Lietuviškai
THE CONSTITUTIONAL COURT OF
THE REPUBLIC OF LITHUANIA
R U L I N G
On the compliance of Item 1 of the Procedure of
Payment of Financial Liabilities by Enterprises
during the Enterprise Bankruptcy Procedure
approved by Government of the Republic of
Lithuania Resolution No. 276 of 20 April 1993 with
the Constitution of the Republic of Lithuania and
Item 2 of Paragraph 7 of Article 6 of the 15
September 1992 Republic of Lithuania Law on
Enterprise Bankruptcy (together with the
amendments and supplements of 19 May 1994)
Vilnius, 26 April 2001
The Constitutional Court of the Republic of Lithuania,
composed of the Judges of the Constitutional Court Egidijus
Jarašiūnas, Egidijus Kūris, Zigmas Levickis, Augustinas
Normantas, Vladas Pavilonis, Jonas Prapiestis, Vytautas
Sinkevičius, Stasys Stačiokas, and Teodora Staugaitienė,
with the secretary of the hearing-Daiva Pitrėnaitė,
in the presence of:
the representative of the party concerned-the Government
of the Republic of Lithuania-Vitas Vasiliauskas, Director of
Tax Department of the Ministry of Finance of the Republic of
Lithuania,
pursuant to Paragraph 1 of Article 102 of the Constitution
of the Republic of Lithuania and Paragraph 1 of Article 1 of
the Republic of Lithuania Law on the Constitutional Court, on
18 April 2001 in its public hearing conducted the investigation
of Case No. 30/99 subsequent to the petition submitted to the
Court by the petitioner-the Higher Administrative
Court-requesting investigation into the compliance of Item 1 of
the Procedure of Payment of Financial Liabilities by
Enterprises during the Enterprise Bankruptcy Procedure approved
by Government of the Republic of Lithuania Resolution No. 276
of 20 April 1993 with Article 5, Item 2 of Article 67, Item 2
of Article 94 and Paragraph 3 of Article 127 of the
Constitution of the Republic of Lithuania as well as Paragraph
7 of Article 6 of the Republic of Lithuania Law on Enterprise
Bankruptcy.
The Constitutional Court
has established:
I
The petitioner-the Higher Administrative Court-was
investigating an administrative case. The said court suspended
the investigation of the case and appealed to the
Constitutional Court requesting investigation into the
compliance of Item 1 of the Procedure of Payment of Financial
Liabilities by Enterprises during the Enterprise Bankruptcy
Procedure (Official Gazette Valstybės žinios, 1993, No. 14-365;
hereinafter also referred to as the Procedure) approved by
Government of the Republic of Lithuania Resolution No. 276 of
20 April 1993 with Article 5, Item 2 of Article 67, Item 2 of
Article 94 and Paragraph 3 of Article 127 of the Constitution
of the Republic of Lithuania as well as Paragraph 7 of Article
6 of the 15 September 1992 Republic of Lithuania Law on
Enterprise Bankruptcy (together with the amendments and
supplements of 19 May 1994) (hereinafter also referred to as
the Law).
II
The request of the petitioner is based on these arguments.
Item 2 of Paragraph 7 of Article 6 of the Law provides
that in the event that bankruptcy proceedings are instituted by
court, the payment of all financial liabilities, including
interest and taxes, as well as their exaction by suing for
claims or without suit shall be prohibited; the distribution or
other allocation of the assets of the enterprise without a
special court order shall also be prohibited, with the
exception of current payments which are necessary for the
enterprise to continue the process of its activities during the
investigation of the case.
Item 1 of the Procedure provides that in cases when the
enterprise continues its economic activity after the
institution of bankruptcy proceedings it must fulfil all
current payments linked with the said activity.
In the opinion of the petitioner, there is a conflict
between these legal norms. The notion "current payments which
are necessary for the enterprise to continue the process of its
activities" is in essence narrower than "current payments
linked with its economic activity". The petitioner maintains
that the fine for overdue taxes arising from the enterprise
activities after the institution of bankruptcy proceedings are
current payments linked with activities of the enterprise,
however, they are not current payments which are necessary for
the enterprise to continue the process of its activities.
