New Wording of the Law on Collective Investment Undertakings Adopted

      On 25 October 2007, the Parliament of the Republic of Lithuania adopted a new wording of the Law on Collective Investment Undertakings (hereinafter referred to as the “Law”).

      The main purpose of the Law is to create a legal possibility for establishing special, national collective investment undertakings (investment funds, investment companies of variable capital, investment companies of closed type and investment funds of closed type) in the Republic of Lithuania regulated by laws and regulations and supervised (hereinafter referred to as “CIU”), simultaneously ensuring a high level of protection of interests of persons investing into such CIU.

      For more information on the draft Law which was the basis for the new wording of the Law of the Republic of Lithuania on Collective Investment Undertakings, you can read Legislative Review No. 43 of August 2007.

      Supreme Court of Lithuania Spoke on the Provisions of the Enterprise Bankruptcy Law Related to Making of Creditors’ Claims, the Sequence of their Approval, Terms and Procedure of their Satisfaction

      On 17 October 2007, the Supreme Court of Lithuania passed a judgement in the case according to a cassation appeal of the third person UAB Vevira against the judgement of the Vilnius County Court of 10 October 2006 and for reversal of the judgement of the panel of judges of the Civil Cases Division of the Court of Appeal of Lithuania, dated 7 December 2006, which satisfied the requests of the applicants Lithuanian National Road Carriers’ Association Linava, UAB Linavos Servisas and the receiver UAB Būrai of UAB Revi under liquidation to correct the list of creditors in UAB Revi bankruptcy proceedings (case No. B2-356-45/2006).

      The Vilnius County Court by its judgement of 17 March 2005 initiated UAB Revi bankruptcy proceedings and established a term of 30 days for creditors for making of financial claims. The applicants – Association Linava and UAB Linavos Servisas addressed the court with a request to renew the term for making of financial claims in bankruptcy proceedings of UAB Revi under liquidation and to approve their financial claims. It was indicated in the requests that the applicants had learnt about the initiation of the bankruptcy proceedings too late when they received a notification of the receiver in bankruptcy regarding payment of debt, therefore they missed the term for making of creditors’ financial claims due to important reasons.

      In this case the Supreme Court of Lithuania examined whether there were legal grounds to accept the creditors’ requests regarding admission of claims that had arisen before the initiation of the bankruptcy proceedings, when such claims were made upon missing the term established in paragraph 4(5) of Article 10 of the Enterprise Bankruptcy Law due to important reasons and after the date of the court judgement to liquidate the enterprise by reason of bankruptcy. The Supreme Court of Lithuania noted that the enforcement of the rights of creditors of enterprises under bankruptcy to make claims depended of the legal rules given in the Enterprise Bankruptcy Law which establish consistent performance of the enterprise bankruptcy procedures in certain stages. The panel of judges of the Supreme Court of Lithuania stated that the fulfilment of the duty to notify creditors about initiation of the bankruptcy proceedings depended on the accuracy of information about creditors of the enterprise, therefore in case when there is no information about creditors and the notification, therefore, is not given, also when the creditor does not learn about this fact otherwise, the creditor being unable to exercise its statutory right due to reasons beyond its control would be deprived of the protection of its rights protected by the law and would find itself in a legally unjustifiably worse situation in comparison with other creditors. The Supreme Court of Lithuania emphasized that such legal situations were intolerable and were against the principles of justice, reason and fairness. Referring to the above-indicated arguments, the Supreme Court of Lithuania stated that creditors’ claims that arose before the initiation of the bankruptcy proceedings could be made until the court passed a judgement to dismiss the bankruptcy proceedings or a decision regarding the dissolution of the enterprise. There are legal grounds to accept the creditors’ requests regarding admission of the claims that arose before the initiation of the bankruptcy proceedings, when it is admitted that they were made upon missing the term established in paragraph 4(5) of Article 10 of the Enterprise Bankruptcy Law due to important reasons and the court has not passed a judgement to dismiss the bankruptcy proceedings or has not taken a decision regarding the dissolution of the enterprise.

      New Wording of the Law on Amending the Law on Small and Medium-Sized Business Drafted

       On 2 October 2007, the Seimas of the Republic of Lithuania was presented with a new draft of the Law on Amending the Law on Small and Medium-Sized Business (XP-1261A(3)) (hereinafter referred to as “Draft Law”).

      The main purpose of the Draft Law is to enhance the development of small and medium-sized business, to achieve that the level of entrepreneurship in the country is not lower than that on average in the European Union and that the portion of the gross domestic product created by small and medium-sized business constantly increase.

      Referring to provisions of Recommendation 2003/361/EC of the Commission of 6 May 2003, the Draft Law newly defines micro, small and medium-sized enterprises.

