This is an unofficial translation of the Lithuanian court judgment, provided for information only. The Lithuanian original is authoritative. Read the original (Lithuanian)

Civil case No [anonymised]

Judicial proceedings No [anonymised]

Procedural decision category 2.6.10.5.2.18

COURT OF APPEAL OF LITHUANIA

RULING

IN THE NAME OF THE REPUBLIC OF LITHUANIA

20 May 2021

Vilnius

The panel of judges of the Civil Division of the Court of Appeal of Lithuania, composed of judges [anonymised], [anonymised] (presiding judge and rapporteur) and [anonymised], examined in a hearing by written appeal procedure the civil case on the appeal of the defendant [anonymised] against the judgment of 21 September 2020 of Klaipėda Regional Court in the civil case on the claim of the claimant, the bankrupt private limited liability company [anonymised], against the defendant [anonymised] for damages, with the participation of the third party without independent claims [anonymised] ([anonymised]).

The panel of judges

held:

I. Substance of the claim

The claimant, the bankrupt private limited liability company (hereinafter – the company) [anonymised], applied to the court seeking an award from the defendant [anonymised] of €255,147.48 in damages and annual interest of 5 per cent on the amount awarded by the court, from the date the case was brought before the court until full enforcement of the judgment.

The claimant stated that by a ruling of Klaipėda Regional Court of 24 May 2019

bankruptcy proceedings were opened against UAB [anonymised]. Although the company’s director is shown in the Register of Legal Entities as the third party [anonymised], there are grounds to believe that the defendant [anonymised] (the former director and shareholder of UAB [anonymised]), having learned that an application for bankruptcy proceedings against the claimant had been received and accepted by the court, transferred all of the claimant’s shares a couple of days later to [anonymised], a citizen of the Russian Federation, who by decision of the sole shareholder of 11 April 2019 dismissed the defendant from the position of the claimant’s director. By such actions the defendant sought to avoid liability, and there is no evidence that the defendant [anonymised] handed over the company’s assets. After the ruling opening bankruptcy proceedings against the claimant entered into force, the defendant did not hand over the company’s assets to the administrator, did not submit the claimant’s financial statements to the State Enterprise Centre of Registers (hereinafter – the Centre of Registers) (the last financial statements were filed for 2016), possibly transferred the claimant’s shares fictitiously, and did not cooperate with either the court or the administrator. As the defendant did not hand over to the administrator the claimant’s assets, which according to the latest available data were worth €1,125,437, and did not hand over any documents, the loss caused to the claimant and its creditors is to be regarded as the amount of the claimant’s creditors’ claims, €255,147.48.

The defendant [anonymised] asked for the claim to be dismissed. He stated that he is not the claimant’s director and that none of the necessary conditions for civil liability is present in his actions. The claimant had no complaints against the defendant regarding the documents not filed with the Centre of Registers; moreover, this may be a mistake by the company’s accountant, who did not file the statements, or there may be other reasons unknown to the defendant why the documents were not filed. As he is not the company’s director, he is unable to hand over the company’s assets and documents. The claimant did not even try to contact the company’s director and shareholder.

II. Substance of the judgment of the court of first instance

By judgment of 21 September 2020, Klaipėda Regional Court upheld the claim and awarded the claimant from the defendant €255,147.48 in damages, annual interest of 5 per cent on the amount awarded from the date the case was brought before the court until full enforcement of the judgment,

€1,700 in litigation costs, and apportioned the remaining litigation costs.

Taking into account that the defendant [anonymised], as the sole management body and director of UAB [anonymised], did not file the company’s financial statements in the period from 2018 to 2019, and what is set out in paragraphs 13–20 of the judgment, the court found that the defendant had breached Article 37(12)(1), (2) and (6) of the Law on Companies of the Republic of Lithuania (hereinafter – the Law on Companies), Article 21(1) of the Law on Accounting of the Republic of Lithuania (hereinafter – the Law on Accounting), and the general duty of a company director to act with care and diligence in the interests of the company and its creditors, and thereby committed unlawful acts against the claimant; furthermore, he made it harder for the insolvency administrator of the claimant to establish the true causes of the bankruptcy of UAB [anonymised] and to defend the interests of the company’s creditors.

