How can a CEO avoid being held hostage by the company?
The Law on Companies of the Republic of Lithuania (the “Companies Law”) entitles the CEO of a private limited liability company (the compa…
The Law on Companies of the Republic of Lithuania (the “Companies Law”) entitles the CEO of a private limited liability company (the company) to resign from office by submitting a letter of resignation to the company’s corporate body that elected the CEO, i.e., the Board, the Supervisory Board, or the General Meeting of Shareholders.
In practice, situations arise where the body that elected the CEO delays or avoids the approval of resignation, removal of the current CEO and appointment of a new one instead. This situation is considered exceptional, but it may expose the CEO to a number of procedural requirements, and failure to act in a timely manner as required by applicable laws may place the CEO in a complicated situation or expose to liability for improper performance of his/her duties. It often happens that foreign nationals find themselves in this situation without knowing the intricacies of Lithuanian laws and the special status and duties of the CEO laid down in the laws, expecting a simplified procedure for resignation, which is usually in force in their home countries. According to the latest data published by the Lithuanian Register Centre, about 3.5% of the companies do not have a CEO registered in the Companies Register.
Pursuant to the procedures laid down by the Companies Law, the Board or the Supervisory Board that elected the CEO must take a decision to remove the CEO within 15 days from the date of receipt of the resignation letter. In case of failure to take a decision to remove the CEO, the employment contract concluded with the CEO will terminate on the 16th day following the date of receipt of the resignation letter.
If the General Meeting of Shareholders has elected the CEO, the wishing-to-resign CEO must convene a General Meeting of Shareholders and include his/her removal and the appointment of a new CEO in the agenda. In case of failure to take a decision to remove the CEO, the employment contract with the CEO will terminate on the day following the date of the General Meeting of Shareholders or, in the absence of such meeting, on the day following the date of the reconvened General Meeting of Shareholders.
Failing by the body that elected the CEO to take a decision on his/her removal, a notice of termination of the employment contract must be submitted by the resigned CEO to the Companies Register by submitting documents evidencing the submission of the resignation letter to the Board or the Supervisory Board that elected the CEO, or, if the General Meeting of Shareholders elected the CEO, documents confirming the convening of the General Meeting of Shareholders, or in the absence of such meeting, documents confirming the reconvening of the General Meeting of Shareholders.
A notice of the removal of the CEO or termination of his/her employment on any other grounds must be submitted to the Companies Register no later than within 5 days.
So, depending on the management structure of the company, different procedures apply, but regardless of who appoints the CEO, the CEO who wishes to resign cannot remain inactive, especially if the appointment or removal of the CEO is a subject for the General Meeting of Shareholders.
The Companies Law even contains a distinct ground for convening an extraordinary General Meeting of Shareholders where the CEO, elected by the General Meeting of Shareholders, resigns or is no longer able to hold office.
Pursuant to the general statutory requirements for convening a General Meeting of Shareholders:
Should the shareholders avoid taking a decision to remove the current CEO and to appoint a new one instead, it may take several months to complete the formal procedures, especially where the CEO is a foreign national. It is, therefore, important for the wishing-to-resign CEO to complete the statutory procedures in a proper and timely manner, and to draw up the necessary supporting documents for the follow-up steps, namely, for having the CEO deregistered from theCompanies Register .
It is important to note that even though submitted, a resignation letter does not release the CEO from the rights and duties held by him/her as the sole executive body of the company. In practice, there are situations when having submitted a resignation letter, the CEO abandons running the day-to-day operations of the company, attaching no importance to proper formalization of his/her removal from office in accordance with the laws. This consequently may lead to the CEO’s liability for neglecting the duties imposed on the CEO by the laws and regulations, or the corporate documents, or the contract made with the CEO, and may give rise to the CEO’s liability for misconduct. Thus, having submitted a resignation letter, the CEO should properly comply with the statutory procedures, and bearing in mind the specifics of such procedures as well as the possibility of a dispute that may potentially arise in the future, should also turn for qualified legal assistance.
On Monday, September 18th, 2023 the Baltic American Chamber of Commerce (BACC) hosted the US Baltic Strategic Investment Summit 2023 at the Yale Club …