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 categories: 2.6.8.9.;

2.6.16.; 3.3.1.18.; 3.3.1.20.

VILNIUS REGIONAL COURT

RULING

IN THE NAME OF THE REPUBLIC OF LITHUANIA

26 October 2021

Vilnius

The panel of judges of the Civil Division of Vilnius Regional Court, composed of judges [anonymised], [anonymised] and [anonymised] (presiding judge and rapporteur), examined in a hearing by written appeal procedure the appeal of the claimants [anonymised], [anonymised] and [anonymised] against the judgment of 11 May 2021 of Vilnius City District Court in the civil case on the claim of the claimants [anonymised], [anonymised] and [anonymised] against the defendants [anonymised] and [anonymised] for compensation of loss to creditors, with the third parties without independent claims being the private limited liability company (hereinafter – UAB) [anonymised] and [anonymised]

The panel of judges

held:

I. Substance of the claim

1. The claimants [anonymised], [anonymised] and [anonymised] applied to the court with a claim against the defendants [anonymised] and [anonymised] for damages, asking the court to award jointly and severally from the defendants €10,709.03 to [anonymised], €11,584.80 to [anonymised] and €11,584.80 to [anonymised] in compensation for loss, procedural 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, and litigation costs.

2. The claimants stated that by a judgment that has entered into force the joint activity agreement concluded between the claimants and UAB [anonymised] was declared invalid, and UAB [anonymised] was ordered to return €10,709.03 to [anonymised], €11,584.80 to [anonymised] and €11,584.80 to [anonymised] and to cover the claimants’ litigation costs. UAB [anonymised] cannot return these awarded sums to the claimants because of the fault of the company’s management bodies and participants – the company’s director and shareholder, the defendant [anonymised], and the shareholder, the defendant [anonymised].

3. The claimants based their claim on the fact that on 7 November 2013 UAB [anonymised] sold the shares of UAB [anonymised] to the defendants. Under the terms of the share purchase agreement, until the completion of the share transfer transaction the equity of UAB [anonymised] had to be not less than LTL 251 904, the company’s bank account had to hold not less than LTL 247 904, payables and liabilities had to be LTL 0, receivables not less than LTL 2 000 (recoverable VAT), and intangible assets (licences and permits) LTL 2 000. After the transfer of the shares UAB [anonymised] carried out no activity and incurred no expenses; however, on 14 March 2018 (when the civil case on declaring the joint activity agreement invalid and applying restitution had already been brought), at the initiative of the creditors (the company’s shareholders – the defendants), out-of-court bankruptcy proceedings were started against UAB [anonymised]. The defendants, as creditors, in adopting the decision on out-of-court bankruptcy proceedings, stated that UAB [anonymised] is insolvent, but the claimants do not know when this occurred or for what reasons the company’s equity decreased.

4. According to the claimants, after the transfer of the shares the funds belonging to UAB [anonymised] that had actually been handed over (about €71,246.52) were misappropriated or squandered by the company’s shareholders – the defendants, one of whom was also the company’s director – deliberately seeking bankruptcy, in order to avoid the usual liquidation procedure and the performance of obligations to creditors (only the claimants, as there are no other creditors in the bankruptcy case), clearly understanding that a creditor might appear once the civil case on declaring the joint activity agreement invalid and applying restitution, which had by then already begun to be examined, was decided. The bankruptcy administrator of BUAB [anonymised] did not perform the duty to challenge transactions contrary to the company’s objectives and/or that could have influenced the company’s inability to settle with creditors, and therefore the claimants, as creditors of the company, bring a direct claim against the company’s former directors and/or participants for compensation of loss to creditors.

5. The claimants are convinced that the defendant [anonymised], as the company’s director, did not perform, or improperly performed, the duties relating to the management of the company laid down for him in legislation and the company’s founding documents, and used the company’s assets to satisfy purposes unrelated to the company’s commercial activity, as a result of which the funds that were in the bank accounts of UAB [anonymised] at the time of the share transfer, and which could have been used to settle with the claimants, were lost; that is, the defendant [anonymised] did not properly take inventory of, or record in the accounts of UAB [anonymised], the funds owned by the claimants and handed over to UAB [anonymised] under the joint activity agreement, and probably used them as if they belonged to the company. Since 2013 the defendant [anonymised] did not file the company’s financial statements with the Register of Legal Entities; when UAB [anonymised] became insolvent (if the company did become so), he did not initiate decisions to improve the company’s financial position, did not take measures to restore the company’s solvency, did not file an application for the opening of bankruptcy proceedings, and did not preserve the company’s assets handed over to him in November 2013, thereby breaching his fiduciary duties.