Assessing the defendant’s actions relating to the company’s financial position and the circumstances of the transfer of assets, the court noted that the defendant avoided using the guarantees of adversarial proceedings and, neither at the court hearing nor in procedural documents, stated any factual circumstances concerning changes in the financial position of UAB [anonymised] while he held the position of director or the circumstances of the transfer of assets: what specific assets the company had at the end of the defendant’s term as director, what the company’s financial position was before bankruptcy proceedings were opened, and whether the company was solvent before the transfer to the third party. Having checked the data of LITEKO, the information system of the courts of the Republic of Lithuania, the court established that in civil case No [anonymised] the defendant, in a request of 24 April 2019, stated that he had sought the rehabilitation of the company and that the company had encountered financial difficulties which, because of the defendant’s unlawful acts, cannot be properly identified.

The court established that the director of UAB [anonymised] from 11 October 2011 to 14 April 2019 was [anonymised], and from 14 April 2019 until the opening of bankruptcy proceedings (24 May 2019) – [anonymised]. In its ruling of 20 August 2019 in civil case No [anonymised], Klaipėda Regional Court found that [anonymised], as the de facto director of the company, had and has a duty to comply with the ruling of Klaipėda Regional Court of 24 May 2019 and with Article 10(7)(1) of the Law on Enterprise Bankruptcy of the Republic of Lithuania (hereinafter – the Law on Enterprise Bankruptcy) – to hand over the company’s documents. The ruling has entered into force. However, in this case the defendant submitted documents stating that on 19 April 2019 he had handed over the company’s assets and documents to the new owner and director of the company, [anonymised].

Assessing the circumstances of the handover of documents, the court concluded that, because of the defendant’s actions, it is impossible to establish what assets of the company, and of what value, were handed over to [anonymised]. The record of the establishment of factual circumstances in the case file shows that the defendant [anonymised] handed over the company’s assets according to the fixed assets register and other company documents, but at the court hearing the defendant was unable to explain in detail what assets of the company were actually handed over to [anonymised]. The witness, bailiff [anonymised], who drew up the record of the establishment of factual circumstances, stated that when recording the factual circumstances she did not check the documents handed over, did not check the assets handed over against the fixed assets register and did not see the handover of the assets. Taking into account the defendant’s established unlawful acts in improperly organising the company’s activities and not filing the company’s financial documents, and the fact that the defendant handed over the company’s documents and assets to the new owner of the company while under a court obligation to submit the company’s documents to the court hearing the bankruptcy case, the court found that by such actions the defendant had not acted with sufficient care, attention and prudence, as was necessary in the circumstances, and had therefore acted dishonestly.

The court concluded that the claimant had proved the defendant’s unlawful acts – the defendant

[anonymised], as the sole management body and director of UAB [anonymised] in the period from 2017 to 2019, did not file the company’s financial statements and thereby breached Article 37(12)(1), (2) and (6) of the Law on Companies, Article 21(1) of the Law on Accounting, and the general duty of a company director to act with care and diligence in the interests of the company and its creditors; also, when handing over documents and assets to the new director of the company while under a court obligation to submit the documents to the court, the defendant did not act with sufficient care, attention and prudence as was necessary in the circumstances, failed to perform his duties, failed to comply with the court’s obligation and acted dishonestly towards the company and its creditor.

[…]

III. Arguments of the appeal and the response to it

By his appeal the defendant [anonymised] asks for the judgment of Klaipėda Regional Court of 21 September 2020 to be set aside and the claim to be dismissed. The appeal is based on the following arguments:

The court of first instance failed to take into account that no state institution had complaints about the unfiled financial statements. Although under the Code of Administrative Offences of the Republic of Lithuania administrative liability applies for failure to submit information to the manager of the Register of Legal Entities or the manager of the Information System of Participants of Legal Entities, he has received no complaints or penalties for failure to file the financial statements on time. 50 per cent of the damages awarded against him should be paid by the Register of Legal Entities of the Centre of Registers, which breached its duty to remind of the unfiled financial statements. The fact that the financial statements were not filed with the Centre of Registers does not give grounds to conclude that the company suffered a loss. Moreover, the bailiff’s record of the establishment of factual circumstances shows that the assets were handed over to the company’s new director.

