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On the implementation of property and non-property rights of the state in state-owned enterprises

Case No. 22/2012

 

 

THE CONSTITUTIONAL COURT OF THE REPUBLIC OF LITHUANIA

IN THE NAME OF THE REPUBLIC OF LITHUANIA

 

RULING

ON THE COMPLIANCE OF ITEM 4 OF THE RESOLUTION OF THE GOVERNMENT OF THE REPUBLIC OF LITHUANIA (NO. 665) “ON THE APPROVAL OF THE DESCRIPTION OF THE PROCEDURE FOR THE IMPLEMENTATION OF THE PROPERTY AND NON-PROPERTY RIGHTS OF THE STATE IN STATE-OWNED ENTERPRISES” OF 6 JUNE 2012 WITH THE CONSTITUTION OF THE REPUBLIC OF LITHUANIA AND ON THE COMPLIANCE OF ITEM 54 OF THE DESCRIPTION OF THE PROCEDURE FOR THE IMPLEMENTATION OF THE PROPERTY AND NON-PROPERTY RIGHTS OF THE STATE IN STATE-OWNED ENTERPRISES, AS APPROVED BY THE SAID RESOLUTION, WITH THE CONSTITUTION OF THE REPUBLIC OF LITHUANIA AND THE REPUBLIC OF LITHUANIA’S LAW ON THE MANAGEMENT, USE AND DISPOSAL OF STATE AND MUNICIPAL PROPERTY

 

24 February 2015, No. KT7-N3/2015

Vilnius

 

The Constitutional Court of the Republic of Lithuania, composed of the Justices of the Constitutional Court: Elvyra Baltutytė, Vytautas Greičius, Danutė Jočienė, Pranas Kuconis, Gediminas Mesonis, Vytas Milius, Egidijus Šileikis, Algirdas Taminskas, and Dainius Žalimas

The court reporter—Daiva Pitrėnaitė

The Constitutional Court of the Republic of Lithuania, pursuant to Articles 102 and 105 of the Constitution of the Republic of Lithuania and Articles 1 and 531 of the Law on the Constitutional Court of the Republic of Lithuania, at the Court’s hearing, on 17 February 2015, considered, under written procedure, constitutional justice case No. 22/2012 subsequent to the petition (No. 1B-34/2012) of a group of members of the Seimas of the Republic of Lithuania, the petitioner, requesting an investigation into whether:

Item 4 of the Resolution of the Government of the Republic of Lithuania (No. 665) “On the Approval of the Description of the Procedure for the Implementation of the Property and Non-property Rights of the State in State-owned Enterprises” of 6 June 2012 is not in conflict with Paragraph 2 of Article 128 of the Constitution of the Republic of Lithuania and the constitutional principle of a state under the rule of law;

Item 54 of the Description of the Procedure for the Implementation of the Property and Non-property Rights of the State in State-owned Enterprises, as approved by the Resolution of the Government of the Republic of Lithuania (No. 665) “On the Approval of the Description of the Procedure for the Implementation of the Property and Non-property Rights of the State in State-owned Enterprises” of 6 June 2012, insofar as the said item prescribes that, under the conditions specified in the said item, the manager of shares has the right to make decisions on granting a proxy to vote in favour of increasing the authorised capital of a state-owned company through additional contributions when shares carrying more than 1/2 of all votes belong to the state by right of ownership, is not in conflict with Paragraph 2 of Article 19 of the Republic of Lithuania’s Law on the Management, Use and Disposal of State and Municipal Property.

The Constitutional Court

has established:

I

The petition of the group of members of the Seimas, the petitioner, is substantiated by the following arguments.

1. Item 4 of the Government Resolution (No. 665) “On the Approval of the Description of the Procedure for the Implementation of the Property and Non-property Rights of the State in State-Owned Enterprises” of 6 June 2012 (hereinafter also referred to as the government resolution of 6 June 2012) stipulates when and how cash and other state property go from state-owned enterprises in liquidation to state institutions, which means that this legal regulation establishes the procedure and conditions for the disposal of state property. Under Paragraph 2 of Article 128 of the Constitution, the procedure for the possession, use, and disposal of state property is established by law. Thus, the Government has regulated the relations the regulation of which is assigned to the legislature—the procedure for the management, use, and disposal of state property that is established in Item 4 of the government resolution of 6 June 2012 may be established only by law; therefore, the said item is in conflict with Paragraph 2 of Article 128 of the Constitution and the constitutional principle of a state under the rule of law.

2. Under Paragraph 2 of Article 19 of the Law on the Management, Use and Disposal of State and Municipal Property (hereinafter also referred to as the Law) (wording of 23 May 2002), a decision on the investment of assets belonging to the state by right of ownership is adopted by the Government. A decision regarding a proxy to vote in favour of, inter alia, increasing the authorised capital of a state-owned enterprise through additional contributions is related to the investment of state assets, while, under Item 54 of the Description of the Procedure for the Implementation of the Property and Non-property Rights of the State in State-owned Enterprises, as approved by the government resolution of 6 June 2012 (hereinafter also referred to as the Description), the manager of the shares of a state-owned company may make that decision under the conditions specified in this item. Thus, in the opinion of the petitioner, Item 54 of the Description, insofar as it prescribes that, under the conditions specified in this item, the manager of shares has the right to make decisions on granting a proxy to vote in favour of increasing the authorised capital of a state-owned company through additional contributions when shares carrying more than 1/2 of all votes belong to the state by right of ownership, is in conflict with Paragraph 2 of Article 19 of the Law.