      The Draft Law also determines small and medium-sized business entities, providing for forms of state aid, limitations of state aid, authorities administering business development. According to the Draft Law, differently from the law, as currently in effect, the status of a small and medium-sized business entity will be given not only to autonomous enterprises but also to related enterprises meeting certain criteria. For this purpose the concepts of “autonomous”, “partner“ and “linked“ enterprises are introduced. Please note that referring to provisions of Recommendation 2003/361/EC of the Commission, the Draft Law newly defines “informal investor“ and “entrepreneur“.

      The Draft Law provides for new institutions – the Small and Medium-sized Business Council of Lithuania (hereinafter referred to as the “Council”) and the Small and Medium-sized Business Department under the Government of the Republic of Lithuania (hereinafter referred to as the “Department”). It has been provided that the first institution will be formed from representatives of associated business structures, which would ensure direct and permanent relationship between business organisations and state authorities. Conclusions of this institution on small and medium-sized business issues would be of recommendatory character. The Department, in its turn, administering the development of small and medium-sized business, will report not only to the Government but also to the Council. Such an institutional system would permit the Government to take decisions having an effect on business at minimal expense and to ensure the support of small and medium-sized business entities in the implementation of those decisions.

      List of Types of Business and Commercial Activities Subject to Obtaining a Permit – Hygiene Passport and the Rules for Issuance of Permits – Hygiene Passports Approved

      On 5 October 2007, the Minister of Health of the Republic of Lithuania adopted Order No. V - 791 “On Approval of the List of Types of Business and Commercial Activities Subject to Obtaining a Permit – Hygiene Passport and the Rules for Issuance of Permits – Hygiene Passports” (official gazette Valstybės Žinios, 2007, No. 106-4352) (hereinafter referred to as the “Order”). The Order will come into effect on 1 January 2008.

      In comparison with the presently effective order, the main change in the Order is clear and exhaustive specification of documents to be provided in order to obtain a permit – hygiene passport and accurate definition of procedures for issuance of permits – hygiene passports, fixing clear terms for fulfilment of procedures for issuance of permits – hygiene passports. Besides, the Order establishes that the number of mandatory laboratory tests can reduce depending on whether a relevant source of pollution is located at the place of business and commercial activities, also whether any laboratory tests were performed at the place of business and commercial activities no later than a year ago and the conditions of business and commercial activities did not change. The Order also has a provision that if the applicants so wish and indicate it in the application for a permit – hygiene passport, the applicant will be able to be informed in writing by e-mail (in this case an electronic signature is necessary) or by sending a letter by fax.

      EU Joins International Designs Treaty

      On 24 September 2007, the European Community submitted to the World Intellectual Property Organisation (WIPO) in Geneva its instrument of accession to the Geneva Act of the Hague Agreement concerning the international registration of industrial designs. This accession will allow EU companies, with a single application, to obtain protection of a design not only throughout the EU with the Community Design, but also in the countries which are members of the Geneva Act. It will simplify procedures of registration of international industrial designs, reduce the costs for international protection and make administration easier.

      The system of registration of industrial designs will become operational for businesses on 1 January 2008.

      Regulations of the Mortgage Register Amended

      On 10 October 2007, the Government of the Republic of Lithuania adopted Resolution No. 1079 (official gazette Valstybės Žinios, 2007, No. 108-4416) “On Amending Resolution No. 1246 of the Government of the Republic of Lithuania “On Approval of the Regulations of the Mortgage Register of the Republic of Lithuania”, dated 18 October 2001” (hereinafter referred to as “Resolution”). The Resolution came into effect on 21 October 2007.

      The Resolution harmonised the Regulations of the Mortgage Register with the new wording of the Law on State Registers, provisions of Book Four of the Civil Code, provisions of Chapter XXXVI of Part V of the Civil Procedure Code and other laws and regulations applicable in the Republic of Lithuania, eliminated certain gaps in law that existed previously, the functions of the main register administrating authority were corrected.

      The amendments to the Regulations deal with the ways of provision of data to the Mortgage Register in detail. It has been provided that persons can apply for register data no only in writing, but also electronically, creditors can also obtain certificate data about registration and deregistration of mortgage, involuntary mortgage, pledge, involuntary pledge electronically. Besides, there is a possibility to obtain information about mortgage/pledge of an item (property right) by telephone answering machine. Data are provided by telephone answering machine (orally) only according to the identification code of an item registered with the property register.

      Advance Payment, Adjudgment of a Fine, Indemnification for Damages and Moral Damage

      On 12 October 2007, the Supreme Court of Lithuania examined a civil case according to a cassation appeal of the claimant J. N. for reversal of the judgement passed by the panel of judges of the Civil Cases Division of the Vilnius County Court on 11 December 2006 in the civil case according to the claim of the claimant J. N. against the respondents T. M. (T. M.) and V. M. for repayment of an advance payment, adjudgment of a fine, indemnification for damages and moral damage (case No. 3K-7-304/2007).