[…]

By its response to the appeal, the claimant, the bankrupt UAB [anonymised], asks for the appeal to be dismissed. The response sets out the following arguments:

The defendant’s appeal is based on emotions, reflections, assumptions and speculation, not on facts and legally relevant arguments. The sale of the company’s shares and the handover of assets and documents were a fiction, intended to avoid the director’s civil liability. A situation arose in which the appellant, having learned that an application for bankruptcy proceedings against the claimant had been accepted and that the court had obliged him to hand over documents and information, unexpectedly found a buyer for the shares of the insolvent company, allegedly handed over to that buyer all the company’s assets and documents, and allegedly avoided liability as a result. However, by its ruling of 20 August 2019 Klaipėda Regional Court decided to impose a fine for failure to hand over the claimant’s assets and documents to the bankruptcy administrator precisely on the appellant, and not on the third party.

[…]

The panel of judges

confirms:

IV. Circumstances of the case established by the court of appeal, legal arguments and conclusions

The limits of the examination of the case on appeal are set by the factual and legal grounds of the appeal and by the verification of the absolute grounds for invalidity of the judgment. The court of appeal examines the case without going beyond the limits of the appeal, except where required by the public interest and where, without going beyond those limits, the rights and legitimate interests of a person, society or the state would be violated (Article 320(1) and (2) of the Code of Civil Procedure of the Republic of Lithuania (hereinafter also – the CCP)). The court of appeal found no absolute grounds for invalidity of the contested judgment, nor any grounds for going beyond the limits of the appeal.

Main factual circumstances of the case

On 4 April 2019 the Estonian company OU [anonymised] applied to Klaipėda Regional Court with an application for the opening of bankruptcy proceedings against UAB [anonymised], as the latter was overdue with a payment of €6,957. By a ruling of Klaipėda Regional Court of 8 April 2019, the application for the opening of bankruptcy proceedings was accepted. Having established from the extract of the Register of Legal Entities of 8 April 2019 that the director and sole shareholder of UAB [anonymised] since 3 October 2011 had been

[anonymised], by a ruling of 8 April 2019 the court obliged him to submit to the court the documents and information needed for the proper examination of the bankruptcy application.

On 15 April 2019 the court received a request from UAB [anonymised] (submitted by [anonymised]) to extend the time limit for submitting documents. With the request the defendant submitted data that from 15 April 2019 to 19 April 2019, as an employee of UAB [anonymised], he was on sick leave, and therefore by the judge’s resolution of 16 April 2019 the time limit for submitting documents was extended to 25 April 2019.

On 25 April 2019 [anonymised] submitted to the bankruptcy case an explanation that on 11 April 2019, by decision of the shareholder of UAB [anonymised], he had been removed from the position of director and therefore could not comply with the ruling of 8 April 2019; accordingly, he asked the court to amend the ruling and to direct the request to submit documents to the director of UAB [anonymised], [anonymised]. With the request [anonymised] submitted an extract of the Register of Legal Entities of 17 April 2019, which shows that since 11 April 2019 the shareholder and director of UAB [anonymised] has been [anonymised]. The entry in the Register of Legal Entities was made on 17 April 2019.

By a ruling of 30 April 2019 the court dismissed [anonymised]’s request to direct the obligation to submit documents to the new director of UAB [anonymised], [anonymised], and decided to oblige [anonymised], within 5 days of service of the ruling, to submit the data known to him and, if he has them, evidence on the financial position of the defendant UAB [anonymised] – the assets held by the defendant and their value, overdue obligations, whether the overdue obligations exceed half of the value of the company’s assets, and the defendant’s ability to meet its obligations to creditors.

On 6 May 2019 [anonymised] filed a separate appeal asking for the ruling of Klaipėda Regional Court of 30 April 2019 to be set aside. By a ruling of 7 May 2019 Klaipėda Regional Court refused to accept the separate appeal. The Court of Appeal of Lithuania on 3 October 2019 left that ruling unchanged.

By a ruling of 24 May 2019 Klaipėda Regional Court opened bankruptcy proceedings against the claimant and appointed UAB [anonymised] as bankruptcy administrator.

On 4 July 2019 the bankruptcy administrator submitted a request for the imposition of a fine on the former

directors of UAB [anonymised], [anonymised] and [anonymised]. By a ruling of 20 August 2019 Klaipėda Regional Court imposed a fine of €1,500 on the former director [anonymised] for failing to hand over the company’s assets and documents to the administrator. On 19 November 2019 the applicant [anonymised] submitted to the court a request to set aside the fine, and the court refused to accept the request. After [anonymised] appealed against the ruling by a separate appeal, the Court of Appeal of Lithuania by a ruling of 19 December 2019 left the ruling of Klaipėda Regional Court of 19 November 2019 unchanged. Having assessed the arguments of the applicant’s separate appeal and the data in the case on the service of procedural documents, the court of appeal decided that the applicant had been properly notified both of the request for the imposition of a fine submitted by the bankruptcy administrator on 4 July 2019 (the proceedings initiated) and of the adoption of the ruling of 20 August 2019, and therefore found that by the contested ruling the court of first instance had rightly found no important circumstances under which the time limit for submitting a request to set aside the fine could be renewed.

