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On the initial privatisation of state property

Case No. 7/95

 THE CONSTITUTIONAL COURT OF
THE REPUBLIC OF LITHUANIA

R U L I N G

On the compliance of the norms of Paragraph 1 of Article 10 and Paragraph 1 of Article 50 of the Republic of Lithuania’s Company Law and the provisions of Paragraph 2 of Article 2 and Paragraph 6 of Article 14 of the Republic of Lithuania’s Law on the Initial Privatisation 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 court reporter—Daiva Pitrėnaitė

Seimas members Kęstutis Skrebys and Gediminas Vagnorius, acting as the representatives of a group of members of the Seimas of the Republic of Lithuania, the petitioner

Alfonsas Vileita, an adviser of the Seimas Committee of State and Law, acting as the representative of the Seimas, the party concerned

The Constitutional Court of the Republic of Lithuania, pursuant to Paragraph 1 of Article 102 of the Constitution of the Republic of Lithuania and Paragraph 1 of Article 1 of the Law on Constitutional Court of the Republic of Lithuania, in its public hearing, on 4 January 1996, considered 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 an investigation into whether the norms of Paragraph 1 of Article 10 and Paragraph 1 of Article 50 of the Republic of Lithuania’s Company Law, as well as the provisions of Paragraph 2 of Article 2 and Paragraph 6 of Article 14 of the Republic of Lithuania’s Law on the 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 the Republic of Lithuania’s Company Law on 5 July 1994 (Official Gazette Valstybės žinios, 1994, Nos. 55-1046, 102-2050; 1995, No. 41-993), the Supreme Council of the Republic of Lithuania adopted the Republic of Lithuania’s Law on the Initial Privatisation of State Property on 28 October 1991 (Official Gazette Valstybės žinios, 1991, No. 10-261, together with subsequent amendments). In the laws of 20 July 1994 some articles of the Law on the Initial Privatisation of State Property, including those impugned by the petitioner, were amended (Official Gazette Valstybės žinios, 1994, Nos. 58-1137, 59-1159).

The petitioner requests an investigation into whether the norm of Paragraph 1 of Article 10 of the Company Law “Reorganisation is transformation of a Company as a legal person without liquidation procedure”, the norm of Paragraph 1 of 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 Paragraph 2 of Article 2 of the Law on the Initial Privatisation of State Property which provides that “companies, which are included either in the list of the objects, which are subject to privatisation 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 Paragraph 6 of Article 14, which provides that the shares of private joint stock companies which are disposed of by the state authority and governance institutions shall be sold by announcing a close subscription for shares, are not in conflict with Articles 29 and 128 of the Constitution.

II

The petitioner grounds his request on following arguments.

  1. The impugned norms of the Company Law do not insist that companies undergoing reorganisation be established legally, i.e. that the company until reorganisation be founded pursuant to the Company Law that was earlier in force, 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 privatised according to the procedure established by the Law on the Initial Privatisation of State Property, as well as other legal acts, regulating privatisation of state property. On the contrary, the provision of Paragraph 1 of 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 legalise the unlawful rewriting of state and state stock enterprises (without privatisation procedure, nor any official sale and purchase or other type of negotiation transaction, thus violating the Law on the Initial Privatisation of State Property, as well as then in force Law on State Enterprises) into private companies, as such companies are already entitled to reorganisation and to ostensibly lawfully register themselves according to the new Company Law.
  2. In the impugned provision of Paragraph 2 of Article 2 of the Law on the Initial Privatisation 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. This 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 (municipality) by right of ownership, and which are not included into the list of objects subject to privatisation for hard currency, or into the list of special purpose state enterprises, from increasing the share capital which exceeds 30 or even 50% of the authorised capital of the enterprise. Thus, the privatisation of a state or public share enterprise without making any sale and purchase or other type of negotiation transaction is legalised. This violates the provision of “enterprises may be subject to further privatisation only in the case that they have undergone privatisation pursuant to the Republic of Lithuania’s Law on the Initial Privatisation of State Property” of Paragraph 1 of Article 2 of the Law on the Initial Privatisation of State Property. In addition, privatisation institutions are circumvented, i.e. the enterprise is not privatised by means of sale and purchase, or by voucher, or by money payments.