II

1. In the course of the preparation of the case for the Constitutional Court’s hearing, written explanations were received from Raimondas Stakėnas, a chief specialist of the State-owned Enterprise Policy Division of the Company Law and Public Procurement Policy Department of the Ministry of Economy of the Republic of Lithuania, acting as the then representative of the Government, the party concerned, in which it is maintained that the impugned legal regulation is not in conflict with the Constitution and the Law. The position of the representative of the party concerned is substantiated by the following arguments.

1.1. Pursuant to the official constitutional doctrine, it has been noted that, under the Constitution, the Government, when exercising its competence conferred on it by the Constitution and laws, deals with state governance issues. When executing laws, the Government passes normative and individual legal acts and ensures their execution. The duty of the Government to adopt substatutory acts that are necessary for the implementation of laws stems directly from the Constitution, while in case there is a commissioning by the legislature to do so, it also stems from laws.

Under Paragraph 5 of Article 22 of the Republic of Lithuania’s Law on the Government, the Government, pursuant to laws, disposes of state property and establishes the procedure for the management and use thereof. Article 191 of the Law (wording of 23 May 2002) provides that the property and non-property rights of the state and municipalities in the enterprises owned by the state (municipalities) are exercised in accordance with the procedure established by the Government. Thus, under the law, the Government has the right and even the duty to adopt substatutory acts in the area of managing state (municipal) property.

Paragraph 9 of Article 24 of the Republic of Lithuania’s Law on State and Municipal Enterprises establishes the competence of the Government to distribute the assets of a state enterprise in liquidation. Thus, the procedure, consolidated in Item 4 of the government resolution of 6 June 2012, for the distribution of the assets of state-owned enterprises in liquidation was established in the course of executing laws; therefore, the said item is not in conflict with Paragraph 2 of Article 128 of the Constitution and the constitutional principle of a state under the rule of law.

1.2. Under Paragraph 2 of Article 19 of the Law (wording of 23 May 2002), the Government is authorised to establish the procedure under which decisions on the investment of state and municipal assets are adopted. This has been done by the Government Resolution (No. 758) “On the Approval of the Description of the Procedure for Adopting a Decision to Invest State and Municipal Assets” of 4 July 2007. It is precisely these legal acts rather than the impugned provision of Item 54 of the Description in accordance with which decisions to invest state assets are adopted. A decision of the manager of shares on granting a proxy to vote in favour of increasing authorised capital through additional contributions at a general meeting of shareholders should not be equated with a decision to invest state assets. Therefore, the impugned provision of Item 54 of the Description is not in conflict with Paragraph 2 of Article 19 of the Law (wording of 23 May 2002).

2. In the course of the preparation of the case for the Constitutional Court’s hearing, written explanations were received from Audronė Railaitė, Director of the Company Law and Insolvency Policy Department of the Ministry of Economy, and Paulius Snukiškis, a chief specialist of the Law Application Division of the same ministry, acting as the representatives of the Government, the party concerned, in which it is maintained that the impugned legal regulation is not in conflict with the Constitution and the Law. These explanations invoke arguments that are in substance the same as those set out in the written explanations of Raimondas Stakėnas and provide additional explanations.

It has been pointed out additionally that a decision on the investment of state assets both in cases when the conditions specified in Item 54 of the Description are not met and in cases when they are met is adopted by the Government. In the first case, i.e. when investments are made in state-owned enterprises bigger than those referred to in Item 54 of the Description, the Government adopts a decision on the increase of authorised capital through additional contributions, in which it at the same time agrees that the manager of the shares of a state-owned company appoints a proxy to vote for him/her at a general meeting of shareholders in favour of increasing the authorised capital of the said enterprise through additional contributions. In the second case, when investments are made in relatively small state-owned enterprises that meet the conditions specified in Item 54 of the Description, the Government does not adopt any separate decision since the decision is expressed in a general normative legal act by entrusting the manager of the shares of a state-owned company with the implementation of the procedures for granting a proxy to vote in favour of increasing authorised capital through additional contributions. This is to optimise the management of small state-owned companies and not to hinder the work of the Government in participating in the procedures for the adoption of the non-priority decisions of state-owned companies.

The Constitutional Court

holds that:

I

On the compliance of Item 4 of the government resolution of 6 June 2012 with Paragraph 2 of Article 128 of the Constitution and the constitutional principle of a state under the rule of law

1. The Description, as approved by the government resolution adopted on 6 June 2012, regulates, inter alia, the rights and duties of all state institutions, establishments, and enterprises participating in the management of state-owned enterprises and the requirements for managing state-owned enterprises (Items 1 and 2 of the Description).

In the preamble to this resolution, it is noted that this resolution has been adopted in accordance with Item 5 of Article 22 of the Law on the Government (wording of 28 April 1998), under which the Government, pursuant to laws, disposes of state property and establishes the procedure for the management and use thereof, and in accordance with Article 191 (wording of 18 July 2006) of the Law (wording of 23 May 2002), which provides that the property and non-property rights of the state and municipalities are exercised in public establishments, joint-stock companies, closed-type joint-stock companies and any other forms of legal subjects in accordance with the procedure established by the Government.

2. Item 4 of the government resolution of 6 June 2012, the compliance of which with the Constitution is under investigation in the constitutional justice case, prescribes:

The Government shall resolve: <...>

4. To establish that cash going to the state:

4.1. shall be, in the event of the liquidation of state-owned companies whose shares belonging to the state are managed by trust by the State Social Insurance Fund Board, transferred to the budget of the State Social Insurance Fund;

4.2. shall be transferred by state-owned enterprises, not specified in Item 4.1 of this resolution, to the state budget of the Republic of Lithuania;

4.3. assets not specified in Items 4.1 and 4.2 of this resolution shall be transferred to the state enterprise State Property Fund, unless otherwise provided by the laws of the Republic of Lithuania or the resolutions of the Government of the Republic of Lithuania.”

