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Newsletter 2010 Summer

  • Lithuania

    17-08-2010

    Financial Law

    The amendments to the laws regulating financial sector have been adopted

    On 19 June 2010 amendments and supplements to the Law on Markets in Financial Instruments and to the Law on Collective Investment Undertakings (hereinafter – CIU) have entered into force.

    These amendments mainly focused on the extension and elaboration of the rights of supervisory authority – the Securities Commission (hereinafter – SC).

    In the Law on Markets in Financial Instruments the SC right to obtain records of telephone conversations and data transfer information was changed into much broader right to obtain information about subscribers and users of electronic communications services, related data flow and content of information transmitted. The list of enterprises where the SC can carry out inspections was also detailed. The rights of the SC have been expanded allowing the SC to inspect notes of employees of the inspected companies and copy data from computers and other information storages. Amendments to the Law on CIU expanded the rights of the SC in carrying out inspections unifying them with the rights provided in the Law on Markets in Financial Instruments.

    In addition to the rights concerning investigation, the list of obligations which
    the SC may impose on supervised entities is expanded. In the Law on Markets in Financial Instruments the SC, when the infringement is found, is granted a right to oblige a person to restore the situation that existed before such infringement. Also, in order to prevent the occurrence of substantial damage, the SC upon authorization by a court, may oblige entities to terminate their activities till the end of the investigation of infringement. Such right of the SC is also provided in the Law on CIU. From now on, the period for which the SC may temporarily suspend the trading or admission of financial instruments to trading is unlimited. The right to challenge suchactions of SC in court is regulated as well. In addition, the SC is granted a right to establish specific requirements on limiting operational risk for specific entities of markets in financial instruments, including management companies and investment companies.

    Major changes are also made in regard to sanctions imposed by the SC. A new sanction is introduced – an obligation to the financial brokerage firm, management company or investment company to change the manager, the imposition procedure of pecuniary penalties and other sanctions is unified. The list of aggravating circumstances is extended including deliberate infringement and non-cooperation with the SC. The amount of penalties applied by the SC according to the Law on Markets in Financial Instruments in most cases increased from 100 thousand Litas to 200 thousand Litas, the amount of penalties applicable under the Law on CIU was detailed and the application of the provision stating that if the infringement brought a benefit or made damage for a higher amount than the indicated penalty, the SC can impose a penalty amounting up to the double of the illegally received income or damage incurred, was extended. Circumstances under which the SC has a right not to impose sanctions for minor infringements were also regulated.

    These amendments to the Laws are also significant because they further develop the safeguards of fairness and legitimacy in the financial instruments’O markets. The definition of the head of a financial brokerage firm, management company and investment company was narrowed and now it involves only the person whose nomination must be coordinated with the SC in advance. Accordingly, the requirements for good reputation and experience will be applied only for them. A requirement for a good reputation was adapted for legal persons as well indicating that their management body members and controlling persons must be of good repute. Market protection from the use of inside information was also expanded by prohibiting, with a few exceptions, the issuer's managers and related parties to enter into transactions on financial instruments during the period from the end of reporting year till the day of publication of results.

    Also, both amendments to the Laws transpose to the Lithuanian law the provisions of MIFID Directive (2004/39/EC) related with the multilateral trading system. Requirements applied for the trade in such systems are established, the right of collective investment undertakings to place their units and invest in the multilateral trading system is regulated.

    Other amendments to the Law on Markets in Financial Instruments and the Law on CIU further detailed requirements applied to financial advisor company, Central Depository, the operator of a regulated market, developed principles of accounting of financial instruments, improved other provisions.

    The Law on Securities has been amended

    As from 22 June 2010 the Law on amendments and supplements to the Law on Securities came into force.

    The Law amends the concept of mandatory bid. The threshold of votes beyond which persons have an obligation to make a mandatory bid was reduced from 40 percent to 1/3 of votes. A "fair price" requirement is introduced into a price establishment procedure of a mandatory bid which must be followed when applying other price establishment principles.

    When establishing price it is also required to consider transactions made in the multilateral trading system. At the same time amendments emphasize that the concept of mandatory bid is applied only in regard to equity securities issuer.

    The amendments to the Law on Securities remove the sanction which suspended the validity of acquired votes for two years for the persons who do not inform about qualifying holdings acquired. From now on, such a suspension can be applied only till the submission of proper notification.