6. The minutes No 1 of the creditors’ meeting of BUAB [anonymised] of 14 March 2018 state that the total amount of creditors’ financial claims is €30,415.32, of which the defendant [anonymised]’s amount is €15,213.74 and the defendant [anonymised]’s is €15,201.58. The claimants do not know on the basis of what decisions or transactions these obligations of the company to its shareholders arose, but, given that UAB [anonymised] carried out no activity after the transfer of the shares, the decisions or transactions on the basis of which the shareholders’ claims against the company were acquired are to be regarded as made essentially solely in the shareholders’ interests, seeking personal benefit and exceeding the limits of reasonable commercial risk, by which direct loss was caused to the claimants. The claimants also do not rule out the assumption that the shareholders could have moved the funds to other related or controlled companies and created fictitious financial claims against the company, as a result of which it formally became insolvent, seeking to avoid the usual liquidation procedure and settlement with the claimants. According to the claimants, the shareholders of the company were approved as creditors in the bankruptcy case, and therefore the defendants’ dishonest acts are to be regarded as directed specifically at particular creditors – the claimants – thereby causing them direct and individual loss, which the defendants must compensate jointly and severally, because they deliberately pursued the dishonest aims together, both contributed to the occurrence of the loss, and it is impossible to establish which part of the loss to the claimants is attributable to each defendant or whose acts determined the specific amount of the loss.

7. The defendants’ dishonesty and deliberate dishonest acts aimed at avoiding settlement with the claimants are also confirmed by the fact that in the period from 20 November 2013 (after the acquisition of the company’s shares) until the start of bankruptcy, having created obligations of the company to the defendants, the defendants sought through out-of-court bankruptcy to avoid the company settling specifically with the claimants. By the defendants’ actions, out-of-court bankruptcy proceedings of UAB [anonymised] were started on 14 March 2018, although at that time Vilnius City District Court was examining the case on declaring the joint activity agreement invalid, that is, the out-of-court bankruptcy process could not have been started.

8. The claimants stated that they have not missed the limitation period, because, having transferred the funds to the company’s account in 2011, and with no (or no longer any) legal basis for the company to keep the funds, the claimants would still, under the general limitation period, have the right to bring a claim for their recovery. The defendants wrongly state that the claimants could have applied for damages in 2013, when the deposited funds were returned to the company, because at that time the main condition for the damages sought did not exist – the company’s inability to perform its obligation.

9. The defendant [anonymised] disagreed with the claim, asked for the limitation period to be applied to the claim for damages, for the claim to be dismissed as unfounded, and for compensation of litigation costs to be awarded to the defendant from the claimants.

10. According to the defendant, the claimants, in bringing a direct claim against the company’s director and shareholder, did not prove, and did not even attempt to prove, specific unlawful acts of the defendant directed only against them that would have caused them individual loss. The claimants essentially equate their alleged individual loss with loss caused to UAB [anonymised] and/or to all of its creditors. The fact that UAB [anonymised] has no funds to cover the claimants’ creditor claims does not mean a presumption of the defendant’s unlawful acts. The claimants did not prove all the conditions necessary for the defendant’s liability to arise. The claimants derive the losses sought from legal facts of 2011 – the oral agreement between the claimants, UAB [anonymised] and other persons to carry out joint activity and the claimants’ funds transferred to the company on the basis of that agreement. The claimants acquired the right to recover these sums because the agreement on joint activity was not properly formalised, as a result of which the joint activity agreement was declared void and invalid from the moment of its conclusion. The defendant became the director of UAB [anonymised] only at the end of 2013 and therefore cannot be connected with the loss caused to the claimants. The defendant owes nothing to UAB [anonymised] and/or its creditors.