On the assessment of evidence

The claimant applied to the court seeking an award from the defendant [anonymised] of €255,147.48 in damages. It stated that the defendant’s unlawful acts consisted in his breach of the mandatory duty laid down in Article 10(7)(1) of the Law on Enterprise Bankruptcy, once the ruling opening bankruptcy proceedings had entered into force, to hand over to the bankruptcy administrator the company’s assets according to the balance sheet drawn up as at the date the ruling opening bankruptcy proceedings entered into force, and all documents; he did not submit

to the Centre of Registers the claimant’s financial statements (the last financial statements were filed for 2016), and possibly fictitiously transferred the claimant’s shares in order to avoid civil liability. As the defendant did not hand over to the administrator the company’s assets, which according to the latest available data are worth €1,125,437, or the documents, the loss caused to the claimant and its creditors is the amount of the claimant’s creditors’ financial claims – €255,147.48. The loss to the company and its creditors would not have arisen, or would have been smaller, had the defendant, as the company’s director, properly performed his duty and handed over to the administrator the company’s assets according to the balance sheet drawn up as at the date the ruling opening bankruptcy proceedings entered into force, and the documents.

The court of first instance upheld the claim, finding that the defendant had run the company improperly, had not filed the company’s financial data with the Centre of Registers since 2017, had not complied with the bankruptcy administrator’s instruction to hand over the company’s assets, had fictitiously handed over the company’s assets and documents to the third party, a citizen of the Russian Federation [anonymised], and had thereby caused loss to the company. Having established from the bankruptcy case data that the financial claims against the company were made for debts incurred in 2016–2018, the court concluded that the amount of loss sought by the claimant is accurate according to the creditors’ financial claims approved by the rulings of Klaipėda Regional Court of 21 August 2019 and 27 August 2019, as they were approved by the court in the bankruptcy case.

By his appeal the defendant essentially challenges the assessment of evidence made by the court of first instance. He notes that he received no complaints from the Centre of Registers about the failure to file financial statements and that, for this reason, half of the amount of the loss should be compensated by the Centre of Registers. Moreover, the company’s financial statements were filed by the company’s accountant, so the failure to file the documents cannot be regarded as his unlawful acts. The court did not assess whether the assets pledged by mortgage would be insufficient to cover the company’s debts. When bankruptcy proceedings were opened against the company, another person was the company’s shareholder and director, and he committed no unlawful acts against the company, so the court wrongly awarded damages.

When examining a civil case, the court has a duty to establish all circumstances relevant to the case and, on that basis, to decide on the merits of the claimant’s claims. The court decides on the existence of circumstances relevant to the case during the process of proof, by examining and assessing the evidence submitted by the parties (Articles 178 and 185 of the CCP).

It has been clarified in the case law of the court of cassation that the basis for applying civil liability to a company director may arise from a breach of both duties laid down imperatively in legislation and fiduciary duties to the company, and also to creditors. In order to apply civil liability to a company director, the conditions of his civil liability must be established, that is, unlawful acts, the loss incurred, a causal link between the unlawful acts and the loss, and fault. Once it is established that the company director committed unlawful acts that resulted in loss (damage), his fault is presumed (Article 6.248(1) of the Civil Code of the Republic of Lithuania (hereinafter – the CC)), so the claimant is not required to prove that the company director is at fault. The duty to rebut this presumption lies with the company director (ruling of the Supreme Court of Lithuania of 22 September 2015 in civil case No 3K-[anonymised] and the case law of the court of cassation cited therein; ruling of the Supreme Court of Lithuania of 23 September 2020 in civil case No e3K-[anonymised]).