Thus, the impugned Item 4 of the government resolution of 6 June 2012 has regulated to which subject cash going to the state is transferred in the event of the liquidation of state-owned companies and other state-owned enterprises, as well as to which subject all other property going to the state is transferred. Under Item 4 of the government resolution of 6 June 2012, in the event of the liquidation of state-owned enterprises, except for state-owned companies whose shares belonging to the state were managed by trust by the State Social Insurance Fund Board, cash going to the state is transferred to the state budget, while, in the event of the liquidation of state-owned companies whose shares belonging to the state were managed by trust by the State Social Insurance Fund Board, the aforesaid cash is transferred to the budget of the State Social Insurance Fund; both in the event of the liquidation of state-owned companies whose shares belonging to the state were managed by trust by the State Social Insurance Fund Board and in the event of the liquidation of other state-owned enterprises, all other assets going to the state are transferred to the state enterprise State Property Fund.

It should be noted that, under Item 4.3 of the government resolution of 6 June 2012, the legislature may, by means of a law, or the Government may, by means of a resolution, establish a legal regulation other than that under which the remaining assets that go to the state after the liquidation of state-owned enterprises are transferred to the state enterprise State Property Fund.

3. When deciding on the constitutionality of the impugned legal regulation in the constitutional justice case at issue, it is important to disclose the content of the concepts used in the impugned provisions.

Under Item 3 of the Description, as approved by the government resolution of 6 June 2012, “a state-owned enterprise” means a state enterprise or a state-owned company.

A state enterprise” means an enterprise that has been established from state property or has been transferred to the state in accordance with the procedure established by law and belongs to the state by right of ownership (Paragraph 1 of Article 2 of the Law on State and Municipal Enterprises (wording of 16 December 2003)).

A state-owned company” means a joint-stock company or a closed-type joint-stock company whose shares or part of shares carrying more than 1/2 of all votes at a general meeting of the shareholders of this company belong to the state by right of ownership (Item 3 of the Description).

Consequently, state-owned enterprises are classed as enterprises that have been established from state property or have been transferred to the state and belong to the state by right of ownership, i.e. state enterprises as well as joint-stock companies or closed-type joint-stock companies whose shares (part of shares carrying more than 1/2 of all votes at a general meeting of the shareholders of this company) belong to the state by right of ownership.

4. In the context of the constitutional justice case at issue, the provisions of legal acts regulating the relations associated with the management, use, and disposal of state-owned property, as well as the provisions of other legal acts related to the impugned regulation, are also of relevance.

4.1. Under Article 2 of the Law on the Management, Use and Disposal of State and Municipal Property (wording of 25 March 2014), “the management of property” means the right to exercise a physical and economic influence over property in accordance with the procedure established by law, “the use of property” means the application of useful characteristics of property to meet the needs of the user, and “the disposal of property” means the right to sell or otherwise convey as well as lease, mortgage or change in any other way the legal status of property. Under Article 10 of the Law (wording of 25 March 2014), state property is transferred in order to manage, use, and dispose of it by trust in accordance with the procedure established by the Government, unless otherwise provided by law; state property is managed, used, and disposed of by trust by the manager of centrally managed state property, state institutions, the Bank of Lithuania, state enterprises, establishments, and organisations (Paragraphs 1 and 2).

When construing the impugned Item 4 of the government resolution of 6 June 2012 in conjunction with the said provisions of the Law (wording of 25 March 2014), it should be noted that the said item does not stipulate how cash and other property that remain after the liquidation of state-owned enterprises and go to the state should be managed (i.e. a physical and economic influence should be exercised over them) and used (applied to meet the needs of the user). The norm consolidated in this item should be related to the legal regulation governing the right to dispose of property; however, under the provision impugned by the petitioner, the implementation of this right does not imply any change of the owner of property, any restriction on the right to property or any essential (significant) change of the legal status of such property.

4.2. Under Paragraph 15 of Article 2 and Paragraphs 2 and 3 (wording of 17 October 2012) of Article 3 of the Republic of Lithuania’s Law on the Structure of the Budget of the State Social Insurance Fund (wording of 14 November 2008), the budget revenue of the State Social Insurance Fund consists of, inter alia, revenues from the assets entered in the accounts of this Fund (i.e. material, non-material, and financial values belonging to the state by right of ownership that have been acquired from the funds of the Fund or received from other subjects free of charge) and the revenues of the establishments administering this Fund that are not directly related to social insurance (interests, dividends, the part of revenues to be received after selling tangible fixed assets that exceeds its residual value, etc.). In other words, under the said legal regulation, the revenues received, inter alia, from the state-owned companies the shares of which belonging to the state are managed by trust by the State Social Insurance Fund Board, form part of the budget revenue of the State Social Insurance Fund.

It should also be noted that the assets entered in the accounts of the State Social Insurance Fund is state property that is managed, used, and disposed of, inter alia, by the Board of this Fund (Paragraph 2 (wording of 25 June 2013) of Article 19 of the Republic of Lithuania’s Law on State Social Insurance (wording of 4 November 2004)).

When construing the impugned provision of Item 4.1 of the government resolution of 6 June 2012, which has regulated to which subject cash going to the state is transferred in the event of the liquidation of state-owned companies whose shares belonging to the state were managed by trust by the State Social Insurance Fund Board, in conjunction with the aforesaid provisions of the Law on the Structure of the Budget of the State Social Insurance Fund (wording of 14 November 2008), it should be noted that the impugned provision of Item 4.1 of the government resolution of 6 June 2012 does not establish any legal regulation other than that established in the law: both the revenues from state-owned companies whose shares belonging to the state were managed by trust by the State Social Insurance Fund Board and the cash going to the state in the event of the liquidation of such companies are transferred to the budget of this Fund.