11. According to the defendant, the claimants have missed the 3-year limitation period, because the loss was caused to the claimants in 2011, when the claimants themselves unlawfully concluded the oral joint activity agreement and, on its basis, transferred money to the company. The oral joint activity agreement was invalid from the moment of its conclusion, and the final court judgment, which entered into force on 19 March 2020, essentially only gave the claimants the right to recover by enforcement the sum they seek from UAB [anonymised]. Moreover, the claimants knew that, as the activity under the joint activity agreement could not be started, the deposited sum was returned to UAB [anonymised] on 13 August 2013, and they knew that UAB [anonymised] did not recognise the claimants’ demands to return the sum paid on 9 February 2017, when the company’s reply to the claimants’ demand was received. Counting the limitation period from any of these events, it has been missed, and this is an independent ground for dismissing the claim.

12. The defendant additionally stated that the limitation period has been missed because the claim is brought for damages, and the claimants lost their assets in 2011, when they concluded the joint activity agreement and transferred funds on its basis. The claim must also be dismissed because it is brought not for compensation of individual loss to the claimants but for loss allegedly caused to the company and/or to all creditors. The claimants themselves, having learned of the opening of bankruptcy proceedings, took no steps to terminate the allegedly unlawful bankruptcy process, to appeal against it, to challenge the creditor claims they consider doubtful, and so on.

13. The defendant [anonymised] disagreed with the claim, asked for the limitation period to be applied, for the claim to be dismissed and for compensation of litigation costs to be awarded. He stated that the fact of the loss caused to the claimants was known both in 2011, when, failing to comply with the mandatory requirements of the law, they concluded the oral joint activity agreement, and in 2013, when the deposited sum had to be returned to UAB [anonymised] and the claimants knew (should have known) that. The claimants applied to the company for the return of the funds only in 2017, that is, after missing the limitation period.

14. The defendant [anonymised] became a shareholder of UAB [anonymised] only after the alleged loss to the claimants had arisen, and most of the arguments of the claim are linked to the liability of the defendant [anonymised]. For this reason it is unclear to the defendant by what unlawful acts he individually caused loss to the claimants. The defendant was merely a shareholder and investor of UAB [anonymised]; he had neither a controlling block of shares nor an employment relationship with the company. The mere fact that the defendant was a shareholder and creditor of the company does not presume or substantiate the unlawfulness of his acts. The company’s bankruptcy process was not related to the loss caused to the claimants or to their claims, because the defendants wanted to remove from the market a participant that was no longer carrying on activity and had no assets. Moreover, when the defendants, as shareholders, decided to initiate out-of-court bankruptcy of the company, the conditions for carrying out the bankruptcy procedures were assessed by the appointed bankruptcy administrator, who did not state that out-of-court bankruptcy would be impossible.

15. The third party [anonymised] asked for the limitation period to be applied, for the claim to be dismissed and for compensation of litigation costs to be awarded.

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

16. By judgment of 11 May 2021, Vilnius City District Court dismissed the claim. In the court’s assessment, the circumstances stated by the claimants do not meet the criteria for a direct claim formulated in the case law of the courts, do not give grounds to recognise the defendants’ stated acts as unlawful within the meaning of tortious civil liability and as directed specifically at the claimants and having caused them individual loss, and do not prove the specific basis for a direct claim, and are therefore insufficient to uphold a direct claim.

17. The court found that it had not been proved in the case that the transfer of funds to the law firm on 16 January 2014 and the international transfer of funds on 7 February 2014 were aimed at violating the rights of specific creditors – the claimants – so that these acts could be regarded as unlawful acts in relation to the claimants and meet the general criterion of unlawfulness applicable to tortious liability. In order for a creditor’s claim to be upheld, the general conditions of civil liability must be proved, which in the case of a claim brought by a creditor means the commission of dishonest acts directed at a specific creditor (misleading the creditor, giving the company false information when concluding a contract with a specific creditor, or other dishonest acts directed at a specific creditor) and the loss incurred by the creditor precisely because of those acts, and not the causing of the insolvency or the reduction of the solvency of the legal entity in general.

[…]

III. Arguments of the appeal and the response to it

23. By their appeal the claimants [anonymised], [anonymised] and [anonymised] ask for the judgment of Vilnius City District Court of 11 May 2021 to be set aside and for the claimants’ claim to be upheld.

