidden by Article 29 of the Constitution
which provides that all people shall be equal before the law
and there must be no privileges.
The arguments of the representative of the party concerned
that Article 128 of the Constitution is not violated, as state
property is managed, utilised and disposed of legally according
to Company Law, as well as the Law on Initial Privatization of
State Property, cannot be agreed with. In the opinion of the
petitioner, this it not so. The management, utilisation and
disposal of state property are regulated not by each and every
law. Disposal of state property according to the law, or not
according to the law, depends upon the fact, if such disposal
of property is based on the law regulating the disposal of
state property. If, e.g., privatization is conducted
incorrectly on the basis of the Law on State Enterprises, but
this law does not regulate the process of privatization. It
regulates the management of the enterprise but it does not
regulate the transfer of possessions, therefore it is not
correct to maintain that, e.g., the state property was utilised
legally during the privatization process. In this case everyone
had to base himself on the Law on Initial Privatization of
State Property, and not other laws. The Law on State
Enterprises provided that every enterprise shall be entitled to
use some part of its profit for the purposes of its production,
therefore it was permitted to assign some part of the profit to
increase capital. But the Law on State Enterprises, as well as
Government resolutions, in principle prohibited to accumulate
such an authorised share capital that it exceeded state
capital. After Article 2 of the Law on Initial Privatization of
State Property was supplemented with Part 2, which had not been
in the said law before, conditions were created for the
enterprise to change its owner without any bargain and sale
transaction. The petitioner, therefore, proposes that Part 2 of
Article 2 of this law be abrogated so that the Government would
not, by using this Part as a cover, as well as by treating it
freely, be able to apply the laws in various manner.
2. According to the interpretation of Kęstutis Skrebys, a
representative of the petitioner, the provision of Part 1,
Article 10 of Company Law, stipulating that "Reorganization is
transformation of a Company as a legal person without the
liquidation procedure", does not necessitate that enterprises,
which are under reorganization, be legally established, i.e.
that the enterprise be established according to the
requirements of then in force Company Law, or of the newly
adopted Company Law. Neither does the aforesaid provision
necessitate that state and state stock enterprise be
reregistered after it was privatized pursuant to the procedure
established by the Law on Initial Privatization of State
Property and other legal acts regulating the privatization of
state property. The petitioner concedes that thereby conditions
are created to legalize the reregistration of state and state
stock enterprises into private joint-stock companies without
any privatization, nor with any bargain and sale or any other
negotiation transactions making official, thus violating the
Law on Initial Privatization of State Property, as well as then
in force Law on State Enterprises. The Law on State Enterprises
provides that the share of private capital shall not exceed 50%
of the total capital amount, but this provision was not
followed. A state enterprise, after it had increased its
authorised capital, would become reregistered into a
joint-stock company, or even into a close company, i.e. into a
private enterprise, and later based its activities on other
laws which regulate private ownership relations, and not on the
Law on State Enterprises.
3. In the opinion of Alfonsas Vileita, a representative of
the party concerned, Part 1, Article 10 and Part 1, Article 50
of Company Law which are contested by the petitioner have
nothing in common with what has been and is going on in the
field of privatization. Company Law regulates the activities of
every company, no matter how and by what manner they were
established. Part 1 of the disputed Article 10 contains the
notion of reorganization. Only existing joint-stock companies
are subject to reorganization. The need to reorganize them is
natural. Sometimes this need arises because of the interests of
the companies themselves, viz., commercial, trade, production,
etc., as well as market struggle interests. Reorganization may
also be obligatory in the case that the Service for Prices and
Competition requires to do so. From the economical point of
view, it would be far-fetched to prohibit to reorganize
companies. This Article, therefore, formally is in compliance
with Article 29, as well as Article 128, of the Constitution.