4.3. It has been mentioned that Item 4.3 of the government resolution of 6 June 2012 prescribes that, in the event of the liquidation of state-owned companies whose shares belonging to the state were managed by trust by the State Social Insurance Fund Board and in the event of the liquidation of other state-owned enterprises, all property going to the state, except for cash, is transferred to the state enterprise State Property Fund, unless otherwise provided by the laws of the Republic of Lithuania or government resolutions. It should be noted that the said provision regulates to which subject property going to the state, except for cash going to the state, is transferred in the event of the liquidation of all state-owned companies—state enterprises and joint-stock companies or closed-type joint-stock companies—whose shares (part of shares carrying more than 1/2 of all votes at a general meeting of the shareholders of this company) belong to the state by right of ownership.

4.3.1. Paragraph 10 of Article 24 (wording of 17 July 2014) of the Law on State and Municipal Enterprises (wording of 16 December 2003), inter alia, provides that, after all the requirements of the creditors of a state enterprise in liquidation are satisfied, the remaining assets are transferred to the institution implementing the rights and duties of the owner of the state enterprise, unless the Government resolves otherwise.

Thus, by means of the said provision of Paragraph 10 of Article 24 (wording of 17 July 2014) of the Law on State and Municipal Enterprises (wording of 16 December 2003), the legislature has provided that the Government may resolve that, after all the requirements of the creditors of a state enterprise in liquidation are satisfied, the remaining assets are also transferred to another subject, which is not the institution implementing the rights and duties of the owner of the state enterprise.

When construing Item 4.3 of the government resolution of 6 June 2012 in conjunction with Item 10 of Article 24 (wording of 17 July 2014) of the Law on State and Municipal Enterprises (wording of 16 December 2003), it should be noted that the Government, when establishing the legal regulation in Item 4.3 of its resolution of 6 June 2012, exercised its powers, conferred on it by the legislature, to stipulate to which subject the assets, except for cash, of a state enterprise in liquidation that remain after satisfying all the requirements of creditors are transferred: it laid down that such assets are transferred to the state enterprise State Property Fund rather than to the institution implementing the rights and duties of the owner of the state enterprise.

4.3.2. The provisions of the Law on Companies (wording of 11 December 2003) regulate the property rights of joint-stock companies or closed-type joint-stock companies.

Under Item 6 of Paragraph 1 of Article 15 (wording of 15 May 2008) and Paragraph 13 of Article 73 of the said law, shareholders have the right to receive part of the assets of a company in liquidation; after the creditors of the company in liquidation are paid, the remaining assets of the company in liquidation are distributed among the shareholders in proportion to the nominal value of shares belonging to them by right of ownership; any subsequently discovered assets of the company are distributed in the same manner.

Thus, after the liquidation of a joint-stock company or a closed-type joint-stock company whose shares (part of shares carrying more than 1/2 of all votes at a general meeting of the shareholders of this company) belonged to the state by right of ownership, the remaining assets proportionate to the nominal value of the shares held by the state go to the state.

4.3.3. In this context, it should be noted that, under Article 12 of the Republic of Lithuania’s Law on the Manager of Centrally Managed State Property, adopted on 20 March 2014, the state enterprise State Property Fund has been reorganised, by way of merger, and affiliated to the state enterprise Bank of Property; the manager of centrally managed state property is the enterprise operating after the reorganisation, to which all the rights and duties and all the state property managed by trust on 30 September 2014 of the state enterprise State Property Fund under reorganisation have been transferred. One of the purposes of setting up this company is to implement the centralised management of state-owned real estate (Paragraph 4 of Article 3). The rights of the owner of the said company are implemented by the Government (Paragraph 2 of Article 3). As mentioned before, under Paragraph 2 of Article 10 of the Law (wording of 25 March 2014), the manager of centrally managed state property manages, uses, and disposes of state property by trust.

Thus, when construing the impugned provision of Item 4.3 of the government resolution of 6 June 2012 in conjunction with the aforesaid provisions of the Law on the Manager of Centrally Managed State Property, it should be noted that assets, except for cash, going to the state in the event of the liquidation of state-owned enterprises are transferred to the state enterprise that centrally manages all the real estate belonging to the state, unless otherwise provided by the laws of the Republic of Lithuania or government resolutions.

5. It has been mentioned that, in the constitutional justice case at issue, the Constitutional Court investigates the compliance of the provisions of Item 4 of the government resolution of 6 June 2012 with Paragraph 2 of Article 128 of the Constitution and the constitutional principle of a state under the rule of law.

6. Paragraph 2 of Article 128 of the Constitution provides that the procedure for the possession, use, and disposal of state property is established by law.

6.1. While construing the said provision, the Constitutional Court has held that it means that the legislature is entrusted with the regulation of issues concerning the activities of state enterprises, the management of shares held by the state in joint-stock companies and other issues related to the management, use, and disposal of state property; the legislature may choose legal instruments for this regulation to the extent not contrary to the Constitution; the stipulation of how to regulate the management, use, or disposal of state property is a right of the legislature that is consolidated in the Constitution and only the Constitution defines the limits of this right (the Constitutional Court’s ruling of 24 January 1996). The Constitutional Court has also held that “relations which arise when managing, using, and disposing of state property must be regulated only by law” (the Constitutional Court’s ruling of 24 January 1996), that “it is only the legislature that may establish the form of using state funds” (the Constitutional Court’s ruling of 28 February 1996) and that “it is only the legislature that may establish the manner of, and the conditions for, disposing of state property <...>” (the Constitutional Court’s ruling of 22 October 1996). The competence of the Government in this area is defined by law (the Constitutional Court’s ruling of 17 June 1997). Thus, the provision “the procedure for the possession, use and disposal of state property shall be established by law” of Paragraph 2 of Article 128 of the Constitution gives rise to the duty of the legislature to establish by law all the key elements of the management, use, and disposal of state property (the Constitutional Court’s ruling of 23 August 2005).