Not only does the Law on the Initial Privatisation of State Property ban to privatise 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 doing so, in Paragraph 4 of 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 privatised (it could not change its status into that of private enterprise) according to the Law on State Enterprises. Therefore, such privatisation of enterprises, which changed their status from a state stock enterprise into that of a joint-stock (private) company by evading the Law on the Initial Privatisation of State Property was, and is, illegal, as the Law on the Initial Privatisation of State Property, as well as the Law on State Enterprises were violated, because these laws prohibit the privatisation of state property in such a 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 Privatisation of State Property, as only on the grounds of the latter law every state enterprise or any other state property may be privatised, and citizens may acquire the property of state enterprise only subsequent to the procedure prescribed by this law.

  1. The impugned provision of Paragraph 6 of Article 14 of the Law on the Initial Privatisation 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 legalises the arbitrary privatisation of state enterprises by evading the Law on the Initial Privatisation of State Property and by violating the then in force Law on State Enterprises.

As could be seen in document No. 1-05-1470 of the Department of National Audit, 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 privatised only pursuant to the Law on the Initial Privatisation of State Property, i.e. by means of public subscription for shares, and never into private joint-stock companies. 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 allowed to privatise state property by closed manner as established by Article 20 of the aforesaid law, and also the publishing houses of periodicals (newspapers and magazines) after the list had been supplemented by the Resolution of the Seimas of the Republic of Lithuania ‘On Supplementing Item 8 of the Resolution of the Supreme Council of the Republic of Lithuania “On the Entry into Force of the Republic of Lithuania’s Law on the Initial Privatisation of State Property”’” of 17 February 1994. Thus, most joint-stock companies and private joint-stock companies, which have some state property share the same origin, but by further privatising the aforesaid state property—the shares disposed of by state authority and governance 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 closed 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 impugned provisions are in compliance with the Constitution. In Paragraph 1 of Article 10 of the Company Law only the notion of the enterprise reorganisation was established, it does not regulate any privileges, limitations, or other matters concerning the management, utilisation, or disposal of state property. Paragraph 1 of Article 50 has no such provisions either, in which the stipulation to amend their Articles of Association according with the Company Law and that of the specified time during which it has to be done are indicated. The impugned provisions of Articles 2 and 14 of the Law on the Initial Privatisation 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 limitations 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 the judicial investigation, Gediminas Vagnorius, a representative of the petitioner, explained that, according to the data of the privatisation offices, 32.9% of state property which had been planned to privatise in the initial stage of the privatisation, was privatised. 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 Privatisation of State Property provided for the privatisation for vouchers of two thirds of the property subject to privatisation, and that for money—of one third. According to the Government data, 72% of the property which was provided for in the programme of initial privatisation, have been privatised. But these numbers cannot differ to such a degree. Such conflict of the data indicates what share of state property is transferred without any sale and purchase transaction. The greater part of the property provided for in the programme of initial privatisation has been transferred to other owners, i.e. it has been privatised 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 privatisation, as the remaining property is being privatised at present as well, without making any sale and purchase transaction. In the opinion of the petitioner, the collectives of enterprises who took part in the privatisation of state property are innocent because laws and government resolutions created diverse circumstances to make use of them, and the state authority institutions and 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 privatisation 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 the Company Law are in conformity with the Constitution and the laws. But the most important problem, which led to question the aforesaid articles, is that the requirements set forth in them are not complete, e.g. as to the reorganisation: the aforementioned articles do not contain provisions as to what shares or capital is recognised legally or illegally acquired. If an enterprise belonged to the state, and later on it was reregistered as a company after particular laws had been changed, therefore, in the opinion of the petitioner, the said articles should have prescribed as to on what basis, by means of what type of sale and purchase agreement, and by which substatutory act governing privatisation, the reorganisation of the state enterprise into a company was allowed. 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 the Initial Privatisation of State Property and acquired shares when participating in open subscription for shares (through privatisation 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 privatisation programmes had the opportunity to acquire shares the price of which was a great many times less than their real price. Thus, there appears the inequality that is forbidden by Article 29 of the Constitution which provides that all persons 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 the Company Law, as well as the Law on the Initial Privatisation of State Property, cannot be agreed with. In the opinion of the petitioner, this is 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., privatisation is conducted incorrectly on the basis of the Law on State Enterprises, but this law does not regulate the process of privatisation. 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 privatisation process. In this case everyone had to base himself on the Law on the Initial Privatisation of State Property, but not on 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, the assigning of some part of the profit to increase the capital was allowed. But the Law on State Enterprises, as well as government resolutions, in principle prohibited the accumulation of such an authorised share capital that it exceeded state capital. After Article 2 of the Law on the Initial Privatisation of State Property was supplemented with Paragraph 2, which had not been in the said law before, conditions were created for the enterprise to change its owner without any sale and purchase transaction. The petitioner, therefore, proposes that Paragraph 2 of Article 2 of this law be abrogated so that the Government would not, by using this Paragraph as a cover, as well as by treating it freely, be able to apply the laws in various manner.