In this case the defendant disagrees with the unlawful acts, fault and causal link between the unlawful acts and the company’s loss found in the judgment of the court of first instance, but he did not submit to the case any evidence supporting his position that would allow a conclusion to be drawn about his careful and proper performance of fiduciary duties as the company’s former director and rebut the circumstances of the loss stated by the claimant. Although the defendant maintains that he learned of the bankruptcy proceedings against the company only on 4 November 2019,

when he sought to challenge the ruling of 20 August 2019 imposing a fine on him for failing to hand over the company’s assets and documents to the bankruptcy administrator, paragraphs 17, 20 and 22 of that ruling show the opposite – the appellant knew about the opening of the bankruptcy proceedings, submitted requests to the court (paragraph 17 of the ruling) and appealed against the court’s procedural decisions (paragraphs 20 and 22). Moreover, when examining the defendant’s separate appeal of 19 November 2019, the court of appeal decided that the appellant had been properly notified both of the request for the imposition of a fine submitted by the bankruptcy administrator on 4 July 2019 (the proceedings initiated) and of the adoption of the ruling of 20 August 2019. Therefore, as service of the request of 4 July 2019 and of the ruling of 20 August 2019 on the defendant has been found to be proper, there is no basis for assessing the earlier service of documents on the defendant differently (as not served).

The bankruptcy case data also show that the defendant took part in the bankruptcy proceedings – on 15 April 2019 he submitted a request to extend the time limit for submitting a response, with which he submitted data that, as an employee of UAB [anonymised], he was on sick leave from 15 April 2019 to 19 April 2019 (certificate of the Board of the State Social Insurance Fund under the Ministry of Social Security and Labour). The data in the bankruptcy case confirm that procedural documents relating to the bankruptcy case were served on the appellant’s mother on 11 April 2019. These circumstances confirm that the appellant, despite having transferred the company’s shares to the third party [anonymised], who dismissed him from the position of director, acted as the de facto director of the company. Therefore, in the view of the court of appeal, the formal grounds stated by the claimant for it being impossible to apply liability to him, because on the day the ruling opening bankruptcy proceedings entered into force he was not the company’s director, are to be rejected. The defendant knew about the opening of bankruptcy proceedings against the company, as well as about the duty to hand over all of the company’s assets and documents to the bankruptcy administrator. The courts that examined the bankruptcy case found that it was the appellant who is the de facto director of the company and therefore has a duty to hand over the company’s assets and documents to the bankruptcy administrator. However, instead of this, the appellant, having learned of the application for the opening of bankruptcy proceedings against UAB [anonymised] accepted by the court, took active steps to hand over the company’s documents and assets to the third party [anonymised]. Accordingly, the position of the court of first instance that such actions of the appellant prove his dishonesty towards the claimant and its creditors is to be endorsed, and therefore this circumstance cannot remove the appellant’s liability, as the former company director, for the loss caused to the claimant and its creditors.

The fact that the Centre of Registers made no complaints to the defendant about the failure to file the financial data of UAB [anonymised] does not release a company director from the duty to file the company’s financial data properly and on time with the Register of Legal Entities of the Centre of Registers. A company director’s duty to take care of the legal entity’s assets includes the duty to keep proper records of the assets, to submit the annual set of financial statements to the Register of Legal Entities, and to retain the company’s assets and data on its financial operations for the period laid down by law, and so on (ruling of the Supreme Court of Lithuania of 8 January 2016 in civil case No e3K-[anonymised]). A director’s duty to look after the company’s finances is laid down by law. Article 37(12) of the Law on Companies provides that the company director is responsible for organising the company’s activities and implementing its objectives (point 1), for drawing up the set of annual financial statements and preparing the company’s annual report (point 2), and for preparing a draft decision on the distribution of dividends for a period shorter than the financial year, drawing up the set of interim financial statements and preparing the interim report so that a decision on the distribution of dividends for a period shorter than the financial year can be adopted (point 6). Article 21(1) of the Law on Accounting provides that the head of the economic entity is responsible for organising accounting in accordance with the requirements of that law. The head of the economic entity is also responsible for the retention of accounting documents and accounting registers and, in cases laid down by law, for the submission of their data, in accordance with the procedure laid down by the legislation governing civil, administrative and criminal liability (Article 21(2) of the Law on Accounting). The law does not provide for liability of the Centre of Registers for not informing the appellant about the company’s financial data not filed on time; moreover, the Centre of Registers is merely a data controller and is not responsible for company directors’ proper performance of their duties, and therefore the appellant’s arguments that half of the loss suffered by the claimant should be compensated by the Centre of Registers are to be rejected as unfounded.