6.2. It should be noted that the said provisions of the official constitutional doctrine may not be construed as meaning that purportedly all the relations of the management, use, and disposal of property belonging to the state by right of ownership must be regulated only by law—the Government and other law-making subjects may also regulate, within their competence, these relations by means of substatutory legal acts that are based on a law and do not compete with it. However, under Paragraph 2 of Article 128 of the Constitution, only the legislature may establish the key elements of the content of the rights to manage, use, and dispose of state property.

7. As it has been held on more than one occasion, the duty of the Government to adopt substatutory acts that are necessary for the implementation of laws stems from the Constitution, while in case there is a commissioning by the legislature to do so, it also stems from laws (inter alia, the Constitutional Court’s rulings of 30 October 2001, 31 May 2006, and 9 June 2011). It is important that the Government adopts substatutory legal acts without exceeding its powers and that these legal acts are not in conflict with the Constitution and laws (the Constitutional Court’s rulings of 18 December 2001, 13 August 2007, and 24 October 2012); if a legal regulation established in government resolutions competed with that established in laws or if it were not based on laws, the constitutional principle of a state under the rule of law and Item 2 of Article 94 of the Constitution, under which the Government, inter alia, executes laws and Seimas resolutions on the implementation of laws, would be violated (inter alia, the Constitutional Court’s rulings of 31 May 2006 and 13 August 2007).

8. The doubts of the petitioner about the compliance of the impugned legal regulation with Paragraph 2 of Article 128 of the Constitution and the constitutional principle of a state under the rule of law are based on the fact that the Government, when stipulating, in Item 4 of its resolution of 6 June 2012, when and how cash and other state property go from state-owned enterprises in liquidation to state institutions, regulated, according to the petitioner, the relations the regulation of which is assigned to the legislature—the procedure for the management, use, and disposal of state property that is established in Item 4 of the government resolution of 6 June 2012 may be established only by law.

9. When deciding whether the provisions of Item 4 of the government resolution of 6 June 2012 are not in conflict with the Constitution, it should be noted that, as mentioned before:

when construing the provision of Paragraph 2 of Article 128 of the Constitution, according to which the procedure for the possession, use, and disposal of state property is established by law, the Constitutional Court held that it means that only the legislature may establish the form of using state funds as well as the methods and conditions for disposing of state property; these provisions do not mean that the Government may not, within its competence, regulate the relations of the management, use, and disposal of property belonging to the state by right of ownership by means of substatutory legal acts that are based on a law and do not compete with it; under the Constitution, the Government has the duty to adopt substatutory acts that are necessary for the implementation of laws;

the provisions of Paragraph 2 of Article 128 of the Constitution give rise to the duty of the legislature to establish by law all the key elements of the content of the rights to manage, use, and dispose of state property.

9.1. It has been mentioned that Item 4 of the government resolution of 6 June 2012 prescribes that, in the event of the liquidation of state-owned enterprises, except for state-owned companies whose shares belonging to the state were managed by trust by the State Social Insurance Fund Board, cash going to the state is transferred to the state budget, while, in the event of the liquidation of state-owned companies whose shares belonging to the state were managed by trust by the State Social Insurance Fund Board, the aforesaid cash is transferred to the budget of the State Social Insurance Fund; both in the event of the liquidation of state-owned companies whose shares belonging to the state were managed by trust by the State Social Insurance Fund Board and in the event of the liquidation of other state-owned enterprises, all other assets going to the state are transferred, unless otherwise provided by the laws of the Republic of Lithuania or government resolutions, to the state enterprise State Property Fund, which has subsequently been reorganised into the state enterprise Bank of Property centrally managing all the property belonging to the state. It has also been mentioned that the said item does not stipulate how funds and other assets remaining after the liquidation of state-owned enterprises should be managed and used, while, under the impugned provision, the implementation of the right to dispose of state property does not imply any change of the owner of property, any restriction on the right to property, or any essential (significant) change of the legal status of such property.

9.2. Thus, the Government has not regulated, by means of Item 4 of its resolution of 6 June 2012, the management or use of state property and has not established any key elements of the content of the rights to dispose of state property, which, under Paragraph 2 of Article 128 of the Constitution, may be established only by law.

On the contrary, the impugned legal regulation has prescribed that, in the event of the liquidation of all state-owned enterprises—both those for the setting up (acquisition) of which state property was used and those whose shares (part of shares carrying more than 1/2 of all votes at a general meeting of the shareholders of this company) were managed by the state—the assets going to the state remain within the ownership of the state without defining their form of use, the methods and conditions for their disposal: cash that goes to the state and that was, inter alia, used for setting up (acquiring) a state enterprise or for acquiring the shares of a relevant joint-stock company or a closed-type joint-stock company is returned, in the event of the liquidation of a state-owned enterprise, to the state budget (in the event of the liquidation of companies whose shares belonging to the state were managed by trust by the State Social Insurance Fund Board, it is transferred to the budget of the said Fund (it has been mentioned that the assets entered in the accounts of the State Social Insurance Fund are state property)), while all other remaining assets, unless otherwise provided by the laws of the Republic of Lithuania or government resolutions, are transferred to the manager of centrally managed state property that manages, uses, and disposes of property under the ownership of the state by trust, in accordance with the procedure established by law; thus, the owner of property belonging to the state does not change—it remains the state.

