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A GUIDE TO HIRING AND FIRING IN ESTONIA, LATVIA AND LITHUANIA Recently SORAINEN contributed to A Guide to Hiring and Firing in Europe by writing guides for ESTONIA, LATVIA and LITHUANIA. The guides will lead you through the maze of hiring and firing procedures in the Baltics starting from recruitment practice and processes and an overview of key terms and legal requirements of employment contracts, and ending with guidelines for action prior to firing as well as individual and group terminations.
ALL THREE “BALTIC LAW FIRM OF THE YEAR 2014” AWARDS GO TO SORAINEN For the first time all three main international legal awards in the Baltics go to one law firm – SORAINEN. The firm stood out Europe-wide by winning all three national awards this year:
More information available here. SORAINEN 2ND IN CEE REGION BY NUMBER OF M&A TRANSACTIONS ADVISED In June, Mergermarket published its preliminary M&A league tables of legal advisers for the first half of 2014. In the Central and Eastern Europe (CEE) region league table according to the volume of announced transactions SORAINEN was placed second with ten M&A transactions advised.
The Europe-wide league table was topped by Freshfields Bruckhaus Deringer who in H1 2014 advised 80 M&A transactions with a total value of approx EUR 154 million. *Mergermarket, part of the Financial Times Group, provides M&A transaction information and intelligence tracking on M&A deals with a value exceeding USD 5 million (approx EUR 3.7 million) or involving target companies with an annual turnover above USD 10 million (approx EUR 7.3 million).
RECENT TRANSACTIONS
For other recent transactions please click here.
ESTONIA: OPERATING LICENSING EASED On 1 July 2014, the General Part of the Economic Activities Act (GPEAA) will enter into force. The GPEAA will significantly amend the procedure and requirements for starting economic activities, eg:
The whole procedure necessary for starting economic activities, including applying for activity licence, takes place via electronical database www.eesti.ee.
ESTONIA: ISSUE OF ELECTRONIC ID BY FOREIGNER TO BE SIMPLIFIED Estonian information society strategies present the possibility for non-resident foreigners to apply for Estonian digital ID with a simplified process in the future. Therefore, foreigners who merely have business activities in Estonia can use the E-State services of Estonia without applying for the Estonian ID-card (E-residency). Currently there is no specific timeline announced as to when this service will be made available. The possibility to provide digital ID for non-resident foreigners would help to overcome the problems with the use of digital signature cross borders – the lack of mutual recognition of digital signatures between different countries. For example, the Estonian Digital Signatures Act prescribes more stringent requirements for digital signatures than the EU Directive 1999/93/EC currently in force. Therefore not all foreign digital signatures are regarded equal to the Estonian digital signature. Certificates of some countries have been recognised in Estonia, but in practice problems may arise foremost in Estonian courts or in communication with state agencies. The problem should be solved in upcoming years when a new regulation will be adopted by the European Union which obliges the Member States to recognise digital signatures mutually.
LATVIA: MORE OPTIONS FOR PROFIT DISTRIBUTION Recent amendments to the Latvian Commercial Law effective from 1 July 2014 allow companies to pay dividends from the profits of the current year, ie to pay extraordinary dividends. A company may pay extraordinary dividends if a profit is made in the current year. Not all profit from the current year may be paid out as dividends. The law sets a limit of 85% on how much profit the management board may suggest for distribution for the period of extraordinary dividends. In contrast to use of profit from previous years, where the shareholders’ meeting has rather wide discretion as to the amount that can be paid out as dividends, in the case of extraordinary dividends the shareholders’ meeting may not decide to pay out a larger amount of profit than suggested by the management board. In order to distribute extraordinary dividends, the company must first add to its articles of association the extraordinary dividend mechanism, ie criteria which the management board must meet so as to convene the shareholders’ meeting for deciding on extraordinary dividends. As with all changes to the articles, these amendments must be registered with the Commercial Register. In order to decide on extraordinary dividends the management board must prepare a financial report for the period to be covered by the particular extraordinary dividend. The report must be prepared in line with the general rules for preparation of the annual report. The report is valid for three months after the period for which the particular financial report has been drafted, and if the shareholders wish to distribute extraordinary dividends they need to hold the shareholders’ meeting while that report is still valid (ie within the three month deadline). When suggesting how much profit is to be distributed as a dividend the management board must confirm that payment of the extraordinary dividend does not put the company in a situation where it might not be able to fulfil its obligations to the end of the financial year. Additionally, the management board must confirm that the company’s financial standing has not worsened from the moment of preparing the financial report for the extraordinary dividend period until the day the shareholders’ meeting decides on payment of extraordinary dividends. If the management board confirms this, the shareholders’ meeting can decide on distribution of extraordinary dividends, if:
To sum up, an extraordinary dividend is a new way for making payouts to shareholders to supplement the existing mechanism for annual dividend payment under the Commercial Law. To access extraordinary dividends, the shareholders and the company management board need to comply with certain requirements as described above and to arrange for the extraordinary dividend mechanism to be added to the articles of association. Failure to observe these requirements may lead to payments intended as extraordinary dividends being treated as an unjustified payment to the shareholders, with consequent tax implications for the company.