  1. According to the interpretation of Kęstutis Skrebys, a representative of the petitioner, the provision of Paragraph 1 of Article 10 of the Company Law, stipulating that “Reorganisation is transformation of a Company as a legal person without the liquidation procedure”, does not necessitate that enterprises, which are under reorganisation, be legally established, i.e. that the enterprise be established according to the requirements of the 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 privatised pursuant to the procedure established by the Law on the Initial Privatisation of State Property and other legal acts regulating the privatisation of state property. The petitioner concedes that thereby conditions are created to legalise the reregistration of state and state stock enterprises into private joint-stock companies without any privatisation, nor with any sale and purchase or any other negotiation transaction making official, thus violating the Law on the Initial Privatisation 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.
  2. In the opinion of Alfonsas Vileita, a representative of the party concerned, Paragraph 1 of Article 10 and Paragraph 1 of Article 50 of the Company Law which are impugned by the petitioner have nothing in common with what has been and is going on in the field of privatisation. The Company Law regulates the activities of every company, no matter how and by what manner they were established. Paragraph 1 of the impugned Article 10 contains the notion of reorganisation. Only existing joint-stock companies are subject to reorganisation. The need to reorganise 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. Reorganisation may also be obligatory in the case that the Service for Prices and Competition requires to do so. From the economic point of view, it would be far-fetched to prohibit the reorganisation of companies. This Article, therefore, formally is in compliance with Article 29, as well as Article 128, of the Constitution.

Paragraph 1 of Article 50 contains the second impugned norm. Not only does this norm is formally in compliance with the Constitution, but it is essentially indispensable. The legislature 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 Paragraph 1 of Article 11 of the Company Law that a company may be liquidated by the decision of the court on the grounds of violations of law established by means of laws of the Republic of Lithuania. But this is not to be linked with either reregistration or reorganisation. 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 the Initial Privatisation of State Property, which as if contradicts Articles 29 and 128 of the Constitution, is, in its essence, in compliance with the Constitution. Such a norm has existed before, formulated a little differently though, and it was not impugned. The petitioner argues that enterprises are being acquired without any sale and purchase. If enterprises are being acquired without any sale and purchase, then this is not a matter of the investigation by 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 privatisation acts were being adopted, there existed one goal, viz., to privatise property. The said Law on Privatisation also provided for privatisation.