    Further, the rights of the SC are expanded and coordinated with the provisions of the Law on Markets in Financial Instruments. The SC acquires the right to investigate if accounting and financial reporting requirements are complied with, the right to request to change the assessor when establishing the price of mandatory bid and the right to suspend a public bid of securities for 10 days when there is a reasonable suspicion that there is a failure to comply with legal acts or the conditions of the prospectus. The SC investigations shall be made in accordance with the Law on Markets in Financial Instruments. The SC right to impose warnings, administrative penalties or the pecuniary penalties is governed and the amount of penalties applied for different infringements is detailed.Other amendments of the Law on Securities change the reference to the language used in international finance with the reference to the English language and develop other provisions.

    Bankruptcy

    Amendments to the Law on Bankruptcy have been proposed

    On 2 June 2010 the Government of the Republic of Lithuania approved the draft Law amending and supplementing the Enterprise Bankruptcy Law and submitted to Seimas for urgent consideration.

    If Seimas approves the proposed amendments and supplements, the administration of bankruptcy process would be more effective, more bankruptcy procedures could be performed extra-judicially.

    The Draft Law establishes 6 month period during which the contracts of the enterprise in bankruptcy entered into within an at least 36 months period before the institution of bankruptcy proceedings have to be examined. Moreover, instead of current 30-45 days period from the effective date of the court decision within which the creditors shall have the right to file their claims which arose prior to the day of institution of bankruptcy proceedings against the enterprise, the project proposes to establish not longer than 30 days period for those claims to be filled.

    It is proposed to establish that the decision to carry out extra-judicial bankruptcy procedures may be taken by the creditors’ meeting if the decision is voted in favour of by the creditors whose claims in terms of value account for at least 3/4, instead of current 4/5, of the amount of the enterprise's liabilities.

    The Government also proposes other amendments related to public announcement of bankruptcy, provision of bankruptcy administration services, change of administrator, etc.

    Energy

    The amendments to the Law on Heat Sector have been adopted

    On 1 June 2010 Seimas of the Republic of Lithuania has adopted the Law amending the Law on Heat Sector.

    The amendment establishes that heat production pricing which is provided by the Law on Heat Sector is obligatory for all independent heat producers, as well as for other heat suppliers. Till now heat production pricing wasobligatory only ifthe independent heat producer was the only one or if one orseveral independent heat producers produced more than 50 percent of heatin one system of centralised supply of heat.

    However upon reasonable and motivated request by the independent heatproducer, National Control Commission for Prices and Energy has a right to adopt a motivated decision not to apply the obligatory heat production pricing for the independent heat producer. Such decision can be adopted if the independent heat producer or the group of independent heat producers related by control or dependence, in one system of centralised supply of heat produces amount of heat that does not have a significant impact on the finalprice of that system of centralised supply of heat or their activities do nothave an impact or their intentions, if implemented, would not be able to havean impact on economic activity in that system of centralised supply of heat.The amendment has come into force as from 5 June 2010.

    EU Law

    The European Commission proposes amendments to the EU rules on credit rating agencies

    On 2 June 2010 the European Commission submitted amendments to the EU rules on credit rating agencies.

    With the amendments to the rules on credit rating agencies the Commission strives to ensure efficient and centralised supervision of credit rating agencies at European level and increased transparency on the issuers of structured finance instruments.

    According to the proposed amendments, supervision of credit rating agencies registered in the EU would be centralised. The European Securities and Markets Authority would be responsible for it. This institution would have powers to obtain information, to launch investigations, to perform inspections etc. As a result of centralised EU supervision system, rather than national as it is currently, interests of users of ratings would be more efficiently protected.

    Also, if these amendments are adopted, the issuers of structured finance instruments, such as credit institutions, banks and investment firms would also have to provide all other credit rating agencies with access to information they give to their own credit rating agency. Thus all credit rating agencies would have a right to use the same information, therefore would be able to issue unsolicited ratings.

    The Commission's proposal will be considered in the EU Council of Ministers and the European Parliament. If adopted, the new rules would likely come into force in 2011.