      In this case the Supreme Court of Lithuania stated that the provision of paragraph 1 of Article 6.73 of the Civil Code regarding offsetting of penalties annulled any legal grounds for the creditor to claim punitive damages from the debtor, i.e. the total amount of both the damages and penalties simultaneously, but did not deprive of the right to reasonable contractual penalties if they were in excess of the creditor’s damages proven in the case. The court indicated that the meaning of penalties, as means of securing obligations, would be otherwise negated and the principle of the freedom of contract would be violated. It was explained that the essence of offsetting of penalties was that if the creditor claimed both penalties and damages and substantiated its claim, it was to be awarded the larger amount which was inclusive of the lesser one. In cases where the amount of damages is larger than the amount of contractual penalties, pursuant to paragraph 1 of Article 6.73 of the Civil Code damages are to be awarded which are inclusive of the amount of penalties offset.

      The Supreme Court of Lithuania also emphasized that when the claimed amount of contractual penalties was in excess of the damages that could be awarded, the court, examining the case, determined the amounts to be awarded as follows: included the amount of damages into the corresponding amount of contractual penalties (paragraph 1 of Article 6.73 of the Civil Code); decided on the reduction of the remaining contractual penalties (paragraph 2 of Article 6.73 of the Civil Code) and then determined the final amount of penalties awarded. The Supreme Court of Lithuania arrived at the conclusion that the principles of offsetting of penalties against damages provided for in paragraph 1 of Article 6.73 and in Article 6.258 of the Civil Code did not form legal grounds for reduction of contractual penalties till the amount of proven damages. But the penalties for non-fulfilment or improper fulfilment of obligations provided for by the parties in the contract can be reduced under the procedure and on the grounds provided for in paragraph 2 of Article 6.73 of the Civil Code. Therefore the provisions of the rule regarding relationship between penalties and damages are meaningful for reduction of penalties by the fact that the court can reduce penalties only so much that they would not become less than the damages suffered due to non-fulfilment or improper fulfilment of obligations.

      For the above-mentioned reasons, penalties provided for in agreements between the parties, as well as preliminary agreements can be larger than the damages suffered due to non-fulfilment or improper fulfilment of obligations. But if the penalties agreed upon in the agreement are in excess of the amount of damages suffered by the creditor, the court has the right, evaluating the amount of penalties agreed upon in the agreement, reduce penalties requested to be awarded by applying not paragraph 1 of Article 6.73 but paragraph 2 of Article 6.73 of the Civil Code, if there are grounds for application of this rule. In this way the court controls the amount of penalties so that a party would not have a basis for abusing the law and for its unlawful enrichment. The court has the right to reduce contractual penalties only if it establishes that penalties are obviously too big or that the obligation is partially fulfilled. As the law does not concretise the notions of “penalties that are obviously too big“ or “unreasonably big penalties“, the courts that examine specific cases are to establish criteria which are used in order to decide whether penalties are too big and to use such criteria for evaluation of penalties.

      Draft Law on Amending the Law on Pharmacy Presented to the Seimas for Consideration

      On 9 October 2007, the Seimas of the Republic of Lithuania was presented with Draft Law No. XP-2575 on Amending and Supplementing Articles 8, 23 and 57 of the Law on Pharmacy (hereinafter referred to as the “Draft”).

      The Draft proposes to supplement the Law of the Republic of Lithuania on Pharmacy (official gazette Valstybės Žinios, 2006, No. 78-3056) (hereinafter referred to as the “Law on Pharmacy”) with a provision that it is prohibited to market, distribute, sell (dispense) to the final consumer any pharmaceutical preparations with the expired term of validity. The Law on Pharmacy, as currently in effect, does not provide for a direct prohibition to market pharmaceutical preparations with the expired term of validity. Upon adoption of this provision, there would be more legal certainty in case of evaluation of acts of business entities when the fact of sale of a pharmaceutical preparation with the expired term of validity is established.

      The Draft also proposes to amend paragraph 1 of Article 23 of the Law on Pharmacy establishing that the validity of a licence can be suspended only in case of breach of conditions of the licensed activity and/or duties of the licence holder, when such a breach can be dangerous to human health or can have a negative impact on the quality of pharmaceutical preparations. This wording is milder, whereas the sanction provided for in the Law on Pharmacy, as currently in effect – to suspend the validity of a licence in all cases of indicated breaches – can often be too strict.