In the opinion of the petitioner, by its resolution the
Government extended the extent of the payments which are
necessary for a bankrupt enterprise, therefore there are
grounds to presume that Item 1 of the Procedure of Payment of
Financial Liabilities by Enterprises during the Enterprise
Bankruptcy Procedure approved by Government Resolution No. 276
of 20 April 1993 conflicts with Article 5, Item 2 of Article
67, Item 2 of Article 94 and Paragraph 3 of Article 127 of the
Constitution as well as Paragraph 7 of Article 6 of the Law on
Enterprise Bankruptcy.
III
In the course of the preparation of the case for the
Constitutional Court hearing, a written explanation was
received from the representative of the party concerned-the
Government-V. Latvienė who then was Vice-minister of Finance.
In the opinion of the representative of the party
concerned, Item 2 of Paragraph 7 of Article 6 of the Law
regulates payment of tax arrears which are a type of financial
liabilities. One distinguishes two categories of tax arrears:
first, tax arrears that occur prior to the institution of
bankruptcy proceedings (under the Law on Enterprise Bankruptcy,
the payment of all financial liabilities, including taxes, as
well as their exaction, shall be prohibited); second, tax
arrears that occur after the institution of bankruptcy
proceedings (the Law singles out current payments which are
necessary for the enterprise to continue the process of its
activities).
Item 2 of Paragraph 7 of Article 6 of the Law establishes
a prohibition to exact or pay tax arrears of the first
category. This is understandable, as Article 29 of the Law
provides for the sequence of and procedure for fulfilling
creditors' claims that occurred prior to the institution of
bankruptcy proceedings, meanwhile the legislator singles out
current payments which are necessary for the enterprise to
continue the process of its activities. The aforementioned
prohibition is not applied to the said payments, as they belong
to the second category of tax arrears.
The representative of the party concerned maintains that
taxes are a necessary condition of the activity of any
enterprise (including a bankrupt one). Taxes are inseparable
from the activity of an enterprise: it is an objectively
existing consequence of any activity. If after the institution
of bankruptcy proceedings the enterprise continues its
activities, it must pay all the taxes to be paid connected with
this activity. This is best shown by income tax of natural
persons which is an element of the salary paid to the employees
of the enterprise. The enterprise, on the basis of the
Provisional Law on Income Tax of Natural Persons must, by
paying salaries, deduct this tax from the employees' salaries
and transfer it into the budget. These statements are also
indirectly confirmed by the 17 June 1997 Enterprise Bankruptcy
Law wherein the legislator clearly establishes that the
enterprise engaged in business activity must pay all the taxes
connected thereto (Item 4 of Paragraph 6 of Article 14). Thus,
the notion "current payments which are necessary for the
enterprise to continue the process of its activities"
encompasses all the taxes which are to be paid after the
institution of bankruptcy proceedings.
In the opinion of the representative of the party
concerned, another important aspect is that the notion "current
payments which are necessary for the enterprise to continue the
process of its activities" includes the fines calculated for
not paid taxes or taxes paid overdue after the institution of
bankruptcy proceedings. Fines, according to their nature, are a
sanction for improper fulfilment or not fulfilment of a
liability(in this case, non-payment of taxes or their payment
overdue), therefore they are not necessary for the enterprise
to continue its activity. Taking account of this, it is
possible to assert that the notion "current payments which are
necessary for the enterprise to continue the process of its
activities" does not include the fines linked with the taxes
which are to be paid but which in fact are not paid or paid
overdue.
The representative of the party concerned maintains that
Item 1 of the Procedure covers only the taxes to be paid after
the institution of bankruptcy proceedings, therefore is in
compliance with Article 5, Item 2 of Article 67, Item 2 of
Article 94 and Paragraph 3 of Article 127 of the Constitution
as well as Item 2 of Paragraph 7 of Article 6 of the Law.