9.3. Consequently, Item 4 of the government resolution of 6 June 2012 does not establish any key elements of the content of the rights to manage, use, and dispose of state property that, under the Constitution, may be established only by the legislature. When establishing the impugned legal regulation, the Government did not exceed its powers to regulate, by means of substatutory legal acts, the relations of the management, use, and disposal of property belonging to the state by right of ownership and did not establish any legal regulation that would compete with that established in laws; therefore, there is no ground for stating that Paragraph 2 of Article 128 of the Constitution and the constitutional principle of a state under the rule of law have been violated.

10. In the light of the foregoing arguments, the conclusion should be drawn that Item 4 of the government resolution of 6 June 2012 is not in conflict with Paragraph 2 of Article 128 of the Constitution and the constitutional principle of a state under the rule of law.

11. It should be noted that, in accordance with the provision of Item 4.3 of the government resolution of 6 June 2012—the Government may, by means of a resolution, establish a legal regulation other than that under which the assets remaining after the liquidation of state enterprises are transferred to the state enterprise State Property Fund—as provided for in the impugned Item 4.3 of the government resolution of 6 June 2012, however, the Government may not, under the Constitution, inter alia, Paragraph 2 of Article 128 thereof, and the constitutional principle of a state under the rule of law, establish such a legal regulation that would not be based on a law or compete with it, inter alia, that would establish the key elements of the content of the rights to manage, use, or dispose of state property, as well as the methods and conditions for disposing of state property.

II

On the compliance of Item 54 of the Description, as approved by the government resolution of 6 June 2012, with the Law on the Management, Use and Disposal of State and Municipal Property

1. The group of members of the Seimas, the petitioner, impugns, inter alia, the compliance of Item 54 of the Description, insofar as it prescribes that, under the conditions specified in this item, the manager of shares has the right to make decisions on granting a proxy to vote in favour of increasing the authorised capital of a state-owned company through additional contributions when shares carrying more than 1/2 of all votes belong to the state by right of ownership, with Paragraph 2 (wording of 21 July 2009) of Article 19 of the Law (wording of 23 May 2002).

1.1. Paragraph 2 (wording of 21 July 2009) of Article 19 of the Law (wording of 23 May 2002), inter alia, prescribed: “A decision on the investment of assets belonging to the state by right of ownership shall be adopted by the Government. <...> Prior to adopting an appropriate decision, it must be economically and socially substantiated. <...>”

On 25 March 2014, the Seimas adopted the Republic of Lithuania’s Law Amending the Law on the Management, Use and Disposal of State and Municipal Property (No. VIII-729), which came into force on 1 October 2014 and by means of which it set forth the Law (wording of 23 May 2002) in its new wording.

Paragraph 2 of Article 22 of the Law (wording of 25 March 2014), inter alia, prescribes: “A decision on the investment of assets belonging to the state by right of ownership shall be adopted by the Government. <...> Prior to adopting an appropriate decision, a subject putting forward an investment proposal must economically and socially substantiate that proposal. <...>”

The comparison of the legal regulation established in Paragraph 2 of Article 22 of the Law (wording of 25 March 2014) with that established in Paragraph 2 (wording of 21 July 2009) of Article 19 of the Law (wording of 23 May 2002) makes it clear that, after the Law (wording of 23 May 2002) has been set forth in its new wording, the legal regulation, in respect of the compliance of which the provisions of Item 54 of the Description are impugned in the constitutional justice case at issue, is established in Paragraph 2 of Article 22 of the Law (wording of 25 March 2014).

1.2. It should also be noted that, on 15 October 2014, the Government adopted the Resolution (No. 1101) “On Amending the Resolution of the Government of the Republic of Lithuania (No. 665) ‘On the Approval of the Description of the Procedure for the Implementation of the Property and Non-property Rights of the State in State-owned Enterprises’ of 6 June 2012”, which came into force on 1 January 2015. Items 1.4 and 1.5 of the said resolution have accordingly amended Item 54 (54.1 and 54.2), impugned by the petitioner, of the Description by setting forth the amounts referred to therein in euro. The legal regulation has remained unchanged in the aspect impugned by the petitioner.

1.3. Thus, in the constitutional justice case at issue, the Constitutional Court will investigate the compliance of Item 54 (wording of 15 October 2014), to the extent impugned by the petitioner, of the Description with Paragraph 2 of Article 22 of the Law (wording of 25 March 2014).

2. Item 54 (wording of 15 October 2014) of the Description, which is in Chapter XV of the Description that regulates the implementation of the property and non-property rights of the state as a shareholder in state-owned companies, prescribes:

54. The manager of shares has the right to make decisions on granting a proxy to vote on the items (referred to in Item 53 of the Description) of the agenda of a general meeting of the shareholders of a state-owned company, provided that at least two indicators of a state-owned company are below the following values:

54.1. authorised capital is 145 thousand (one hundred forty five thousand) euro;

54.2. annual net income from sales is 145 thousand (one hundred forty five thousand) euro;

54.3. annual average number of employees is 50.”

Thus, under Item 54 (wording of 15 October 2014) of the Description, the manager of the shares of relatively small state-owned companies (that meet two of the three criteria referred to above: to have authorised capital of less than 145 thousand euro, to have less than 145 thousand euro of annual net income from sales and to have on average fewer than 50 employees per year) has the right to make a decision on granting a proxy to vote on the issues referred to in Item 53 of the Description.