24. The appellants disagree with the conclusion of the court of first instance that it was not proved that the transfer of funds to the law firm on 16 January 2014 and the international transfer of funds on 7 February 2014 were aimed at violating the rights of specific creditors (the claimants). In the appellants’ assessment, after these payments were made, no assets that could be allocated to the company’s further activity or to satisfying creditor claims remained in the company. Not even the amount of the registered authorised capital remained, and therefore neither the payment orders nor the agreement submitted by the defendant [anonymised], on the basis of which the payment order was allegedly made, is supported by any economic logic or by a need to preserve the company’s activity. The transfer of money to offshore companies registered in target territories and not engaged in any activity in that state is in itself regarded as suspicious, and it was precisely the defendant who bore the duty to rebut this properly.

[…]

30. In their response to the appeal, the defendants [anonymised] and [anonymised] ask for the appeal to be dismissed as unfounded and for the judgment of Vilnius City District Court of 11 May 2021 to be left unchanged. They state that by the appeal the claimants unjustifiably expand the limits of the dispute and claim, as can be understood from the content of the appeal, that the direct claim they brought also corresponds to the existence of intentional bankruptcy, but the question of intentional bankruptcy was not and could not even be the subject of examination in this case.

31. In this case the claimants must prove that the defendants committed unlawful acts directed specifically at violating the claimants’ rights. Thus, in bringing a direct claim, the claimants must prove that the unlawful acts were intended to cause loss specifically to them and not to all creditors by simply reducing the company’s asset mass. If a creditor brings a direct claim but does not prove this specific basis, that is a ground for dismissing the claim.

[…]

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

38. The purpose of appeal proceedings, within the limits of examination of a case laid down in Article 320 of the Code of Civil Procedure of the Republic of Lithuania (hereinafter – the CCP), is to verify the procedural decision of the court of first instance both for lawfulness and for soundness. This is done by examining both the factual and the legal sides of the case, that is, by examining the evidence collected in the case and verifying whether the court of first instance correctly established the factual circumstances of the case and correctly applied the rules of substantive law to the established factual circumstances. Irrespective of the limits of the appeal, the court of appeal also checks whether there are absolute grounds for invalidity of the judgment referred to in Article 329 of the CCP.

39. In the present case no absolute grounds for invalidity of the court judgment or grounds for going beyond the limits of the appeal have been established, and therefore the ruling addresses only the factual and legal arguments of the appeal.

40. The claimants, in bringing a direct claim for compensation of loss to creditors against the defendants as former directors and shareholders of UAB [anonymised], argued that the company itself cannot settle with the claimants because the defendant [anonymised], as the company’s director, did not perform, or improperly performed, the duties relating to the management of the company laid down for him in legislation and the company’s founding documents, and used the company’s assets for purposes unrelated to the company’s commercial activity, as a result of which the funds that were in the bank accounts of UAB [anonymised] at the time of the share transfer, and which could have been used to settle with the claimants, were lost. According to the claimants, the conduct of the defendants as shareholders (the arising of obligations to the shareholders themselves and, later, the initiation of the bankruptcy case) adversely affected the legal entity’s ability to perform its obligations, which gives grounds to find that the company’s inability to settle with the claimants was caused precisely by the defendants’ actions, and the defendants by intentional acts breached the prohibition on abusing limited liability.

41. In the contested judgment the court of first instance concluded that the circumstances stated by the claimants do not meet the criteria for a direct claim formulated in the case law of the courts, do not give grounds to recognise the defendants’ stated acts as unlawful within the meaning of tortious civil liability and as directed specifically at the claimants and having caused them individual loss, and do not prove the specific basis for a direct claim, and are therefore insufficient to uphold a direct claim. Moreover, the acts performed or decisions adopted by the defendants in 2013–2014 cannot be assessed as dishonest acts directed specifically against the claimants. And, as they are not recognised as such, they give no grounds to uphold a direct claim. In the court’s assessment, the start of the company’s bankruptcy process and the decisions adopted by the defendants during the bankruptcy process are not causally linked to the loss stated by the claimants, and therefore likewise give no grounds to uphold the claim.

42. In the appeal the claimants state that the assessment by the court of first instance of only the existence of the first condition for bringing a direct claim is not sufficient, because the bankruptcy could not be recognised as intentional precisely because of the defendants’ fault, although the bankruptcy of UAB [anonymised] in fact matched the features of intentional bankruptcy. Moreover, regarding some of the defendants’ unlawful acts (the start of out-of-court bankruptcy and the adoption of the decision on its completion), the court’s judgment gives no reasons at all. According to the appellants, the court of first instance assessed not the totality of the evidence but individual items of evidence, that is, it did not link the payments made in 2013–2014 with the defendants’ subsequent actions deliberately seeking bankruptcy, although the defendants’ actions (transactions and the decisions covering them in the bankruptcy process) did not cause the company’s general insolvency (inability to settle with all creditors) but were directed against specific creditors – the claimants.