Thus, in the opinion of the representative of the party concerned, Paragraph 1 of Article 10 and Paragraph 1 of Article 50 are in compliance with the Constitution. When estimating the amendment of Paragraph 2 of Article 2 of the Law on the Initial Privatisation of State Property, it could be said that there exist some exceptions for certain enterprises which are to be sold for hard currency. The legislature 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 the Initial Privatisation of State Property provides for the manner of initial privatisation. It contains an indication that state stock companies and state enterprises which possess share capital shall be privatised 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 privatised by close subscription for shares. The representative of the party concerned asserts that the impugned provision of this Article is in compliance with the Constitution.

The Constitutional Court

holds that:

  1. When re-establishing 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 economic 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 Paragraph 1 of 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 economic policy trends of the restored Republic of Lithuania has become privatisation of property. As far back as in 1990, the laws were passed which provided for the opportunity to establish in diverse manner enterprises which possess private capital (the Law on Enterprises, the Company Law, the Law on Partnerships, etc.) or for state enterprises to accumulate private (share) capital (the Law on State Enterprises, etc.).

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 authorised 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 reorganised 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 Resolution of the Supreme Council “On the Procedure for the Entry into Force of the Law on Partnerships and for Reregistration of Other Types of Enterprises” of 16 October 1990).

In the aforesaid legal acts the attempt of the legislature to pursue economic reform by increasing the share and the role of private property in national economy is evident. This may be seen from the Resolution of the Supreme Council “On the Procedure for the Entry into Force of the Republic of Lithuania’s Law on State Enterprises” of 25 September 1990. Item 3 of the said resolution provides that the Government must prepare and submit a draft programme of denationalisation 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 must be transferred to municipalities. The same resolution (Item 4) prohibited the commence of purchase, selling out, or privatisation of state capital (property) in any other manner until the entry into force of the law which regulates denationalisation.

However, already on 4 December 1990 Provisional Law “On the 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 privatisation programme”. Therefore, with some exceptions, the forming of share capital from the contributions of employees by privatising up to 10% of state capital goods (funds) which have been accumulated in the enterprise, was allowed in Article 1 of this law for state enterprises (state stock enterprises or state co-operative enterprises).

Thus, before the adoption of the Law on the Initial Privatisation of State Property, a prerequisite was created in other laws to allow state enterprises to issue shares (to collect contributions) or to privatise 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 a prohibition on distributing the property of state enterprises, collective farms and state farms by using shares (the Resolution of the Supreme Council “On Economic Reform in Lithuania” of 26 July 1990 etc.), whereas some others consolidated the opportunity by accumulating private capital to change the type of the enterprise by reorganising 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 the Initial Privatisation of State Property was passed on 28 February 1991. In its Article 2 it is consolidated that a state enterprise shall be privatised only once, and further privatisation is possible only in the case that it has been already privatised according to the Law on the Initial Privatisation of State Property. The prohibition on privatising state enterprises, offices and other state property otherwise than it was prescribed in the said law was consolidated in the Resolution of the Supreme Council “On the Entry into Force of the Republic of Lithuania’s Law on the Initial Privatisation of State Property” of 14 March 1991 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 privatise 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 (Paragraph 6 of Article 4 of the Law on State Enterprises). At the same time there was no prohibition against increasing private share capital from its profit (from the reserve funds of the share capital and those of profit—Paragraph 1 of Article 31 of the Law on State Enterprises). Thus, the legal conditions were created to increase share (private) capital without privatising (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 reorganise 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 the Company Law in its activities.

  1. Property is the right to possessions. This means that the owner has the right to exert any influence on his property unhindered, providing that this does not violate the law, an appropriate contract, or the rights of the third party, as well as to prohibit other persons against exerting any such influence. 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.

Paragraph 3 of 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 the functions of state authority, or the executive-and-order functions, or other generally important functions, or the fact that such property belongs to the state may be connected with the significance of the relevant objects of the right of property.

Paragraph 2 of 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 must be regulated only according to the law. Therefore, the norms of substatutory acts may never contradict the law.