3. Item 53 of the Description, to which a reference is made in the legal regulation impugned by the petitioner, prescribes:

53. Only in accordance with resolutions adopted by the Government on a specific state-owned company, the manager of shares may grant a proxy to vote:

53.1. in favour of increasing the authorised capital of a state-owned company through additional contributions when shares carrying more than 1/2 of all votes belong to the state by right of ownership;

53.2. on the following items of the agenda, provided that shares carry at least 2/3 of all votes:

53.2.1. to liquidate a state-owned company if bankruptcy proceedings have not been opened against it;

53.2.2. to cancel the liquidation of a state-owned company if a decision to liquidate the state-owned company has been made by a general meeting of shareholders;

53.2.3. to reorganise a state-owned company, having specified the method of reorganisation, or to carry out the procedures of separation with regard to such a state-owned company;

53.2.4. to restructure a state-owned company, having specified the legal form of a legal person into which the state-owned company will be restructured.”

Thus, Item 53 of the Description prescribes that the manager of shares may grant a proxy to vote, inter alia, on increasing the authorised capital of a state-owned company through additional contributions when shares carrying more than 1/2 of all votes belong to the state by right of ownership (Item 53.1), only in accordance with resolutions adopted by the Government on a specific state-owned company.

4. When construing the legal regulation established in Item 54 (wording of 15 October 2014) of the Description in conjunction with Item 53 of the Description, it should be noted that Item 54 (wording of 15 October 2014) of the Description prescribes that the manager of the shares (a state institution authorised, by means of a government resolution, to manage a relevant company) of a relatively small, according to size or the extent of the activities undertaken, state-owned company (i.e. that meets two of the three criteria referred to in Item 54 of the Description: to have authorised capital of less than 145 thousand euro, to have less than 145 thousand euro of annual net income from sales, and to have on average fewer than 50 employees per year) has the right to make a decision on a proxy to vote at a general meeting of shareholders in favour of increasing the authorised capital of a state-owned company through additional contributions, i.e. on the issue provided for in Item 53.1 of the Description, i.e. in this case it is not necessary that the Government adopts a resolution on the said issue. This means that the manager of the shares of a state-owned company and not the Government has the right to make a decision on the increase of the authorised capital of such a state-owned company through additional contributions.

5. Article 22 (in respect of the compliance of the provisions of Paragraph 2 of which Item 54 (wording of 15 October 2014) of the Description is impugned by the petitioner) of the Law (wording of 25 March 2014) regulates the investment of state and municipal assets. Item 2 of Paragraph 1 of the said article prescribes, inter alia, that the investment of state assets means the transfer, as a contribution, of assets belonging to the state by right of ownership, inter alia, by means of increasing the authorised capital of a joint-stock company or a closed-type joint-stock company where the state is a participant therein.

It has been mentioned that Paragraph 2 of Article 22 of the Law (wording of 25 March 2014), inter alia, prescribes:

2. A decision on the investment of assets belonging to the state by right of ownership shall be adopted by the Government. <...> Prior to adopting an appropriate decision, a subject putting forward an investment proposal must economically and socially substantiate that proposal. <...>”

Thus, Paragraph 2 of Article 22 of the Law (wording of 25 March 2014) expressis verbis consolidates the subject that has the right to adopt a decision on the investment of assets belonging to the state—it is the Government.

When construing Paragraph 2 of Article 22 of the Law (wording of 25 March 2014) in conjunction with Item 2 of Paragraph 1 of the said article, it should be noted that a decision on the investment, through additional contributions, of assets belonging to the state, by increasing the authorised capital of a joint-stock company or a closed-type joint-stock company, may be adopted by the Government.

6. The doubts of the petitioner about the lawfulness of the impugned legal regulation are based on the fact that a decision on a proxy to vote in favour of increasing the authorised capital of a state-owned enterprise through additional contributions is related to the investment of state assets, while a decision on the investment of assets belonging to the state by right of ownership should be adopted by the Government. Thus, the provisions of the Description, as approved by the government resolution, establish a legal regulation other than that consolidated in the Law.

7. When deciding on the compliance of Item 54 (wording of 15 October 2014) of the Description, insofar as it is impugned by the petitioner, with the provision of Paragraph 2 of Article 22 of the Law (wording of 25 March 2014), according to which a decision on the investment of assets belonging to the state by right of ownership is adopted by the Government, it should be noted that the Constitutional Court has held that, under Paragraph 2 of Article 128 of the Constitution, the investment of state assets must be based on a law that must consolidate the following: the criteria and conditions for investing state assets as well as the subjects that have the right to adopt decisions on the investment of state assets (the Constitutional Court’s rulings of 30 September 2003, 8 July 2005, 23 November 2007, and 2 March 2009); however, the fact that the criteria and conditions for investing state assets as well as the subjects that have the right to adopt decisions on the investment of state assets must be established only by law does not mean that the Government and other law-making subjects may not, within their competence, also regulate the relations of state property by means of substatutory legal acts (for example, to establish the arrangements and procedures for investing state assets) that are based on a law and do not compete with it (the Constitutional Court’s ruling of 2 March 2009). The Constitutional Court has also held on more than one occasion that, under the Constitution, the Government, when passing legal acts, must follow the existing laws; legal acts adopted by the Government may not establish any legal regulation that would compete with that established in laws; if a legal regulation established in government resolutions competed with that established in laws or it were not based on laws, the constitutional principle of a state under the rule of law, which implies the hierarchy of legal acts, as well as Item 2 of Article 94 of the Constitution, under which the Government executes, inter alia, laws, would be violated (the Constitutional Court’s rulings of 23 May 2007, 6 November 2013, and 11 December 2013).