LATVIA: EXTENSIVE AMENDMENTS PLANNED TO LATVIAN LABOUR LAW On 5 June 2014, the Latvian Parliament passed amendments to the Latvian Labour Law at the second reading. The amendments aim to improve the current version of the Labour Law in line with suggestions from employers’ organisations and trade unions as well as to reflect existing court practice. This means that it cannot be said that the changes will be of more benefit to employees or employers but rather that the amendments will help deal with some situations not regulated by the Labour Law or which in practice have caused many disputes. Some important changes will affect many employees and employers. For example, the Labour Law will now clearly state that in cases of termination of employment an employee will be entitled to compensation for the whole period of unused annual paid leave. According to current court practice, an employee can claim compensation for unused annual paid leave up to a maximum of one and a half years. In addition, the procedure for calculating an employee’s average earnings will now change (average earnings need to be calculated, eg, in cases involving compensation for the period of annual paid leave or severance pay). At this stage it seems that employers have not managed to introduce an amendment limiting situations when the employer needs consent from the trade union in order to terminate an employment contract where the employee is a trade union member. However, some changes on compensation for overtime work (currently overtime involves payment in double) may still appear before the amendments are finally adopted at the third reading in autumn 2014.
LITHUANIA: TEST OF JOINT REPRESENTATION (“DOUBLE-SIGNATURE”) RULE IN LITHUANIAN COURT PRACTICE The Lithuanian courts have recently tested the validity of the joint representation (“double-signature”) rule. Though the majority of Lithuanian companies are represented and legally bound by a single person (CEO or managing director), some companies opt for a joint representation rule instead. Under this rule the company is represented jointly by a CEO and a board member, or by a CEO and a procura holder. The rule is absolute and applies to all company transactions, even if the value is rather insignificant. To tackle this practical inconvenience, these companies sometimes issue a power of attorney allowing the CEO to execute insignificant transactions alone. This situation was recently brought to the attention of the Lithuanian courts. A company operating the joint representation rule tried to contest the validity of an agreement by the managing director acting solely on the basis of a power of attorney. According to the company, the agreement violated the joint representation rule and was therefore invalid. The Court of Appeal took the view that the joint representation rule in this case was not violated since the power of attorney had been issued in line with the joint representation rule, ie signed by the managing director and one board member. The court also noted that the board had approved the power of attorney and knew about the agreement concluded under it. In addition, the court commented that issuing this type of power of attorney was a common practice in the company and the managing director had entered into a number of agreements on behalf of the company using such a power of attorney.
LITHUANIA: COURTS HAVE A SAY ON THE IMPORTANCE OF LEGAL DUE DILIGENCE Recent court practice in Lithuania highlights the importance of legal and other due diligence. The facts were that two natural persons acquired shares in a Lithuanian limited liability company from a corporate seller on the basis of a share purchase agreement. After a while the buyers decided to unilaterally terminate the agreement, claiming that their detailed analysis of company affairs showed that the seller had supplied inaccurate and incomplete information about the company. The seller opposed this and filed a court claim challenging illegal termination of the share purchase agreement. The Court of Appeal took the view that the buyers as careful and attentive persons should have established the actual situation of the company, its contracts, financial standing and so on before acquiring the company. The court established that the seller supplied the buyers with all necessary company documents for review before execution of the agreement. This enabled the buyers to check all information about the company and perform legal due diligence. The Court of Appeal noted that the buyers had every possibility to check the documents necessary to assess the standing of the company. Failure to perform due diligence before executing the share purchase agreement meant that the buyers accepted all related risks. This is not the first time in Lithuanian court practice that the courts have emphasized the duty of care and attention on the buyer’s side. This means that buyers should not rely solely on representations and warranties by sellers in share transactions but instead should carry out a legal due diligence as a must-have part of each share purchase transaction under Lithuanian law.
BELARUS: NEW INVESTMENT LEGISLATION Two new Belarusian laws, one on investments, the other on concessions, came into force in January 2014, replacing the Belarus Investment Code. The main novelties under the Law on Investments include, eg:
The part of the old Investment Code devoted to concessions is now replaced by the Law on Concessions. The Law on Concessions aims to achieve more concession agreements in Belarus by more specific regulation and terminology. The changes include a more detailed procedure for selecting a party to a concession agreement and establishing the obligations and rights of parties to the agreement.
The regional heads of the SORAINEN Corporate and M&A Team are Algirdas Pekšys and Toomas Prangli. |
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You have received this e-mail with the SORAINEN news because you are in the SORAINEN database. Please note that SORAINEN legal updates are compiled for general information only, free of obligation and free of legal responsibility and liability. They do not cover all laws or reflect all changes in legislation, nor are the explanations provided exhaustive. Therefore, we recommend that you contact SORAINEN or your legal or tax adviser for further information. Electronic versions of SORAINEN legal updates and newsflashes are available on the SORAINEN website – www.sorainen.com. © SORAINEN 2014 |