    European Commission launches public consultations on reformation of governance in financial institutions

    The European Commission expressed the opinion that weaknesses in governance in financial institutions played a role in the financial crisis. In order to prevent any future financial crisis, the EC committed itself to improve corporate governance in financial institutions – especially issues related with board oversight and control of senior management, risk management, pay structures for directors and traders. Therefore, on 2 June 2010 the European Commission published the Green paper on corporate governance in financial institutions and remuneration policies. Green paper is intended to stimulate thinking and launch consultation which could lead to proposal of a set of concrete measures for Community action.

    In the consultations on corporate governance in financial institutions and remuneration policies the EC submits suggestions and requests of public opinion on improvement of corporate governance in financial institutions. The main questions in the consultation are related to an improvement of the functioning and composition of boards, an establishment of a risk culture at all levels of an institution, an increase of the involvement in corporate governance of shareholders, financial supervisors and external auditors, a preparation of pay policies that discourage excessive risk-taking, etc.

    The European Commission proposes possible means of improving governance in financial institutions, for example, limiting the number of positions on which a director may sit, establishing a specific duty for the board of directors to take into account the interests of depositors and other stakeholders during the decision-making procedure, regulating or even prohibiting the granting of severance packages (so-called “golden parachutes”) for directors, establishing an obligation for institutional investors to disclose voting practices and policies.

    It is possible to express an opinion in the European Commission consultations till 1 September 2010 at the following address:markt-cg-fininst@ ec.europa.eu.

    Amendments to the Capital Requirements Directive to be adopted

    On 7 July 2010 the European Parliament adopted amendments to the Capital Requirements Directive which is applied to credit institutions and investment firms. These amendments are related to bankers’ remuneration and banks’ capital requirements.

    Amendments on remuneration aim to prevent excessive risk taking by linking bonuses to the bank's actual performance. These amendments establish bonus caps for bank staff which has material impact on the bank's risk profile. Amendments state that bonuses shall be proportional to salary. Furthermore, only 30% (20% of large bonuses) of a total upfront bonus could be paid in cash and at least 50% of a bonus being paid will have to be in shares and contingent capital (funds which can be called upon first in case of bank difficulties). A substantial portion of the variable remuneration component, such as 40 to 60 %, should be deferred over for 3-5 years and paid pro rata with a claw back if subdued or negative financial performance of the bank occurs. In case if bank was bailed-out, bonuses could be paid only when reasonably justified.

    Other amendments introduce higher capital requirements for the trading book and also require banks to hold more capital for re-securitisations.

    These amendments are subject to approval by the Council of the EU. If approved these amendments would likely come into force in January 2011 for the bonus provisions and not later than 31 December 2011 for the capital requirements provisions.

    Labour Law

    The amendments and supplements to the Labour Code have been adopted

    As from 1 August 2010 the amendments and supplements to the Labour Code have come into force.

    These amendments and supplements legitimize the remote employment contracts. Such contracts shall include homework and work in other places than the workplace. Moreover, the right to enter into fixed-term employment contract when an employee is hired to a newly established workplace has been introduced in the Labour Code. Such a fixed-term employment contract may be concluded for the period of up to two years but for no longer than until 31 July 2012. Upon continuation of the labour relations under such fixed-term employment contract after 31 July 2012, the employment contact would be considered as an employment contract concluded for indefinite duration.

    The amendments to the Labour Code also legitimize the suspension of works on the initiative of an employee for up to 3 months if the employer does not fulfil his obligations to the employee established by the legal acts, employment contract or collective agreement for more than two months in a row, or does not pay all wages belonging to the employee for more than two months in a row. In such case the employer must pay to the employee the compensation of no less than one minimal monthly salary for every month.

    Until now the employer had a right to apply overtime works only in exceptional cases provided by the Labour Code, however, according to the amendments and supplements, the overtime works may be organised in other cases upon written consent of an employee or written request of an employee.

    By other amendments and supplements to the Labour Code some particular terms of notification about termination of employment contract have been amended, the declaration of branch strikes has been legitimized and the procedure of declaration of strike in an enterprise or its structural subdivision has been amended.

    Restructuring

    The Law on Restructuring of Enterprises has been amended

    On 2 July 2010 the Parliament of the Republic of Lithuania has adopted the Law amending the Law on Restructuring of Enterprises by which the Law on Restructuring of Enterprises was stated in a new wording.

    The amendments establish the possibility to commence the procedure of restructuring of an enterprise not only when the enterprise has financial difficulties but also when there is a realistic probability that the enterprise will face them in the nearest three months.