Part 1, Article 50 contains the second disputed norm. Not
only does this norm is formally in compliance with the
Constitution, but it is essentially indispensable. The
legislator obligated every existing joint-stock company to
reregister itself and to amend its Articles of Association
according to the new law. A company, however, may be
established illegally, but the corresponding legal norm
provides for such a case. It is established in item 3 of Part
1, Article 11 of Company Law that a company may be liquidated
by the decision of the court on the grounds of violations of
law established by the laws of the Republic of Lithuania. But
this is not to be linked with either reregistration or
reorganization. The question of the legality of the acquisition
of property may be judged only by judicial procedure. The
representatives of the petitioner based their arguments on the
Law on State Enterprises which was in force until December,
1994, and they quoted that the share capital of the enterprise
cannot exceed the state capital. But further on there is
another sentence - Article 4 provides that an enterprise may
accumulate share capital exceeding the state capital owned by
it. It also established that the state capital accumulated
(held) at the enterprise shall not be divided into shares. The
joint-stock company or the private joint-stock company appears
pursuant to this law.
In the opinion of the representative of the party
concerned, the amendment of Article 2 of the Law on Initial
Privatization of State Property, which as if contradicts
Articles 29 and 128 of the Constitution, is, in its essence, in
compliance with the Constitution. Such norm existed before,
formulated a little differently though, and it was not
contested. The petitioner argues that enterprises are being
acquired without any bargain and sale. If enterprises are being
acquired without any bargain and sale, then this is not the
object of the investigation of this Court. There exist
institutions which have to take measures in all cases when
property is taken illegally, so that this property was taken
back by legal procedure after bringing an action against such
persons. When adopting privatization acts, there existed one
goal, viz., to privatize property. The said Law on
Privatization also provided for privatization.
Thus, in the opinion of the representative of the party
concerned, Part 1, Article 10 and Part 1, Article 50 are in
compliance with the Constitution. When estimating the amendment
of Part 2, Article 2 of the Law on Initial Privatization of
State Property, it could be said that there exist some
exceptions for certain enterprises which are to be sold for
hard currency. The legislator had in mind replenishing the hard
currency fund. This norm in its essence is in compliance with
Article 29, as well as Article 128, of the Constitution.
Article 14 of the Law on Initial Privatization of State
Property provides for the manner of initial privatization. It
contains an indication that state stock companies and state
enterprises which possess share capital shall be privatized
after a public subscription for shares is announced, as well as
a stipulation that the aforementioned condition shall not be
applied to objects which are to be sold for hard currency, as
well as to banks and private joint-stock companies, which are
privatized by close subscription for shares. The representative
of the party concerned asserts that the disputed provision of
this Article is in compliance with the Constitution.
The Constitutional Court
holds that:
1. When reestablishing the independent State of Lithuania,
the institute of private ownership was reinstated into the
legal system of the country. In Article 44 of the Provisional
Basic Law it was indicated that the economical system of
Lithuania shall be based upon the ownership of the Republic of
Lithuania which is composed of various kinds of ownership.
Private ownership of citizens is mentioned first among them.
That was the basis to implement economic reform. The priority
of private ownership is consolidated in Part 1, Article 46 of
the Constitution which reads: "Lithuania's economy shall be
based on the right to private ownership, freedom of individual
economic activity, and initiative".
One of the main economical policy trends of the restored
Republic of Lithuania has become privatization of property.
Already in 1990 laws were passed which provided for the
opportunity to establish in diverse manner enterprises which
possess private capital (the Law on Enterprises, Company Law,
the Law on Partnerships, etc.) or for state enterprises to
accumulate private (share) capital (the Law on State
Enterprises and the like).
In the Law on State Enterprises adopted on 25 September
1990 two types of enterprises were provided for: that of a
state enterprise which has not issued shares (has not received
subscriptions) or which has issued shares (has received
subscriptions) with their nominal value not exceeding 1/5 of
the enterprise's authorized capital, and that of state stock
enterprise which has issued shares with the nominal value
exceeding 1/5 of the enterprise's authorised capital (Article
2). In Article 4 of the said law it was established that a
state enterprise which has accumulated the nominal share
capital exceeding the state capital must be reorganized within
six months into either a joint-stock company or a private
joint-stock company.
Virtually the same requirements were established for state
co-operative enterprises, state stock enterprises, as well as
for enterprises that were leased, for the establishment whereof
state property was used (rented) (the 16 October 1990
Resolution of the Supreme Council "On the procedure for the
entry into force the Law on Partnerships and for reregistration
of other types of enterprises").