43. Thus the claimants, who hold a claim right against BUAB [anonymised], cannot recover the sums awarded to them by the court judgment because the company has been deregistered, and therefore the claimants brought a direct claim against the defendants, who were the company’s directors and shareholders, demanding compensation from them. As the court of first instance noted, and the claimants in the appeal do not deny, the case law of the Supreme Court of Lithuania on a creditor’s right to bring a direct claim against company directors is developed and consistent. According to this case law, a creditor’s right to bring a direct claim for damages against company directors and/or participants is recognised, but it is applied very narrowly. If a creditor brings a direct claim but does not prove its specific basis, that is a ground for dismissing the claim (see ruling of the Supreme Court of Lithuania of 4 May 2017 in civil case No 3K-[anonymised]).

44. The case law of the court of cassation recognises that a creditor may bring a direct claim against company directors and/or participants in two cases: 1) where these persons cause direct loss to the creditor (on the basis of Article 6.263 of the CC), their unlawful acts are directed at violating the rights of a specific creditor, the unlawfulness of the acts manifests itself specifically and only in relation to the specific creditor, and such unlawfulness meets the general criterion of unlawfulness applicable to tortious liability; 2) where the bankruptcy is recognised as intentional and it is established that these persons are at fault for the intentional bankruptcy (see ruling of the Supreme Court of Lithuania of 26 May 2021 in civil case No e3K-[anonymised]; ruling of 9 January 2020 in civil case No e3K-[anonymised]; and others).

45. Article 6.263(1) of the CC provides that every person is under a duty to comply with such rules of conduct that, by his actions (acts or omissions), he does not cause loss to another person. Under Article 6.246(1) of the CC, civil liability arises where a duty laid down by law or by contract is not performed (unlawful omission), or where acts are performed that are prohibited by law or by contract (unlawful act), or where a general duty to act with care and diligence is breached.

46. In the examination of the case in the court of first instance, the claimants sought to prove unlawful acts of the defendants directed at violating the rights of creditors (the claimants), since a creditor may bring a direct claim against company directors and participants only where these persons caused direct loss to a specific creditor on the basis of Article 6.263 of the CC, and not derivative loss to creditors as an interest group through improper management or through failure to open a bankruptcy case in time. When a creditor brings a direct claim against a defendant who is a company director, the creditor has a duty to prove that the defendant caused him individual loss that cannot be equated with loss caused to the company and/or to all creditors (see ruling of the Supreme Court of Lithuania of 9 March 2017 in civil case No e3K-[anonymised]).

47. Such a claim is possible in exceptional cases, where the defendant’s unlawful acts are not a general breach of a duty to the company on the basis of Article 2.87(7) of the CC but are directed at violating the rights of a specific creditor – the unlawfulness of the acts must manifest itself specifically, only in relation to one creditor, and meet the general criterion of unlawfulness applicable to tortious liability. In order for a creditor’s claim to be upheld, the general conditions of civil liability must be proved, which in the case of a claim brought by a creditor means the commission of dishonest acts directed at a specific creditor (misleading the creditor, giving the company false information when concluding a contract with a specific creditor, or other dishonest acts directed at a specific creditor) and the loss incurred by the creditor precisely because of those acts, and not the causing of the insolvency or the reduction of the solvency of the legal entity in general, which affects equally the creditor who brought the claim and the other creditors of the legal entity (see ruling of the Supreme Court of Lithuania of 31 December 2018 in civil case No e3K-[anonymised] and the case law of the court of cassation cited therein).

48. In the present case the claimants stated that the defendants’ unlawful acts consisted in the payment of LTL 30 409.23 to a law firm on 16 January 2014 and the transfer of LTL 61 000 on 7 February 2014 to an account in a foreign state; moreover, the out-of-court bankruptcy process was started unlawfully and the decision on the completion of the company was adopted hurriedly. Thus, as already mentioned, in the case of a direct claim it is necessary to establish that the unlawful acts stated were directed at violating the rights of a specific creditor (the claimants), that the unlawfulness of the acts manifested itself specifically and only in relation to specific creditors (the claimants), and that such unlawfulness meets the general criterion of unlawfulness applicable to tortious liability. In this case the court of first instance concluded that there is no basis for assessing the lawfulness of the defendants’ acts before they learned of the claimants’ possible claims against the company BUAB [anonymised]. The panel of judges essentially agrees with that assessment of the court.