In the view of questions which are under investigation in this case, the requirement of Paragraph 3 of Article 46 of the Constitution whereby the state is to regulate economic activity so that “it serves the general welfare of the nation” is also relevant. Thus, state property must be managed so that there were no contradictions to this constitutional provision.

  1. Article 29 consolidates the principle of the equality of all persons before the law, the court, and other State institutions and officials. This principle must be observed when passing and applying laws, as well as administering justice. This principle obligates one to apply a uniform legal assessment to homogeneous facts and prohibits against any arbitrary assessment of essentially homogeneous facts.

In Paragraph 2 of 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 society or for the aspiration of humanism, takes into consideration the differences of social status of persons, in itself it does not mean 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 should not be allowed.

The arguments raised by the petitioner will be assessed while considering this reasoning.

  1. On the compliance of the norms of Paragraph 1 of Article 10 and Paragraph 1 of Article 50 of the Company Law with the Constitution.

The petitioner argues that the norm of Paragraph 1 of Article 10 of the Company Law “Reorganisation is transformation of a Company as a legal person without liquidation procedure”, and the norm of Paragraph 1 of 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 the equality of persons is placed in Chapter II of the Constitution entitled “The Human Being and the State”. This chapter establishes universally recognised human rights and main freedoms, as well as the principles of their implementation and protection. The norms of this chapter are the guarantee of innate and other constituted rights and freedoms. This is especially evident in the sphere of ownership protection.

Paragraph 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 Paragraph 2 of 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. This means, therefore, that the legislature is commissioned to regulate the questions concerning the privatisation of state property, the activity of state enterprises, control over 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 impugned norms of Articles 10 and 50 of the Company Law contradict the Constitution because they do not contain provision that enterprises which undergo reorganisation must be established legally, otherwise conditions are created to legalise the illegal rewriting of state enterprises, as well as state stock enterprises into private companies.

The impugned norm of Paragraph 1 of Article 10 of the 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 reorganisation 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 the same law). Another type of law, the one regulating the activity of state and municipal enterprises, contains an analogous norm (Article 19 of the Republic of Lithuania’s Law on State and Municipal Enterprises of 21 December 1994).

Article 37 of the Civil Code indicates that reorganisation is one of the fundamentals of coming to an end of the existence of legal person. Meanwhile, the Company Law defines reorganisation 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 reorganised. The impugned norm does not establish any limitations or privileges concerning the procedure of reorganisation, 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 impugned norm of Article 10 of the Company Law the company is entitled to undergo reorganisation providing it was established pursuant to the Company Law that was earlier in force, or it was reorganised 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 impugned norm of Paragraph 1 of Article 50 of the 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 law provide for any privileges or discrimination with respect to individual persons or any provisions concerning managing, utilising or disposing of state property.

The impugned norms regulate neither company establishment, nor privatisation 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 privatisation of state property is a matter of investigation in a particular civil or any other legal case.

Taking into consideration the aforesaid arguments, the conclusion should be made that the norm of Paragraph 1 of Article 10 of the Company Law “Reorganisation is transformation of a Company as a legal person without liquidation procedure”, as well as the norm of Paragraph 1 of 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.

  1. On the compliance of the provision of Paragraph 2 of Article 2 of the Law on the Initial Privatisation of State Property with the Constitution.

Paragraph 2 of Article 2 of the Law on the Initial Privatisation of State Property contains the provision that companies, which are included either in the list of the objects, which are subject to privatisation 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 (municipality) by right of ownership, and which are not included into the list of objects subject to privatisation for hard currency, or into the list of special purpose state companies, are allowed 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 the Initial Privatisation of State Property, the privatisation of state or state stock enterprise without making any sale and purchase or other type of negotiation transaction is legalised. The petitioner asserts that the impugned norm whereby certain limitations on the process of privatisation are established only for the enterprises subject to privatisation 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 the Initial Privatisation of State Property. This notion is further specified in Article 5 of the 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 authority or governance must account to at least 70% of votes.