7.1. It has been mentioned that, under Paragraph 2 of Article 22 of the Law (wording of 25 March 2014), a decision on the investment, through additional contributions, of assets belonging to the state, by increasing the authorised capital of a joint-stock company or a closed-type joint-stock company, is adopted by the Government.

It has also been mentioned that Item 54 (wording of 15 October 2014) of the Description prescribes that the manager of the shares (a state institution authorised, by means of a government resolution, to manage a relevant company) of a relatively small, according to size or the extent of the activities undertaken, state-owned company (i.e. that meets two of the three criteria referred to in Item 54 of the Description: to have authorised capital of less than 145 thousand euro, to have less than 145 thousand euro of annual net income from sales, and to have on average fewer than 50 employees per year) has the right to make a decision on a proxy to vote at a general meeting of shareholders in favour of increasing the authorised capital of a state-owned company through additional contributions, i.e. on the issue referred to in Item 53.1 of the Description, i.e. in this case it is not necessary that the Government adopts a resolution on the said issue; this means that the manager of the shares of a state-owned company and not the Government has the right to make a decision on the increase of the authorised capital of such a state-owned company through additional contributions.

It has also been mentioned that the investment of state assets means the transfer, as a contribution, of assets belonging to the state by right of ownership, inter alia, by means of increasing the authorised capital of a joint-stock company or a closed-type joint-stock company where the state is a participant therein.

7.2. Consequently, the Government, after establishing, in Item 54 (wording of 15 October 2014) of the Description, a subject, having the right to make decisions on the investment of state assets, other than that provided for in Paragraph 2 of Article 22 of the Law (wording of 25 March 2014), has established a legal regulation other than that established in Paragraph 2 of Article 22 of the Law (wording of 25 March 2014).

7.3. Thus, the Government, after establishing, in Item 54 (wording of 15 October 2014) of the Description, that a subject other than that provided for in a law has the right to make a decision on the investment of state assets, has failed to follow the requirement, stemming from Paragraph 2 of Article 128 of the Constitution, to establish, by means of substatutory legal acts, such a legal regulation governing the investment of state assets that would be based on a law consolidating, inter alia, the subjects that have the right to make decisions on the investment of state assets, and failed to follow the requirement, stemming from Item 2 of Article 94 of the Constitution and the constitutional principle of a state under the rule of law, not to establish such a legal regulation that would either compete with that established in laws or would not be based on them.

8. In the light of the foregoing arguments, the conclusion should be drawn that Item 54 (wording of 15 October 2014) of the Description, as approved by the government resolution of 6 June 2012, insofar as the said item prescribes that the manager of shares has the right to make decisions on granting a proxy to vote in favour of increasing the authorised capital of a state-owned company through additional contributions when shares carrying more than 1/2 of all votes belong to the state by right of ownership, provided that at least two indicators of a state-owned company are below the values referred to in the same item, is in conflict with Item 2 of Article 94 and Paragraph 2 of Article 128 of the Constitution, the constitutional principle of a state under rule of law, and the provision of Paragraph 2 of Article 22 of the Law on the Management, Use and Disposal of State and Municipal Property (wording of 25 March 2014), according to which a decision on the investment of assets belonging to the state by right of ownership is adopted by the Government.

Conforming to Articles 102 and 105 of the Constitution of the Republic of Lithuania and Articles 1, 53, 531, 54, 55, and 56 of the Law on the Constitutional Court of the Republic of Lithuania, the Constitutional Court of the Republic of Lithuania gives the following

ruling:

1. To recognise that Item 4 of the Resolution of the Government of the Republic of Lithuania (No. 665) “On the Approval of the Description of the Procedure for the Implementation of the Property and Non-property Rights of the State in State-owned Enterprises” of 6 June 2012 (Official Gazette Valstybės žinios, 2012, No. 67-3394) is not in conflict with the Constitution of the Republic of Lithuania.

2. To recognise that Item 54 (wording of 15 October 2014; the Register of Legal Acts, 2014, No. 2014-14317) of the Description of the Procedure for the Implementation of the Property and Non-property Rights of the State in State-owned Enterprises, as approved by the Resolution of the Government of the Republic of Lithuania (No. 665) “On the Approval of the Description of the Procedure for the Implementation of the Property and Non-property Rights of the State in State-owned Enterprises” of 6 June 2012 (Official Gazette Valstybės žinios, 2012, No. 67-3394), insofar as the said item prescribes that the manager of shares has the right to make decisions on granting a proxy to vote in favour of increasing the authorised capital of a state-owned company through additional contributions when shares carrying more than 1/2 of all votes belong to the state by right of ownership, provided that at least two indicators of a state-owned company are below the values referred to in the same item, is in conflict with Item 2 of Article 94 and Paragraph 2 of Article 128 of the Constitution of the Republic of Lithuania, the constitutional principle of a state under rule of law, and the provision of Paragraph 2 of Article 22 of the Republic of Lithuania’s Law on the Management, Use and Disposal of State and Municipal Property (wording of 25 March 2014), according to which a decision on the investment of assets belonging to the state is adopted by the Government.

This ruling of the Constitutional Court is final and not subject to appeal.

Justices of the Constitutional Court:      Elvyra Baltutytė

                                                                           Vytautas Greičius

                                                                           Danutė Jočienė

                                                                           Gediminas Mesonis

                                                                           Vytas Milius

                                                                           Egidijus Šileikis

                                                                           Algirdas Taminskas

                                                                           Dainius Žalimas