The Constitutional Court Terminates Legal Proceedings in the Case on Completion of Insolvency Proceedings
On 7 November 2013 the Constitutional Court adopted a decision on terminating legal proceedings in Case No. 2012-25-01 “On Compliance of Section 138 of the Insolvency Law of 1 November 2007 with Article 92 and Article 105 of the Satversme of the Republic of Latvia.”
Contested norm
The contested norm was in force until 1 November 2010. It provided that the decision on the completion of the bankruptcy proceedings was adopted by the creditors’ meeting within a month after performing the measures of the bankruptcy proceedings. The decision on the completion of bankruptcy proceedings is adopted, if at least half of the creditors having the right to vote, who are present, vote for it.
Norm of Higher Legal Force
Article 92 of the Satversme: “Everyone has the right to defend his or her rights and lawful interests in a fair court. Everyone shall be presumed innocent until his or her guilt has been established in accordance with law. Everyone, where his or her rights are violated without basis, has a right to commensurate compensation. Everyone has a right to the assistance of counsel.”
Article 105 of the Satversme: “Everyone has the right to own property. Property shall not be used contrary to the interests of the public. Property rights may be restricted only in accordance with law. Expropriation of property for public purposes shall be allowed only in exceptional cases on the basis of a specific law and in return for fair compensation.”
The Facts
The Applicant AS “Danske Banka” once granted a loan to a legal person, which later became bankrupt. The administrator of the insolvency proceedings did not recognise the Applicant as the creditor of the insolvent entrepreneur, and the court rejected the complaint regarding the administrator’s decision. The Applicant turned to court in accordance with the general procedure and was recognised as a secured creditor, however, the judgement was appealed against. Before the case was examined by the appellate court, the final meeting of the creditors, on the basis of the contested norm, decided to complete the bankruptcy proceedings and the insolvent company was liquidated.
The Applicant noted in its constitutional complaint that because of the contested norm it had lost the possibility to be recognised as the secured creditor of the bankrupt entrepreneur. Thus, the Applicant’s right to own property and the right to fair court had been violated.
The Court Finding and Ruling
The Constitutional Court recognised that in this case the contested norm was not directly applied to the Applicant and that the Applicant’s fundamental rights had not been infringed by the norm, but by its interpretation and application in the concrete insolvency proceedings. [14.1, 20]
The Constitutional Court recalled that the purpose of the whole insolvency and bankruptcy proceedings was to protect the creditors’ interests and to satisfy their claims against the debtor as completely as possible. [15]
The contested norm provided that the creditors’ meeting should be convened not later than a month after the measures of the bankruptcy proceedings had been performed, thus, the norm also contained the issue, when the measures of the bankruptcy proceedings were to be considered as having been completed. [16] The issues related to the implementation of measures of bankruptcy proceedings are decided by the administrator. Accurate identification of creditors and their claims is one of the essential elements of the insolvency proceedings; the circle of creditors must be identified before the bankruptcy proceedings have been completed, so that the interests of all those persons, who have a claim against the debtor, were represented. [17.2]
Thus, it was the obligation of the insolvency administrator to assess, which of the interests should be granted priority. The administrator must take into consideration that he can direct the insolvency proceedings, ensuring that the interests of a potential creditor are not infringed, i.e., so that the creditor’s claim could be satisfied in the case, if it is recognised as secured creditor by a final decision of the court. [19]
Thus, the Constitutional Court concluded that the dispute in this case did not pertain to a violation of fundamental right, caused by the contested norm, but by the application of the contested norm in the context of the particular insolvency proceedings. Thus, the legal proceedings at the Constitutional Court should not be continued. [20]
The Constitutional Court terminates legal proceedings in Case No. 2012-25-01 “On Compliance of Section 138 of the Insolvency Law of 1 November 2007 with Article 92 and Article 105 of the Satversme of the Republic of Latvia.”
The decision by the Constitutional Court is final and not subject to appeal.
Linked case: 2012-25-01