49. It has been established in the case that the claimants first applied to BUAB [anonymised] with a demand on 3 February 2017. There is no evidence in the case that the claimants had informed the defendants earlier of their possible claims against the company. For this reason it is to be agreed that the defendants’ acts performed before 3 February 2017 cannot be assessed from the point of view of their lawfulness or unlawfulness, because in this case it is necessary to establish not only the defendants’ unlawful acts in general but unlawful acts in relation to the claimants. As the defendants had no information about the claimants and their possible claims, they could not have committed unlawful acts directed against the specific claimants.

50. It has been established in the case that the funds of the company allocated for joint activity and transferred as a deposit to the electricity transmission system operator AB [anonymised] were returned to UAB [anonymised] on 13 August 2013, that is, even before the signing of the share purchase agreement (7 November 2013), and therefore there is no basis for asserting that the defendants knew about the transferred funds or that these funds were physically in the company’s account when the share purchase agreement was signed. It should be noted that the case does not concern the alleged unlawful acts of the previous director of UAB [anonymised], [anonymised], that is, whether the funds received from AB [anonymised] were lawfully recorded and for what they were used before the company’s shares were sold to the defendants. For this reason the panel of judges has no grounds to disagree with the assessment of the court of first instance that, when acquiring the shares of UAB [anonymised], the defendants did not know about the claimants’ possible claims against the company. All the more so as the seller of the shares guaranteed to the defendants in the share purchase agreement that the company would have paid all payables and liabilities, that there would be no company liabilities, obligations or debts not stated in the annexes, no contracts not listed in the annexes, and ensured that no legal proceedings were under way and that there were no unperformed obligations; and the joint activity agreement of the claimants that was later challenged had been concluded orally.

51. It should also be noted that there is no objective data in the case that the disputed payments stated by the claimants were unfounded or unlawful at all. The claimants, asserting the contrary, rely only on unsubstantiated assumptions and reasoning. The defendants, on the other hand, submitted to the case evidence on the basis of which the payment to [anonymised] was made, which was not rebutted. The claimants essentially equate the alleged individual loss with loss caused to UAB [anonymised] itself and to all of its creditors as a whole (an undefined group of them), which means that the defendants’ acts (even if their unlawfulness were found) could not be assessed as dishonest acts directed specifically against the claimants, because the squandering and/or misappropriation (failure to preserve) of the company’s funds, if found, would not mean specific unlawful acts directed only against the claimants that would have caused individual loss to each of the claimants

52. Another group of the defendants’ unlawful acts stated by the claimants relates to the initiation and conduct of the company’s out-of-court bankruptcy process. It should be noted that none of the resolutions of the creditors’ meetings of BUAB [anonymised] was challenged by the claimants, so they are lawful and valid. Although, as the claimants state, for most of the time of the bankruptcy process of BUAB [anonymised] they were not officially approved creditors of this company because of the protracted examination of the civil case, after becoming creditors of the company the claimants likewise took no measures (procedural steps) to challenge the said resolutions of the creditors’ meetings. Moreover, the claimants did not submit in the civil case a request to suspend the bankruptcy procedures and did not take measures to bring a claim for intentional bankruptcy of the company, and so on. For this reason the conclusion of the court of first instance is to be agreed with that the circumstances stated by the claimants regarding possible breaches of the bankruptcy procedures of UAB [anonymised] are not causally linked to the individual loss caused to the claimants.

53. In addition, the panel of judges draws attention to the fact that the court of first instance, having established that the bankruptcy of UAB [anonymised] had not been recognised as intentional, assessed only the existence of the first condition, that is, the question of intentional bankruptcy was not, and could not be, the subject of examination in this case, and the claimants in the appeal, in seeking to prove that their claim also meets the second condition, unjustifiably expand the limits of the dispute and comment on circumstances that were not examined in the court of first instance, which the law prohibits (Article 312 of the CCP).