In the aforesaid legal acts the attempt of the legislator
to pursue economical reform by increasing the share and the
role of private property in national economy is evident. This
may be seen from the 25 September 1990 Resolution of the
Supreme Council "On the procedure for the entry into force the
Law of the Republic of Lithuania on State Enterprises". Item 3
of the said Resolution provides that the Government must
prepare and submit a draft programme of de-nationalization
until 20 October 1990, and to present lists of state
enterprises which may function as state joint-stock enterprises
or become private enterprises, as well as of enterprises which
are to be transferred to the local government. The same
Resolution (item 4) prohibited the commence of buying out,
selling out or privatize state capital (property) in every
other manner until the coming into force the law which
regulates de-nationalization.
However, already on 4 December 1990 Provisional Law "On
Accumulation of Private Capital of Employees in State
Enterprises" was passed. It held that "in some state
enterprises capital was begun to be collected from the
employees before the implementation of the privatization
programme". Therefore it was permitted in Article 1 of this law
for state enterprises (state stock enterprises or state
co-operative enterprises), with some exceptions, to form share
capital from the contributions of employees by privatizing up
to 10% of state capital goods (funds) which have been
accumulated in the enterprise.
Thus, before adoption of the Law on Initial Privatization
of State Property, a prerequisite was created in other laws to
permit state enterprises to issue shares (to collect
contributions) or to privatize a part of state property.
It is noteworthy to indicate that in the aforesaid legal
acts there were some discrepancies as well: some of them
established prohibition to distribute the property of state
enterprises, collective farms and state farms by using shares
(the 26 July 1990 Resolution of the Supreme Council "On
economical reform of Lithuania", etc.), whereas some others
consolidated the opportunity by accumulating private capital to
change the type of the enterprise by reorganizing a state
enterprise or a state stock enterprise into a private
joint-stock company (Articles 4 and 9 of the Law on State
Enterprises).
The Law on Initial Privatization of State Property was
passed on 28 February 1991. In its Article 2 it is consolidated
that a state enterprise shall be privatized only once, and
further privatization is possible only in the case that it has
been already privatized according to the Law on Initial
Privatization of State Property. The prohibition to privatize
state enterprises, offices and other state property otherwise
than it was prescribed in the said law was consolidated in the
14 March 1991 Resolution of the Supreme Council "On the entry
into force of the Law of the Republic of Lithuania on Initial
Privatization of State Property" as well.
As it was mentioned, some laws then in force which
regulated enterprise activities consolidated prerequisite for
state enterprises to issue shares (collect contributions) or
privatize a part of the capital goods (up to 10%) of the
enterprise. The state capital accumulated (held) at the
enterprise was not to be divided into shares (Part 6, Article 4
of the Law on State Enterprises). At the same time there was no
prohibition to increase private share capital from its profit
(from the reserve funds of the share capital and those of
profit - Part 1, Article 31 of the Law on State Enterprises).
Thus legal conditions were created to increase share (private)
capital without privatizing (purchasing) state capital of the
enterprise, and depending on how the ratio between share and
state capital changed, pursuant to the procedure established by
the Law on State Enterprises to reorganize state enterprises
into joint-stock companies or private joint-stock companies, to
register of the changed legal status in the Register of
Enterprises, and further on to follow Company Law in its
activities.
2. Property is the right to possessions. It means that the
owner has the right to peacefully make any impact on his
property, providing that thereby neither law is violated, nor
contract is breached, nor the rights of the third party are
restricted, as well as to prohibit other persons to make any
such impact. The inviolability of property, its social function
and necessity to regulate property relations are all
interdependent. All this is significant when establishing the
rights and obligations of the owner disposing of the
possessions by the right to private property, as well as to
public property. The contents of the rights of the owner
constitutes the right to manage, utilise, and dispose of his
property which belongs to him. General principles of the right
to ownership are set forth in the Constitution and detailed in
the Civil Code and other laws.