IV
In the course of the preparation of the case for the court
proceedings, written explanations were received from K.
Glaveckas, Chairman of Seimas Budget and Finance Committee, G.
Rainys, Vice-minister of Economy, Director of the Enterprise
Bankruptcy Management Department under the Ministry of Economy
of the Republic of Lithuania, D. Bublienė, Acting Director of
the Law Department of the Ministry of Justice of the Republic
of Lithuania, M. Strumskis, Head of the State Tax Inspectorate
under the Ministry of Finance of the Republic of Lithuania, and
S. V. Jurna, Chairman of the board of the stock company "Turto
bankas".
V
At the Constitutional Court hearing, the representative of
the party concerned-the Government-V. Vasiliauskas, Director of
the Tax Department of the Ministry of Finance, noted that if
the notions employed in the Law and the Procedure are construed
by linguistic way only, it is evident that these notions are
different. The notion "current payments which are necessary for
the enterprise to continue the process of its activities"
employed in the Law does not include, differently from the
notion "current payments linked with its economic activity",
certain payments, e.g. fines. Alongside, the representative of
the party concerned pointed out that, while one takes account
of the intention of the legislator, the said notions are
identical with respect to taxes. Therefore, in his opinion,
Item 1 of the Procedure is in compliance with Paragraph 7 of
Article 6 of the 15 September 1992 Law on Enterprise
Bankruptcy.
The Constitutional Court
holds that;
I
On the compliance of Item 1 of the Procedure of Payment of
Financial Liabilities by Enterprises during the Enterprise
Bankruptcy Procedure approved by Government Resolution No. 276
of 20 April 1993 with Item 2 of Paragraph 7 of Article 6 of the
Law on Enterprise Bankruptcy.
1. Item 1 of the Procedure provides: "After the court has
adopted a ruling to institute enterprise bankruptcy proceedings
or the meeting of creditors has adopted a decision to carry out
extrajudicial bankruptcy proceedings, the debtor enterprise
shall have the right to continue its economic activity and must
fulfil current payments linked with the said activity."
The petitioner doubts if Item 1 of the Procedure is in
conformity with Paragraph 7 of Article 6 of the Law.
1.1. It needs to be noted that although the petitioner
requests investigation into the compliance of Item 1 of the
Procedure with Paragraph 7 of Article 6 of the Law, however,
the motives are presented in its petition concerning the
conflict of Item 1 of the Procedure with not whole Paragraph 7
of Article 6 of the Law but only its Item 2 of Paragraph 7 of
Article 6.
1.2. On 15 September 1992, the Law on Enterprise
Bankruptcy (Official Gazette Valstybės žinios, 1992, No. 29
(1)-843) was passed. Item 2 of Paragraph 6 of Article 6 of the
said law provided that in the event that bankruptcy proceedings
are instituted by court, the payment of all financial
liabilities, including interest and taxes, as well as their
exaction by suing for claims or without suit shall be
prohibited; the distribution or other allocation of the assets
of the enterprise without a special court order shall also be
prohibited, with the exception of current payments which are
necessary for the enterprise to continue the process of its
activities during the investigation of the case. On 19 May
1994, the Law "On Amending and Supplementing the Republic of
Lithuania Law on Enterprise Bankruptcy" (Official Gazette
Valstybės žinios, 1994, No. 43-774) was adopted Part 3 whereof
provided that Article 6 of the Law on Enterprise Bankruptcy
shall be supplemented with Paragraph 4, while the former
Paragraph 6 shall be considered Paragraph 7.
On 17 June 1997, the Seimas passed a new Enterprise
Bankruptcy Law (Official Gazette Valstybės žinios, 1997, No.
64-1500) which went into effect on 1 October 1997. Paragraph 2
of Article 43 of the said law provides that the Law on
Enterprise Bankruptcy shall be effective and regulate
bankruptcy procedures only in respect of the enterprise against
which bankruptcy proceedings have been instituted or
extrajudicial bankruptcy process has been commenced prior to
the entry into force of this Law.