54. It has been clarified in the case law of the court of cassation that a company director’s civil liability is determined both by a breach of the duties imposed on him imperatively by legislation and by a breach of fiduciary duties to the company (see ruling of the Supreme Court of Lithuania of 25 March 2011 in civil case No [anonymised]). A direct claim is possible in exceptional cases where the defendant’s unlawful acts are not a general breach of a duty to the company on the basis of Article 2.87(7) of the CC, and therefore, in the case of a direct claim, the unlawful acts of the company director need not take the form of a breach of fiduciary duties to the company. Thus, in proving that in this case the defendants breached the legal rules on the company’s out-of-court bankruptcy process (that the defendants could not initiate the bankruptcy procedures, that the claimants’ creditor claims are unfounded, that the decision on the completion of the company was adopted on an urgent basis, and so on), it is additionally necessary to prove how the breach of such rules caused the loss to the claimants. In this case such circumstances were not established.

55. Moreover, as the case law of the court of cassation shows, a director is liable not for any breach of the duties assigned to him but only for one committed through his gross fault, that is, through intent to violate the interests of creditors or through gross negligence, manifested in clear and unjustifiable carelessness in performing his duties. Simple negligence of a director related to the risk of the company’s commercial activity should not be a ground for the company director’s civil liability to arise under Article 6.263 of the CC (see ruling of the Supreme Court of Lithuania of 1 February 2012 in civil case No [anonymised]; ruling of 21 May 2014 in civil case No [anonymised]; ruling of 29 September 2020 in civil case No e3K-[anonymised]; and others). Thus, a breach of duties laid down imperatively in legislation alone is not a sufficient basis for a direct claim against a company director. The creditor must substantiate that the unlawful acts manifested themselves specifically as unlawful acts directed at a specific creditor, that such unlawfulness meets the general criterion of unlawfulness applicable to tortious liability, and that the company can no longer settle with the creditor as a result.

56. In the appeal the claimants emphasise that the court of first instance wrongly failed to assess the circumstance that, although the bankruptcy of UAB [anonymised] was not recognised as intentional, the factual situation matches the features of intentional bankruptcy and is sufficient to find such a situation. However, as already mentioned, in examining a case on appeal the lawfulness and soundness of the judgment already adopted by the court of first instance are verified, and the civil case is not examined anew. Thus the question of intentional bankruptcy is not the subject of examination in this case and therefore is not to be examined.

57. On the basis of what has been set out, it is concluded that the court of first instance adopted a well-founded and lawful judgment on the substance of the dispute, and the arguments of the appeal give neither a legal nor a factual basis to set aside the judgment of the court of first instance (Article 326(1)(1) of the CCP).

58. It is recognised in the case law of the court of cassation that the court’s duty to give reasons for a procedural decision should not be understood as a requirement to respond in detail to every argument. In dismissing an appeal, the court of appeal may simply endorse the reasoning of the judgment adopted by the lower court (ruling of the Supreme Court of Lithuania of 1 June 2010 in civil case No [anonymised]; ruling of 15 February 2011 in civil case No [anonymised]; and others). In this case the panel of judges decides that the other arguments of the appeal give no grounds to draw conclusions different from those in the contested judgment of the court of first instance, and therefore does not analyse these arguments in more detail and does not rule on them.

59. As the appeal is dismissed, the claimants’ request for an award of litigation costs is also dismissed. On the other hand, the defendants [anonymised] and [anonymised] are to be awarded from the claimants in equal shares the litigation costs incurred in the court of appeal, which, according to the evidence submitted, consist of €2,000 of costs for payment for an advocate’s assistance (Articles 93 and 98 of the CCP).

The panel of judges of the court of appeal, guided by Article 326(1)(1) of the Code of Civil Procedure of the Republic of Lithuania,

rules:

The judgment of Vilnius City District Court of 11 May 2021 shall be left unchanged.

To award the defendant [anonymised] from the claimants [anonymised], [anonymised] and [anonymised], in equal shares, €1,000 (one thousand euro) in compensation of litigation costs in the court of appeal, that is, €333.33 (three hundred and thirty-three euro and 33 euro cents) from each claimant.

To award the defendant [anonymised] from the claimants [anonymised], [anonymised] and [anonymised], in equal shares, €1,000 (one thousand euro) in compensation of litigation costs in the court of appeal, that is, €333.33 (three hundred and thirty-three euro and 33 euro cents) from each claimant.

Judges

[anonymised]

[anonymised]

[anonymised]