It is also important that the appellant was not only the company’s director but also a shareholder. When transferring the shares and leaving the position of company director, the appellant was obliged to ensure a transparent handover of the company’s assets and documents (ruling of the Supreme Court of Lithuania of 8 January 2016 in civil case No e3K-[anonymised]) to the new owner. After the change of the company’s shareholder, no financial statements were filed with the Register of Legal Entities, and no balance sheet of the company’s assets was drawn up as at the time of the handover of assets and documents. For these reasons there is no objective possibility of determining the size of the company’s actual assets at the time of the change of director, and this was caused precisely by the appellant’s unlawful acts.

According to the claimant’s last balance sheet for 2016 submitted to the Centre of Registers, the claimant had assets in a total amount of €1,125,437. The appellant did not substantiate that these assets were actually handed over to the new owner of the company, nor did he prove, as required by the rules of proof laid down in the CCP, that the assets recorded in the balance sheet were used in the company’s activities or for other purposes. The panel of judges also regards as an unlawful act by the appellant the possibly fictitious transfer of shares to the third party, aimed at concealing data on the company’s true condition and thereby avoiding civil liability. According to the case law formed by the court of cassation, the appellant was thereby placed under a duty to rebut the presumption of fault by proving what assets were actually handed over to the third party (ruling of the Supreme Court of Lithuania of 8 January 2016 in civil case No e3K-[anonymised]). Thus, from the data in the case and the arguments stated by the appellant, it is clear that he did not rebut the presumption of fault regarding the unlawfulness of his acts and did not substantiate where the company’s assets recorded in the 2016 balance sheet were used; on the contrary, he hurriedly transferred ownership of the company to a citizen of the Russian Federation although, as discussed above, he knew about the acceptance by the court of the application for the opening of bankruptcy proceedings, so it is more likely that he did so fictitiously in order to avoid civil liability.

The appellant argues that the record of the establishment of factual circumstances of 19 April 2019 by bailiff [anonymised] confirms that he handed over all of the company’s assets and documents to the citizen of the Russian Federation [anonymised], but neither the appellant nor the bailiff was able to tell the court what specific assets, and of what value, were handed over to the third party, and this is not stated in the record of the establishment of factual circumstances either. At the court hearing of 19 June 2020 the bailiff confirmed that she did not check the documents handed over, did not check the assets handed over against the fixed assets register and did not see the handover of the assets at all. For this reason the court of appeal, having established that neither the appellant himself nor the bailiff who drew up the record of the establishment of factual circumstances could specify what assets, and of what value, were handed over to the third party, agrees with the conclusion of the court of first instance that the record of factual circumstances relied on by the defendant does not rebut the circumstances established in the case confirming the appellant’s dishonest and unlawful acts towards the company, which made the conduct of the bankruptcy procedures harder and eliminated the possibility of settling with all of the claimant’s creditors. At the same time the defendant did not prove that he actually handed over the company’s assets to the third party [anonymised]. Since the loss in the present case is derived from the fact that the defendant did not hand over to the bankruptcy administrator assets and documents although, according to the earlier balance sheet data, there actually were assets, and, as already mentioned, the defendant did not substantiate that the assets recorded in the company’s balance sheet were used in the company’s activities, the possibility of settling with the company’s creditors was reduced, that is, the company suffered a loss that is causally linked to the defendant’s unlawful acts (omission).

The Supreme Court of Lithuania has clarified that where a company’s assets are insufficient to satisfy the financial claims against a bankrupt company and it is established that the assets are insufficient because the company’s management bodies breached the duties laid down for them in legislation and in the company’s documents (including fiduciary duties), the company’s management bodies must compensate the company for the loss caused, which consists of the part of the unsatisfied creditors’ financial claims. The loss caused to creditors is regarded as derived from the loss caused to the company (ruling of the Supreme Court of Lithuania of 19 April 2013 in civil case No [anonymised]). Such determination of the amount of loss may be applied where it results from the unlawful acts of the company director (management bodies). In this case the defendant’s obligation to pay damages arose from the failure to hand over assets and documents to the company’s administrator – on the basis of Article 10(7)(1) of the Law on Enterprise Bankruptcy, in breach of Article 2.87 of the CC – and from the finding that all financial claims made and approved in the case arose precisely at the time when the company was managed by the appellant, for whom financial statements were likewise not filed with the Centre of Registers, and taking into account that, according to the claimant’s 2016 balance sheet, the company had assets of €1,125,437 and the appellant did not substantiate during the hearing of the case where those assets were used.