    Moreover, according to the new wording of the Law, no resolution of the creditors meeting shall be needed for initiation of the restructuring proceedings. The guidelines of enterprise restructuring plan and the resolution of the meeting of the members of an enterprise, owner of an enterprise or institution implementing the rights and duties of state or municipal enterprise shall be enough for initiation of restructuring proceedings.

    By the amendments the number of votes necessary in order to approve the draft restructuring plan by the creditors meeting, has been decreased. In order to get the approval, it shall be necessary that creditors with at least 2/3 (instead of previously established 3/4) of the aggregate amount of claims approved by the court vote for the restructuring plan.

    Other amendments extended the term during which draft restructuring plan must be submitted to the court for approval, established new provisions as regards the sequence of satisfaction of creditors‘ claims, etc.

    The new wording of the Law shall come into force as from 1 October 2010.

    Construction Law

    The Law on Construction has been amended and supplemented

    On 2 July 2010 the Parliament of the Republic of Lithuania has adopted the Law amending and supplementing the Law on Construction.

    The amendments and supplements to the Law regulate in more detail the elimination of consequences of unauthorised construction. The Law provides for a possibility to legitimize unauthorised construction by preparing project documentation and by paying the fee indicated by the Law in such cases when in the land plot, in which the unauthorised construction has been found, the construction of a new building of that particular purpose is allowable or when such works of reconstruction or repair of such building are allowable under valid documents of territorial planning and such construction does not contradict to the mandatory requirements of the legal acts of environment protection, heritage protection, protection of protected areas.

    In order to simplify the construction process, the set of design conditions for a building shall no longer be required. The builders will only have to obtain the conditions for connection to engineering networks and traffic routes and special requirements issued by state institutions if it is intended to build in protected areas or the territories of cultural heritage.

    Moreover, the amendments and supplements simplify the procedures of completion of construction works. From now on upon completion of major repair of a building, change of purpose of a building (premises), renewal (modernisation) of a house of one or two units the construction works will no longer have to be accepted for use. The declaration on completion of construction submitted by the builder shall be enough. For completion of construction of a simple building no procedures at all shall be performed.

    The amendments and supplements also establish the procedure of elimination of consequences of construction works carried under illegal issued document allowing the construction, more precisely define the terms of a building, temporary building, incomplete building, reconstruction of a building and other terms, comprehensively regulate the cases in which then document allowing the construction is required, etc.

    Employees‘ Safety

    The Description of Qualification Requirements for the Specialists of Occupational Safety and Health at Work have been approved

    By implementing the provisions of the Law on Safety and Health at Work, on 15 July 2010 the Minister of Social Protection and Labour of the Republic of Lithuania has approved the Description of Qualification Requirements for the Specialists of Occupational Safety and Health at Work.

    According to this Description not only the persons who acquired the respective education in Lithuania will be able to work as specialists of occupational safety and health at work, but also other persons exercising their right of movement in the Member States granted by the EU legal acts and having the documents issued by the competent authority in their home country confirming their knowledge in the area of occupational safety and health at work.

    The specialists of occupational safety and health at work must be aware of the legal acts regulating occupational safety and health, general principles of evaluation of professional risks and security of occupational safety and health at work, major reasons of accidents at work and professional diseases and the preventive measures. These specialists must be able to consult employers and employees on issues of development of working conditions and working environment and other, to provide first-aid, etc.

    Permits – Hygiene Certificates

    The Rules on Issuance of Permits-Hygiene Certificates have been amended

    On 13 July 2010 the Minister of Health Protection of the Republic of Lithuania has approved the Rules of Issuance of Permits - Hygiene Certificates.

    According to the new Rules, the procedures of issuance of permits – hygiene certificates have been simplified.

    From now on the institution issuing the permits – hygiene certificates does not have a right to ask the applicant to submit the documents, which may be received by the institution issuing the permits- hygiene certificates by itself from other public administration institutions. Therefore, persons, willing to receive the permits – hygiene certificates will no longer have to submit the documents which may be received from the Register of Residents of the Republic of Lithuania, the Register of Real Estate of the Republic of Lithuania, the Register of Legal Entities of the Republic of Lithuania and the Register of Tax Payers. Moreover, from now on all the procedures and formalities related to submission, specification or receipt of documents may be carried in the distance (by mail, fax) or by electronic means through the contact centre.