Part 3, Article 47 of the Constitution enumerates property
which exclusively belongs to the Republic of Lithuania
(entrails of the earth, as well as nationally significant
internal waters, forests, parks, roads, and historical,
archaeological and cultural facilities), and according to
Articles 98 and 981 of the Civil Code, other possessions may
also belong by the right of property. This property, as a rule,
is assigned to implement functions of state power, or those of
executive and order, or other which are generally important, or
the belongings of such property to the state may be linked with
the significance of the objects of the right of property
themselves.
Part 2, Article 128 of the Constitution stipulates:
"procedures concerning the management, utilisation, and
disposal of State property shall be established by law".
Consequently, the relations which appear when managing,
utilising and disposing of state property are to be regulated
only according to the law. Therefore the norms of bylaws may
never contradict the law.
In the view of questions which are under investigation in
this case, the requirement of Part 3, Article 46 of the
Constitution whereby the state is to regulate economical
activity so that "it serves the general welfare of the people"
is also relevant. Thus state property must be managed so that
there were no contradictions to this constitutional provision.
3. Article 29 consolidates the principle of equality of
all people before the law, the court, and other State
institutions and officers. This principle must be observed when
passing and applying laws, as well as administering justice.
This principle obligates to apply uniform legal assessment to
homogeneous facts and prohibits to arbitrarily assess
essentially homogeneous facts.
In Part 2, Article 29 of the Constitution it is
established that a person may not have his rights restricted in
any way, or be granted any privileges, on the basis of his or
her sex, race, nationality, language, origin, social status,
religion, convictions, or options. However, persons themselves
may be different, and in some cases, when passing laws, this is
to be taken into consideration. For example, if a law, directed
for the good of the society or for aspiration of humanism,
takes into consideration the differences of social status of
persons, it does not mean, of its own accord, that the
principle of the equality of persons is violated. Besides,
quite frequently laws are inflicted only on certain categories
of persons, or they are valid only in specific situations,
under which persons of one or the other category fall. The
variety of social life determines the manner and contents of
legal regulation. But diverse interpretation of inborn personal
rights and their diverse application to individual categories
of persons is not to be permitted.
The arguments raised by the petitioner will be assessed
while considering these motives.
1. On the compliance of the norms of Part 1, Article 10
and Part 1, Article 50 of Company Law with the Constitution.
The petitioner argues that the norm of Part 1, Article 10
of the Company Law "Reorganization is transformation of a
Company as a legal person without liquidation procedure", and
the norm of Part 1, Article 50 of the said law, which provides
that "public and private companies shall have to amend their
Articles of Association according to this law and have them
registered according to the procedure established by the Law on
Register of Enterprises within 12 months as of the date of the
enactment of this law" contradict Articles 29 and 128 of the
Constitution.
Article 29 of the Constitution which consolidates the
principle of equality of persons is placed in Chapter 2 of the
Constitution entitled "The Individual and the State". This
Chapter establishes universally recognized human rights and
main freedoms, as well as the principles of their
implementation and protection. The norms of this Chapter are
the guaranty of inborn and other constituted rights and
freedoms. This is especially evident in the sphere of property
protection.
Part 2 of Article 23 which consolidates the inviolability
of property, of the Constitution, reads: "The rights of
ownership shall be protected by law". Thus the regulation of
property relations are to be specified in laws. In Part 2,
Article 128, the one upon which the petitioner grounds his
request, it is stated that procedures concerning the
management, utilisation, and disposal of State property shall
be established by law. It means, therefore, that the legislator
is commissioned to regulate questions concerning privatization
of state property, activity of state enterprises, control of
state shares possessed in joint-stock companies, as well as
other matters connected with the management, utilisation, and
disposal of State property. He may choose legal manner for this
regulation so far that it does not contradict the Constitution.
In the opinion of the petitioner, the disputed norms of
Articles 10 and 50 of Company Law contradict the Constitution
because they do not contain provision that enterprises which
undergo reorganization must be established legally, otherwise
conditions are created to legalize illegal rewriting of state
enterprises, as well as state stock enterprises into private
companies.
