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M&A and CorporateRegulatory & Competition
Mantas Gofmanas, TGS Baltic Senior Associate
On 18 September 2017, a new version of the Rules for Accounting of Financial Instruments and their Circulation (the “Rules”) came into effect. The Rules finally cancelled an excessive requirement, according to which, in case of transfer of shares in public limited liability companies (UAB), in excess of the limits provided for in Article 1.74 of the Civil Code of the Republic of Lithuania (the “Civil Code”), but having no intention to make a notarised transaction, it was required not only to transfer management of shareholders’ personal securities accounts to an account manager, but also to register UAB shares with Nasdaq CSD SE (formerly, AB Lietuvos centrinis vertybinių popierių depozitoriumas (the Central Securities Depository of Lithuania)). After adoption of the Rules, only the mandatory requirement to transfer management of shareholders’ personal securities accounts to an account manager has been left.
As you may know, from 1 January 2015 agreements of sale and purchase of shares in UAB must be notarised when 25 percent or more shares in UAB are sold or the share sale price is more than EUR 14,500, save for cases when shareholders’ personal securities accounts are managed under the procedure set by legal acts regulating the securities market.
After this requirement came into effect, the market participants had questions how precisely shares in UAB had to be accounted in order that the form of the share sale and purchase transaction would be eligible to the said exception. In order to manage any related risks, also after competent authorities presented their explanations, the official position was that in this case it was necessary not only to transfer management of shareholders’ personal securities accounts to an account manager, but also to register shares with Nasdaq CSD SE (i.e. to perform 2-level share accounting as in case of public limited liability companies).
On the other hand, the requirement to register UAB shares also with Nasdaq CSD SE was obviously excessive and transfer of accounting of UAB shares to account managers was to suffice solely by the reason that they are regulated and supervised by the Bank of Lithuania, and conduction of share sale and purchase transactions through account managers (equally as their notarisation) fully ensured and ensures achievement of aims of amending the said provision of the Civil Code, i.e. to restrict possibilities for fictitious conduction of share transfer transactions and create obstacles for spreading of various criminal acts against property, property rights and interests and related criminal schemes. It is also important that Nasdaq CSD SE does not to any extent participate in performance of and control over share transfer transactions and registration of the title to shares – it basically only registers issues of the companies’ securities. Thus, in order to make use of the above-discussed exception, there was no purpose in share accounting to additionally require that shares be registered with the depository.
The new Rules inter alia establish that if accounts of UAB financial instruments are transferred for management by an account manager, shares of such companies can be entered only into accounts of the lower level accounting of financial instruments (in other words, it is enough to transfer accounting to an account manager) or both of the top level and the lower level accounting of financial instruments (in other words, both can be done: accounting can be transferred to an account manager and shares can be registered with Nasdaq CSD SE). This provision also applies in cases when accounts of UAB financial instruments are transferred for management by an account manager according to provisions of Article 1.74 of the Civil Code and Article 41 of the Law on Companies.
In other words, from now on, private limited liability companies will be able to choose themselves whether, in case of exceeding the above-indicated share transfer limits and seeking not to conduct a notarised transaction, they will transfer share accounting to an account manager or will additionally register shares with Nasdaq CSD SE. Thus, the Rules have finally annulled an excessive requirement for business, which unreasonably appeared due to expansive interpretation of legal acts. These amendments will also allow to reduce expenses of private limited liability companies also by the reason that they will no longer be required to register shares with Nasdaq CSD SE.
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