According to Paragraph 2 of Article 7 of the Law on the Initial Privatisation of State Property, the list of objects subject to privatisation solely for hard currency shall be approved by the Central Commission for Privatisation (according to the 4 July 1995 Law on Privatisation of State and Municipal Property—the Commission for Privatisation). As a rule, these are the enterprises which may attract foreign investments by the character of their activity or other specific features.

As a rule, the activity of these and the other objects alike has the significance of greater importance in the functioning of the national economy, in fulfilling universally important functions (postal and telegraph service, energy supply, etc.), therefore, the conditions established by 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. The conditions of privatisation of certain objects as established in Paragraph 2 of Article 2 of the Law on the Initial Privatisation of State Property are equally applied to all persons who take part in the process of privatisation. 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 impugned provision does not provide for the same or similar conditions of privatisation in respect to some other enterprises subject to privatisation 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 legislature 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 privatised by evading the Law on the Initial Privatisation 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 at the Constitutional Court, and not that of the compliance of a legal norm with the Constitution. Were it established that state property was privatised 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).

In addition, attention should 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 the 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 particularising the powers of an authorised person, as well as his responsibility in case the property authorised to him should be lost.

Taking all this into account, the conclusion should be drawn that the norm of Paragraph 2 of Article 2 of the Law on the Initial Privatisation of State Property which provides that “companies, which are included either in the list of the objects, which are subject to privatisation 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.

  1. On the compliance of the provision of Paragraph 6 of Article 14 of the Law on Initial privatisation of State Property with the Constitution.

Paragraph 6 of Article 14 of the Law on the Initial Privatisation of State Property regulates the procedure of the selling of shares disposed of by state authority and governance institutions. This Paragraph provides that such shares which belong to private companies shall be sold by announcing a 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 privatisation objects of the corresponding profile, as indicated in the Law on the Initial Privatisation of State Property). By further privatising state property which is held in the aforesaid enterprises, the employees of private joint-stock companies are placed at advantageous conditions for acquiring 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 re-register 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, the 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 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 reorganised into a private joint-stock company according to the Law on State Enterprises may be privatised by purchasing state capital which is held in it. The types of privatisation are provided for in Paragraph 1 of Article 14 of the Law on the Initial Privatisation of State Property. The opportunity to set up close auctions and announce a close subscription for shares is also provided in the aforesaid Paragraph (Subitem “a”, Item 4). By the way, the aforementioned norm is not impugned 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 the now in force Company Law, prohibited any public offering of shares for sale in cases of the founding of a private company and issuing of additional shares. Therefore, the privatisation 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 aforesaid arguments, the conclusion is to be drawn that the norm “the shares of private companies which are disposed of by state authority and governance institutions shall be sold by announcing a close subscription for shares” of Paragraph 6 of Article 14 of the Law on the Initial Privatisation of State Property 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 gives the following

ruling:

  1. To recognise that the norm of Paragraph 1 of Article 10 of the Company Law “Reorganisation is transformation of a Company as a legal person without liquidation procedure”, and the norm of Paragraph 1 of 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 recognise that the provision of Paragraph 2 of Article 2 of the Law on the Initial Privatisation of State Property which stipulates: “companies, which are included either in the list of the objects, which are subject to privatisation 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 recognise that the norm of Paragraph 6 of Article 14 of the Law on the Initial Privatisation of State Property which provides that “the shares of companies which are disposed of by state authority and governance institutions shall be sold by announcing a close subscription for shares” is in compliance with the Constitution of the Republic of Lithuania.

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

The ruling is pronounced in the name of the Republic of Lithuania.

Justices of the Constitutional Court:

 Algirdas Gailiūnas                           Kęstutis Lapinskas                           Zigmas Levickis

 Vladas Pavilonis                              Pranas Vytautas Rasimavičius         Stasys Stačiokas

 Teodora Staugaitienė                       Stasys Šedbaras                               Juozas Žilys