The Constitutional Court recognized the norms on deposit payment for an insolvency procedure insofar as it applies to employees, the only legal remedy of whom is declaration of the employer insolvent, as non-proportional
On 20 April 2012, the Constitutional Court adopted judgment in the case No. 2011-16-01 “On Compliance of Section 62 (1) of the Insolvency Law and Section 363.2 (2) of the Civil Procedure Law insofar as It Fails to Establish the Right of the Court to Release Persons from Deposit Payment with Article 92 of the Satversme of the Republic of Latvia”.
The right of a person to a fair trial shall be executed irrespective of financial status of the person
Contested Norms
Section 62 (1) of the Insolvency Law provides the pre-condition for the submission of an application for insolvency proceedings of a legal person is the payment of a deposit in the amount of two minimum monthly salaries into an account specially created by the Insolvency Administration.
Pursuant to Section 363.2 (2) of the Civil Procedure Law, when submitting an application for insovlecy proceedings, the creditor shall annex documents testifying payment of a state fee and other legal expenses, as well as a deposit for an insolvency procedure.
The Facts
The Applicant, the Civil Matter Panel of the Riga Regional Court reviews a matter, wherein five private persons have submitted an ancillary complaint in respect to 10 March 2011 Decision adopted by the Riga City Northern Region Court [Rīgas pilsētas Ziemeļu rajona tiesa] that has suspended the application of insolvency proceedings in respect to SIA “Jumaks”.
The Riga City Northern Region Court satisfied separate claims of each applicant in respect to SIA “Jumaks” insofar as it applies to recovery of remuneration. Respective judgments have already come into effect. However, SIA “Jumaks” has not yet paid the remuneration; moreover, means of constraint have not assured execution of the court decisions regarding the recovery of remuneration.
The Applicants asked the Court to release them from payment of legal expenses and the deposit by indicating that they do not have necessary means at their disposal. By means of 10 March 2010 decision of the Riga City Northern Region Court, the application of the Applicants was not proceeded with based on the Contested Norms and a term to eliminate all deficiencies was established, it including lodging, before the court, a document testifying payment of the deposit.
The Applicant indicated that the duty to pay the deposit when submitting an application for insolvency procedure established in the Contested Norms shall be regarded as a restriction of the right of persons to freely access to courts.
Moreover, without establishing a possibility to release an applicant (except for an insolvency administrator) from payment of the deposit or to reduce its amount, the right of persons to a free access to the court is restricted in a non-proportional way. According to the Applicant, the legitimate aim, which is to ensure adequate insolvency proceedings of a legal person, can be ensured by applying more lenient measures and restricting the right of persons at a lesser extent.
Court Findings and the Ruling
On impact of payments, namely, the deposit, on the free access to courts
The argumentation that payment of the deposit shall not be regarded as an obstacle for a free access to courts because its purpose is related with assuring proclamation and execution of a judgment on insolvency proceedings rather than compensation of expenses of the State when assuring work of courts and precluding persons from lodging ungrounded applications before courts (for instance, State fee and security payment) was recognised, by the Court, as ungrounded [8.2].
The Constitutional Court recognized the following: since it is not possible to initiate a matter on insolvency proceedings of a legal person, the duty to pay the deposit for submitting an application to the court shall be regarded as restriction to the right of persons to a free access to courts [8.2].
On the legitimate aim
When assessing historical development of the Insolvency Law and criteria included therein by shifting the duty to cover expenses related to insolvency proceedings of a legal persons from the State to an individual, the Constitutional Court concluded that, at present, the restriction included into the Contested Norms has been established with a view to assure effective course of insolvency proceedings, whilst its legitimate aim is protection of rights of other persons [11].
On appropriateness of the measure selected by the legislator for reaching of the legitimate aim
The Constitutional Court assessed the function of the deposit, which is to cover insolvency procedure expenses for a legal person in case if the debtor has no means [13.1], as well as impact of the deposit in interests of creditors [13.2] and the duty of representatives of a debtor [13.3] to ensure a timely insolvency proceedings. The court concluded that the requirement to pay the deposit, as established in the Contested Norms, is an appropriate measure for reaching of the legitimate aim [13.4].
On more lenient measures for reaching of the legitimate aim
In the frameworks of the particular matter, the Saeima expressed the viewpoint that the Civil Procedure Law provides for sufficiently effective legal remedies to employees for them to be able to recover their claims on labour remuneration. One of the remedies is compulsory execution of liabilities in accordance with warning procedures established in Section 50.1 of the Civil Procedure Law. Another way how an employee can recover its remuneration is application of claim proceedings established in the fourth chapter of the Civil Procedure Law. In both cases, employees are released from payment of legal expenses. Likewise, pursuant to Section 57 (4) and Section 60 (3) of the Insolvency Law, an employer has the duty to submit an insolvency application in case if it has failed by pay full remuneration to its employee [14.1].
In the frameworks of the particular matter, the Constitutional Court concluded that legal remedies of employees indicated by the legislator can not be applied in certain cases, and employees have to address the court to protect their rights by submitting an application claiming recognizing their employee as insolvent [14.2].
The Saeima indicated in its reply that the amount of deposit is rather high; however, it noted that employees who want to launch insolvency procedure in respect to its employee have the possibility to unite and submit a joint application for initiation of an insolvency procedure [14.3].
The Constitutional Court indicated that the right to a free access to court enshrined in Article 92 of the Satversme are individual rather than collective right. A free access to courts is guaranteed to each person. Persons cannot be committed to uniting to exercise their basic rights established in Article 92 of the Satversme. Consequently the suggested solution shall not be regarded as an effective measure to protect the fundamental rights of an individual [14.3].
The Constitutional Court concluded that the solution selected by the legislator shall not be regarded as the most lenient measure of restriction of the fundamental rights [14.3]. The Court indicated that, when selecting a most lenient measure possible, it is necessary to take into account the fact that the duty of making different payments as a restriction of the right of persons to a free access to courts is permitted only in case it if does not constitute an obstacle and prohibits exercising the fundamental right to a free access to the court. Neither the Insolvency Law, nor the Civil Procedure Law envisages reduction of the amount of the deposit or release of persons from payment of the deposit [15].
When adopting the Contested Norms, the legislator has failed to properly evaluate protection of rights of employees and to assure that the right to a free access to courts would be exercised irrespective of financial stats of a person [15].
The Constitutional Court concluded that the Contested Norms are not compatible with the principle of proportionality and recognized that they contradict the first sentence of Article 92 of the Satversme.
The judgment of the Constitutional Court is final and not subject to appeal, it shall come into force on the date of publishing it.
Linked case: 2011-16-01