      On 16 October 2007, law firm Sutkienė, Pilkauskas & Partners was joined by attorney-at-law Vilma Brilinkevičienė. Before joining our law firm, Vilma Brilinkevičienė worked as a lawyer in AB Bank Hermis (1999 – 2000); AB SEB Vilniaus Bankas (2000 – 2001); as a lawyer of the Legal Department of AB Bankas Hansabankas (2001 – 2006) and in law firm Grajauskas and Partners. Attorney-at-law Vilma Brilinkevičienė has extensive experience in the banking law and will largely contribute to the finance, corporate, commercial law and dispute resolution practice groups within our law firm.

      Rules for Provision of Consultations and Replies to Enquiries at the State Tax Inspectorate Approved

      On 9 October 2007, the Head of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania (hereinafter referred to as the “STI”) adopted Order No. VA- 66 (official gazette Valstybės Žinios, 2007, 106-4364) (hereinafter referred to as the “Order”), by which the Rules for Provision of Consultations and Replies to Enquiries at the State Tax Inspectorate were approved. This Order superseded Order No. V-119 of the Head of the STI, dated 24 April 2003 (official gazette Valstybės Žinios, 2003, No. 42-1960) “Regarding the Approval of the Description of the Procedure for Making of Enquiries and Provision of Consultations“. The Order came into effect on 14 October 2007.

      The Order establishes the procedure of provision of consultations, replies and explanations by the STI to enquirers in connection with assessment, declaration and payment of payable taxes, performance of other taxation procedures, explanation of provisions of the tax law.

      The Order establishes that taxpayers can send enquiries by email through “E-services” on the website of the STI www.vmi.lt, also can make them orally, by phone, post or fax. Uncomplicated questions must be answered no later than within 5 business days. Other questions are to be answered within a term of 20 days, which can be extended for other 20 business days if the tax administrator does not prepare an answer in time for objective reasons. The term can be longer when it is impossible to prepare a written consultation regarding those enquiries which are related to preparation of a generalised explanation of (comment on) a tax law or obtaining of information from a foreign authority. The term for such a consultation can be extended until a generalised explanation of (comment on) a tax law is in place or until a reply from a foreign authority is received. The Order cancelled the provision that a written enquiry must be examined and consultation must be given no later than within 30 calendar days.

      The Rules pay particular attention to major taxpayers. Major taxpayers are those taxpayers the list of which is approved by an order of the Head of the STI. No such list has been approved yet. Besides, it has been established that major taxpayers can send their enquiries at dmmd@vmi.lt, also upon agreeing in advance on the date and time of the consultation by phone with the Department of Major Taxpayers, they can directly arrive for consultations to the STI.

      European Commission Adopted New Initiatives for Improving Freight Transport in Europe On 18 October 2007, the European Commission (hereinafter referred to as the “Commission”) adopted a series of initiatives aimed at making freight transport in the EU more efficient and sustainable. This new package of measures consists of proposals concerning logistics, a rail network giving priority to freight, and European ports, as well as two documents on the barrier-free European maritime transport area and the motorways of the sea.

      Freight transport is a vitally important field for the competitiveness of the European economy and the quality of life of EU citizens, therefore the common objective of these initiatives is to promote innovative infrastructure technologies and practices, develop means of transport, improve freight management, facilitate the construction of freight transport chains, simplify administrative procedures and enhance quality throughout the logistic chain.

      On the basis of the findings of a wide-ranging consultation starting in the summer of 2006, the logistics action plan proposes 30 or so measures aimed at making freight transport in the EU more efficient and sustainable, while reducing costs and saving both time and energy.

      The Commission is promoting maritime transport, which remains the mode that is the most environment-friendly and energy-efficient in terms of greenhouse-gas emissions. The simplification of administrative procedures for maritime transport within the EU is essential in order to make this mode of transport more attractive.

      Given the steady increase in the efficiency of road transport, rail transport also needs to become more competitive. The Commission’s objective is to promote the creation of a European freight network on which freight transport could offer a better quality of service in terms of journey times, reliability and capacity.

      Commission Starts Legal Action Against Eight Member States over Electronic Waste and Hazardous Substances

      On 17 October 2007, the Commission announced that it was to start legal action against eight Member States for not properly transposing EU legislation to tackle waste of electrical and electronic equipment (WEEE) and the hazardous substances contained in such products.

      Those countries include the three Baltic States, which, in the opinion of the Commission, have not correctly transposed certain provisions of the Directive 2002/96/EC on waste electrical and electronic equipment. Please not that Lithuania also has not correctly transposed Directive 2002/95/EC on the restriction of the use of certain hazardous materials in electrical and electronic equipment. The Commission is carrying out compliance checks on relevant legislation in other member states.

      The said directives seek to reduce hazardous waste and to increase the amount of waste electrical and electronic equipment that is recycled. The aim is to limit the total amount of waste that is discarded.