    Furthermore, these Rules shortens the term from 45 days, as established until now, to 10 days, during which the applicant may submit the missing documents, correct the deficiencies, submit the original documents, etc. in order his application would not be left unexamined. The Rules on Issuance of Permits-Hygiene Certificates also slightly changes other conditions of procedure of issuance of permits-hygiene certificates.

    Case-Law

    The case-law in the cases of construction in the neighbouring land plots has been unified

    On 2 July 2010 the Lithuanian Supreme Court (LAT) has adopted the ruling unifying the case law as regards the buildings built by not keeping thedistances from the neighbouring land plot established by the legal acts and without holding the consent of the owner of the neighbouring land plot. Until now the case-law on this matter was controversial: in some cases the decisions have been adopted that the owner of the neighbouring land plot

    contradicting for construction upon deviating from the distances established by the legal acts does not have to motivate his refusal to give such consent, i.e. to prove that such a construction would cause negative effects for him; in other cases – that such a refusal to give consent must be reasonably motivated and justified, moreover, a person contradicting to the construction must prove that the construction would cause negative effects for him.

    LAT has stated that when the owner of the neighbouring land plot refuses to give consent for construction of a building in the shorter distances from the neighbouring land plot than indicated in the legal acts, such person does not have to motivate the reasons of his refusal and the builder, according to the general rule, can not argue such a refusal. The court has pointed that the legal acts do not provide for a possibility to change such distances by decision of the court. The distances may only be changed by mutual agreement of the owners of the neighbouring land plots.

    Other News

    The major annual business conference in Lithuania Lūžio taškas will be held on 23-24 September this year. The conference, participated by the top business leaders in Lithuania happens to be one of the major business events in the country and summons approximately 200-300 participants from the leading companies in Lithuania.

    For a third year already Eversheds Saladžius has become a sponsor of the conference. This year Eversheds Saladžius is sponsoring kitchen virtuoso chef de cuisine Danny Boom‘s arrival and presentation. We are also proud to inform that one of Eversheds International Limited partners Andrew Symms will be participating at the conference with his presentation.

    Should you wish to register for the conference, please contact Head of Marketing Aušra Jefremovienė at ausra.jefremoviene@evershedssaladzius.lt or call +370 5 239 2391.

    Lina Aleknaitė – Van der Molen has just published a book titled The Prospects of Asset Securitization in Lithuania in the Light of Experiences from the United States of America and Europe. The book is based on the doctoral dissertation of Lina, defended summa cum laude at the Department of Legal Studies, Central European University, Budapest, Hungary. The material covered in the book deals with a sophisticated financing mechanism – asset securitization – which can provide businesses with a better access to lower cost finance. The work explores the experience of the United States and European jurisdictions in trying to make use of this mechanism. Then it analyses Lithuanian legal system and draws important conclusions on what is still missing in such a recently developed jurisdiction like Lithuania to make asset securitization work.

    Assistant to attorney-at-law Gabija Kuncytė delivered a lecture on Protection de la vie privée dans les contrats des marchés publics (Regulations on protection of private life in public procurement agreements). The presentation was delivered in French language during the European Law Summer School, an international project run by Vilnius University Law Faculty, Frankfurt am Main J. W. Goethe (Germany) as well as Paris XNanterre (France) Universities.

    In June Eversheds Saladžius hosted the 7th Baltic Meeting and the first Eversheds Baltic Olympic Games. The Baltic Meeting is a traditional annual meeting of the three Eversheds Baltic law firms Eversheds Ots & Co from Estonia, Eversheds Bitans from Latvia and Eversheds Saladžius from Lithuania. The Baltic Meeting 2010 took place in Druskininkai, a very popular wellness springs resort in Lithuania, most appreciated by Vilnius business community for weekend sorties as being just 1,5 hour drive from Vilnius.

    The first day of the meeting was dedicated to the office updates, legal topics and professional networking while during the second the first Eversheds Baltics Olympic Games were arranged. Three of the Baltic offices contested in various sports: football, basketball, volleyball, tennis, ping-pong, chess, badminton, etc. to receive the Olympic Cup. Latvian team of Eversheds Bitans celebrated the triumph of winning against Estonian and Lithuanian teams. The Olympic Cup was granted on a steamboat, during the evening sortie.

     

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