The disputed norm of Part 1, Article 10 of Company Law
defines the transformation of an enterprise as a subject of
economy without its liquidation. Besides, in this Article the
manner of transformation is established and its procedure is
regulated. The manner of reorganization and its procedure are
obligatory for every subject the activity whereof is regulated
with this law, i.e. for every joint-stock company and private
joint-stock company (Article 1 of this law). Another type of
law, the one regulating the activity of state and municipal
enterprises, contains an analogous norm (Article 19 of the 21
December 1994 State and Municipal Enterprise Law of the
Republic of Lithuania).
Article 37 of the Civil Code indicates that reorganization
is one of the fundamentals of coming to an end of the existence
of legal person. Meanwhile Company Law defines reorganization
as transformation of a company without the liquidation
procedure, i.e. the main attention is paid to the specific
character of companies (as well as other enterprises)
functioning as the subjects of commercial economic activity: to
the continuity of the activity, to the succession of the rights
and liabilities of the companies reorganized. The disputed norm
does not establish any restrictions or privileges concerning
the procedure of reorganization, on the grounds of which the
principle of the equality of persons may be violated.
At the same time attention is to be paid to the fact that
according to the disputed norm of Article 10 of Company Law the
company is entitled to undergo reorganization providing it was
established pursuant to earlier in force Company Law, or it was
reorganized into a joint-stock company or a private joint-stock
company pursuant to other legal acts regulating the activity of
enterprises and was reregistered in the Register of
Enterprises.
A legal person, as well as a joint-stock or private
joint-stock enterprise, may commence its activity only after it
has registered its articles (rules) of association (Article 25
of the Civil Code). The company shall follow its articles of
association in their activity and their provisions may not
contradict existing valid laws.
Neither does the disputed norm of Part 1, Article 50 of
Company Law in which the requirement is set forth that public
and private companies shall have to amend their articles of
association according to this newly adopted law and have them
registered according to the procedure established by the law
foresee any privileges or discrimination with respect to
individual persons or any provisions concerning managing,
utilising or disposing of state property.
The contested norms regulate neither company
establishment, nor privatization of state property. These
questions fall under respective regulation of other norms of
this law and under other laws. The decision of legality of
company establishment and privatization of state property is
the matter of investigation of a particular civil or any other
legal case.
Taking into consideration the motives advanced, a
conclusion is to be made that the norm of Part 1, Article 10 of
the Company Law "Reorganization is transformation of a Company
as a legal person without liquidation procedure", as well as
the norm of Part 1, Article 50 of the said law, which provides
that "public and private companies shall have to amend their
Articles of Association according to this law and have them
registered according to the procedure established by the Law on
Register of Enterprises within 12 months as of the date of the
enactment of this law" are in compliance with the Constitution.
2. On the compliance of the provision of Part 2, Article 2
of the Law on Initial Privatization of State Property with the
Constitution.
Part 2, Article 2 of the Law on the Initial Privatization
of State Property contains the provision that companies, which
are included either in the list of the objects, which are
subject to privatization for hard currency, or in that of
special purpose companies, shall not be entitled to increase
its share capital and authorised capital from its own funds
which are formed out of the results of its annual commercial
activities, providing the share capital, including the capital
which has been accumulated according to other laws, exceeds 30%
of the authorised capital of the company.
In the opinion of the Petitioner, all the remaining state
enterprises, i. e. those in which more than 50% of the
authorised capital (shares) belong to the state (local
government) by the property right, and which are not included
into the list of objects subject to privatization for hard
currency, or into the list of special purpose state companies,
are permitted to increase their share capital which exceeds 30
or even 50% of the authorised capital of the enterprise.
Thereby, i.e. by evading the Law on Initial Privatization of
State Property, the privatization of state or state stock
enterprise without making any bargain and sale or other type of
negotiation transactions is legalized. The petitioner asserts
that the disputed norm whereby certain restrictions in the
process of privatization are established only for the
enterprises subject to privatization for hard currency or
special purpose state companies contradict Articles 29 and 128
of the Constitution.