The appellant does not deny that the company’s assets and documents have not been handed over to the bankruptcy administrator, but maintains that he had no duty to hand them over because he was not the company’s director when bankruptcy proceedings were opened against the company. It has already been discussed in this case that the appellant, seeking to avoid possible negative consequences of the opening of bankruptcy proceedings against the company, hurriedly transferred ownership of the company to a citizen of the Russian Federation, who later dismissed the appellant from the position of company director and became the company’s director. The court of first instance assessed such conduct by the defendant as dishonest, and the court of appeal, having assessed the evidence in the case and the parties’ explanations, decides that this circumstance, although it confirms the defendant’s dishonesty, is not legally relevant because, as already mentioned, all financial claims made and approved in the bankruptcy case of UAB [anonymised] arose precisely at the time when the company was managed by the appellant.

The defendant’s arguments concerning the accountant of UAB [anonymised], who in his view is responsible for the failure to file financial data with the Register of Legal Entities, are rejected. Paragraph 31 of this ruling discusses a company director’s duties relating to the proper management of the company and the organisation of the collection and submission of its financial processes and data to institutions, and therefore the fact that the claimant cannot explain for what reasons the data were not filed with the Register of Legal Entities on time only confirms his negligence and improper performance of duties.

The arguments that, in awarding damages against the defendant, the court did not take into account that the company has assets pledged by mortgage which might be sufficient to satisfy the creditors’ financial claims do not give grounds to regard the judgment of the court of first instance as incorrect or unfounded, because this question can be resolved in the enforcement proceedings, when the court judgment is actually enforced and the debts covered are taken into account.

On the bias of the court

In the appeal the appellant raises the question of possible bias of the court because, in his opinion, the court wrongly established the existence of a causal link in the case.

The panel of judges does not agree with the appeal’s argument that the judgment was adopted by a biased court and notes that, in adopting the contested judgment, the court of first instance examined and assessed the explanations and evidence submitted to the case by both parties. The fact that the contested judgment is reasoned in the claimant’s favour, agreeing with the arguments set out by the claimant, does not in itself mean that the judgment was adopted by a biased court. The mere adoption of a procedural decision unfavourable to the appellant does not substantiate bias on the part of the court, and the appellant did not submit any other objective data on the basis of which opposite conclusions could be drawn, so the appellant’s statements are regarded as declaratory and unfounded.

On litigation costs in the court of first instance

Having upheld the claim, the court awarded the claimant the litigation costs it had incurred of €1,700. The defendant disagrees with the litigation costs awarded, stating that they do not meet the criteria of honesty, reasonableness and fairness and do not correspond to the maximum amounts set in the Recommendations on the maximum amount of remuneration to be awarded in civil cases for legal aid (services) provided by an advocate or advocate’s assistant, approved by Order No 1R-85 of the Minister of Justice of the Republic of Lithuania of 2 April 2004 (hereinafter – the Recommendations).

[…]

The data in the case show that the claimant, in substantiating the litigation costs incurred, submitted a breakdown of them and evidence of payment. Taking into account that the amount sought by the claimant (€1,700) for its representation and the preparation and submission of procedural documents to the court is considerably smaller than the maximum possible amount for the preparation and submission of a claim to the court, it is to be held that the litigation costs incurred by the claimant and awarded by the court of first instance do not exceed the amounts set in the Recommendations, and therefore the appeal’s arguments concerning excessive and unreasonable litigation costs awarded are rejected as unfounded.

On the procedural outcome of the case

The panel of judges of the court of appeal, relying on the arguments set out, decides that the court of first instance correctly interpreted and applied the rules of substantive and procedural law, comprehensively and objectively examined the evidence in the case and, having properly assessed it, drew well-founded conclusions, and therefore adopted a lawful and well-founded judgment which there is no basis to amend or set aside on the arguments of the appeal. Therefore the defendant’s appeal is dismissed and the judgment of the court of first instance is left unchanged (Article 326(1)(1) of the CCP).

The panel of judges of the Civil Division of the Court of Appeal of Lithuania, guided by Article 326(1)(1) of the Code of Civil Procedure of the Republic of Lithuania,

rules:

The judgment of Klaipėda Regional Court of 21 September 2020 shall be left unchanged.

Judges

[anonymised]

[anonymised]

[anonymised]