On 20 March 2001 a new Enterprise Bankruptcy Law (Official
Gazette Valstybės žinios, 2001, No. 31-1010) was passed Article
37 whereof provides that the said law shall be effective as of
1 July 2001.
The petitioner requests investigation into the compliance
of Item 1 of the Procedure with Item 2 of Paragraph 7 of
Article 6 of the 15 September 1992 Law on Enterprise Bankruptcy
(together with the amendments and supplements of 19 May 1994).
1.3. Subsequent to the petition of the petitioner, the
Constitutional Court will investigate whether Item 1 of the
Procedure is in compliance with Item 2 of Paragraph 7 of
Article 6 of the 15 September 1992 Law on Enterprise Bankruptcy
(together with the amendments and supplements of 19 May 1994).
2. In its rulings the Constitutional Court has held that a
Government legal act is a substatutory legal act, that it may
not conflict with a law, nor change the content of norms of the
law, that it may contain no legal norms which would compete
with those of the law (Constitutional Court rulings of 19
January 1994,16 March 1994, 15 July 1994, 26 October 1995, 29
May 1997, 3 December 1997, 6 May 1998, 15 March 2000, 5 April
2000).
3. When one compares the content of the norms established
in Item 2 of Paragraph 7 of Article 6 of the Law and Item 1 of
the Procedure, it is to be emphasised that under Item 2 of
Paragraph 7 of Article 6 of the Law, the enterprise against
which bankruptcy proceedings are instituted by court is
permitted to fulfil only the current payments which are
"necessary for the enterprise to continue the process of its
activities during the investigation of the case", while under
Item 1 of the Procedure, the debtor enterprise which continues
its economic activity after the court has adopted a ruling to
institute enterprise bankruptcy proceedings must fulfil
"current payments linked with the said activity".
The notion "current payments linked with the said
activity" as employed in Item 1 of the Procedure includes not
only "current payments which are necessary for the enterprise
to continue the process of its activities during the
investigation of the case" pointed out in Item 2 of Paragraph 7
of Article 6 of the Law but also other payments linked with the
economic activity of the enterprise. Thus the notion "current
payments linked with the said activity" as employed in Item 1
of the Procedure is wider than the notion "current payments
which are necessary for the enterprise to continue the process
of its activities during the investigation of the case"
established in Item 2 of Paragraph 7 of Article 6 of the Law.
Thus, Item 1 of the Procedure establishes a greater extent of
current payments which the bankrupt enterprise must fulfil than
that provided for by the Law.
4. On the grounds of the arguments set forth, one is to
conclude that Item 1 of the Procedure of Payment of Financial
Liabilities by Enterprises during the Enterprise Bankruptcy
Procedure approved by Government Resolution No. 276 of 20 April
1993 to the extent that it provides that after the court has
adopted a ruling to institute enterprise bankruptcy
proceedings, the debtor enterprise must not only fulfil current
payments which are necessary for the enterprise to continue the
process of its activities during the investigation of the case
but also fulfil other current payments linked with the economic
activity of the enterprise conflicts with Item 2 of Paragraph 7
of Article 6 of the 15 September 1992 Law on Enterprise
Bankruptcy (together with the amendments and supplements of 19
May 1994).
II
On the compliance of Item 1 of the Procedure of Payment of
Financial Liabilities by Enterprises during the Enterprise
Bankruptcy Procedure approved by Government Resolution No. 276
of 20 April 1993 with Item 2 of Article 94 of the Constitution.
1. The petitioner doubts if Item 1 of the Procedure is in
compliance with Item 2 of Article 94 of the Constitution.
2. Item 2 of Article 94 of the Constitution provides that
the Government shall implement laws and resolutions of the
Seimas concerning the implementation of laws, as well as the
decrees of the President of the Republic.