The notion of the special purpose company is indicated in
Article 2 of the Law on Initial Privatization of State
Property. This notion is further specified in Article 5 of
Company Law entitled "Special Purpose Companies". It provides
that the status of special purpose companies may be assigned to
companies which fulfil functions that are of vital significance
for the state or companies whose activities require a special
regime. The sphere of activity in which such companies may
operate shall be approved by the Seimas on the recommendation
of the Government, and the shares held by an institution of
state power or government must account to at least 70% of
votes.
According to Part 2, Article 7 of the Law on Initial
Privatization of State Property, the list of objects subject to
privatization solely for hard currency shall be approved by the
Central Commission for Privatization (according to the 4 July
1995 Law on Privatization of State and Municipal Property - the
Commission for Privatization). As a rule, these are the
enterprises which may attract foreign investments by the
character of their activity or other specific features.
The activity of these and the other objects alike usually
has the significance of greater importance in functioning of
the national economy, in fulfilling universally important
functions (postal and telegraph service, energy supply, etc.),
therefore the conditions established by the law are completely
understandable and are in accordance with the norm of Article
128 of the Constitution in which it is established that
procedures concerning the management, utilisation, and disposal
of state property shall be established by law. Conditions of
privatization of certain objects as established in Part 2,
Article 2 of the Law on Initial Privatization of State Property
are equally applied to all persons who take part in the process
of privatization. This Article does not provide any advantages
or privileges for anyone what may be considered to be the
contradiction to Article 29 of the Constitution.
The question that the disputed provision does not foresee
the same or similar conditions of privatization in respect to
some other enterprises subject to privatization may not be
considered to be the contradiction to the Constitution.
Establishing how to regulate the management, utilisation, and
disposal of state property is the right of the legislator
consolidated in the Constitution, and it is the Constitution
which circumscribes the limits of this right.
The question raised by the petitioner that state
enterprises were privatized by evading the Law on Initial
Privatization of State Property, as well as the earlier in
force Law on State Enterprises, is also the one of the
application of the aforesaid legal norms which are not subject
to investigation in the Constitutional Court, and not that of
the compliance of a legal norm with the Constitution. Were it
established that state property was privatized by evading law,
there would arise a question of responsibility of particular
persons. It should be noted that the Civil Code provides the
right of the owner, therefore that of the state as well, to
demand and obtain his property from illegal management by
somebody else (Article 142).
Besides, attention is to be paid to the fact that after
State and Municipal Enterprise Law had been passed on 21
December 1994, the Law on State Enterprises whereby state
capital was not to be divided into shares and to be increased
from the profit of the enterprise by issuing new shares became
null and void. Therefore at present the provision of Company
Law is applied to state capital which is held in joint-stock
and private joint-stock companies that all capital of the
company shall be divided into shares. Thus the manager
(incorporator or authorised person) of state shares enjoys
equal rights along with remaining shareholders, the owners of
private capital. If the aforesaid state property is being
managed by violating the interests of the owner, there arises
the question of responsibility of the manager (incorporator or
authorised person) of this property. It should be noted that
the management of the shares which belong to the state in
various types of enterprises, other questions concerning
management, utilisation, and disposal of such state property
should be regulated more specifically in laws by
particularizing the powers of the authorised person, as well as
his responsibility in case the property authorised to him
should be lost.
Taking all this into account a conclusion is to be drawn
that the norm of Part 2, Article 2 of the Law on the Initial
Privatization of State Property which provides that "companies,
which are included either in the list of the objects, which are
subject to privatization for hard currency, or in that of
special purpose companies" shall not be entitled to increase
its share capital and authorised capital from its own funds
which are formed out of the results of its annual commercial
activities, providing the share capital, including the capital
which has been accumulated according to other laws, exceeds 30%
of the authorised capital of the company is in compliance with
the Constitution.
3. On the compliance of the provision of Part 6, Article
14 of the Law on Initial privatization of State Property with
the Constitution.
Part 6, Article 14 of the Law on Initial Privatization of
State Property regulates the procedure of the selling of shares
disposed of by state power and government institutions. This
Part provides that such shares which belong to private
companies shall be sold by announcing the close subscription
for shares.
In the opinion of the petitioner, this provision
contradicts Articles 29 and 128 of the Constitution, as the
enterprises, in which there existed state capital, reregistered
themselves illegally into private joint-stock companies (except
for the privatization objects of the corresponding profile, as
indicated in the Law on Initial Privatization of State
Property). By further privatizing state property which is held
in the aforesaid enterprises, the employees of private
joint-stock companies are placed at advantageous conditions to
acquire state property, and thereby the principle of the
equality of persons is violated which is consolidated in the
Constitution.
As it has been mentioned, in the laws regulating
enterprise activity and passed as far back as 1990 legal
prerequisites were consolidated to reregistrate state
enterprises which had increased share (private) capital into
stock or private joint-stock companies.
In the former, as well as in the now in force Company Law
criteria are established (the amount of the authorised capital,
the number of shareholders), upon which the type of the company
depends (that of a stock or a private joint-stock company). If,
when reregistering a state enterprise into a private
joint-stock company pursuant to the Law on State Enterprises,
the aforementioned criteria as established by the law were
violated then it is the question of the application of legal
norms which the Constitutional Court shall not judge, and not
that of the compliance of a legal norm with the Constitution.
An enterprise which has become reorganized into a private
joint-stock company according to the Law on State Enterprises
may be privatized by buying out state capital which is held in
it. The types of privatization are foreseen in Part 1, Article
14 of the Law on Initial Privatization of State Property. The
opportunity to set up close auctions and announce a close
subscription for shares is also provided in the aforesaid Part
(sub-item "a", item 4). By the way, the aforementioned norm is
not being contested in this case.
The itself manner of establishing a private joint-stock
company and a limited sphere of its activity indicates that
shares of such enterprise are issued and offered for sale in a
limited manner. The former, as well as now in force Company Law
banned when establishing a private company and issuing
additional shares to publicly offer them for sale. Therefore
the privatization of state capital which is held in private
joint-stock companies by announcing a close subscription for
shares corresponds to the specific manner of the activity of
the aforesaid companies, and the principle of the equality of
persons as consolidated in Article 29 of the Constitution is
not violated.
Taking into account these and the above presented motives,
a conclusion is to be drawn that the norm of Part 6, Article 14
of the Law on Initial Privatization of State Property, which
stipulates: "the shares of private companies which are disposed
of by the state power and government institutions shall be sold
by announcing the close subscription for shares" is in
compliance with the Constitution.
Conforming to Article 102 of the Constitution of the
Republic of Lithuania, as well as Articles 53, 54, 55 and 56 of
the Law on the Constitutional Court of the Republic of
Lithuania, the Constitutional Court of the Republic of
Lithuania has passed the following
ruling:
1. To recognize that the norm of Part 1, Article 10 of
Company Law "Reorganization is transformation of a Company as a
legal person without liquidation procedure", and the norm of
Part 1, Article 50 of the said law, which provides that "public
and private companies shall have to amend their Articles of
Association according to this law and have them registered
according to the procedure established by the Law on Register
of Enterprises within 12 months as of the date of the enactment
of this Law" are in compliance with the Constitution of the
Republic of Lithuania.
2. To recognize that the provision of Part 2, Article 2 of
the Law on the Initial Privatization of State Property which
stipulates: "companies, which are included either in the list
of the objects, which are subject to privatization for hard
currency, or in that of special purpose companies", shall not
be entitled to increase its joint-stock capital and authorised
capital from its own funds which are formed out of the results
of its annual commercial activities, providing the share
capital, including the capital which has been accumulated
according to other laws, exceeds 30% of the authorised capital
of the company is in compliance with the Constitution of the
Republic of Lithuania.
3. To recognize that the norm of Part 6, Article 14 of the
Law on Initial Privatization of State Property which provides
that the shares of companies which are disposed of by the state
power and government institutions shall be sold by announcing
the close subscription for shares" is in compliance with the
Constitution of the Republic of Lithuania.
This Constitutional Court ruling is final and not subject
to appeal.
The ruling is promulgated on behalf of the Republic of
Lithuania.