3. It has been held in this Ruling that Item 1 of the
Procedure to the extent that it provides that after the court
has adopted a ruling to institute enterprise bankruptcy
proceedings, the debtor enterprise must not only fulfil current
payments which are necessary for the enterprise to continue the
process of its activities during the investigation of the case
but also fulfil other current payments linked with the economic
activity of the enterprise expanded the extent of the current
payments, established in Item 2 of Paragraph 7 of Article 6 of
the 15 September 1992 Law on Enterprise Bankruptcy, which the
bankrupt enterprise must fulfil. The Government, establishing
in Item 1 of the Procedure a greater extent of payments which
the bankrupt enterprise must fulfil than that provided for by
the Law, overstepped its constitutional powers.
4. On the grounds of the arguments set forth, one is to
conclude that Item 1 of the Procedure of Payment of Financial
Liabilities by Enterprises during the Enterprise Bankruptcy
Procedure approved by Government Resolution No. 276 of 20 April
1993 to the extent that it provides that after the court has
adopted a ruling to institute enterprise bankruptcy
proceedings, the debtor enterprise must not only fulfil current
payments which are necessary for the enterprise to continue the
process of its activities during the investigation of the case
but also fulfil other current payments linked with the economic
activity of the enterprise conflicts with Item 2 of Article 94
of the Constitution.
III
On the compliance of Item 1 of the Procedure of Payment of
Financial Liabilities by Enterprises during the Enterprise
Bankruptcy Procedure approved by Government Resolution No. 276
of 20 April 1993 with Article 5 of the Constitution.
1. The petitioner doubts if Item 1 of the Procedure is in
compliance with Article 5 of the Constitution.
2. Article 5 of the Constitution provides:
"In Lithuania, the powers of the State shall be exercised
by the Seimas, the President of the Republic and the
Government, and the Judiciary.
The scope of powers shall be defined by the Constitution.
Institutions of power shall serve the people."
It is clear from the motives set down in the petition that
the petitioner assumes that Item 1 of the Procedure conflicts
with the principle of separation of powers entrenched in
Article 5 of the Constitution.
It needs to be noted that the constitutional principle of
separation of powers is established not only in Article 5 of
the Constitution but also other articles of the Constitution
which is an integral act. Under this principle, the
legislative, executive and judicial powers must be separated,
sufficiently independent, but also there must be a balance
among them. Competence corresponding to its purpose is ascribed
to every institution of power. The concrete content of the
competence of an institution depends on the place of the
institution among other institutions of power as well as the
relation of its powers with those of other institutions. After
the powers to a concrete institution of state power have been
established in the Constitution, no institution of state power
may either take over or transfer or refuse such powers. Such
powers may neither be changed nor restricted by a law
(Constitutional Court rulings of 19 January 1994, 26 October
1995, 6 December 1995, 29 May 1997, 10 January 1998, 21 April
1998, 20 April 1999, 3 June 1999, 9 July 1999, 23 November
1999, 21 December 1999, 10 February 2000, 18 October 2000, 6
December 2000).
3. It has been held in this Ruling that Item 1 of the
Procedure of Payment of Financial Liabilities by Enterprises
during the Enterprise Bankruptcy Procedure approved by
Government Resolution No. 276 of 20 April 1993 to the extent
that it provides that after the court has adopted a ruling to
institute enterprise bankruptcy proceedings, the debtor
enterprise must not only fulfil current payments which are
necessary for the enterprise to continue the process of its
activities during the investigation of the case but also fulfil
other current payments linked with the economic activity of the
enterprise conflicts with Item 2 of Article 94 of the
Constitution and that the Government, establishing in Item 1 of
the Procedure a greater extent of payments which the bankrupt
enterprise must fulfil than that provided for by the Law,
overstepped its constitutional powers. Alongside, Paragraph 2
of Article 5 of the Constitution, wherein it is established
that the scope of powers shall be defined by the Constitution,
as well as the constitutional principle of separation of powers
was violated.
4. On the grounds of the arguments set forth, one is to
conclude that Item 1 of the Procedure of Payment of Financial
Liabilities by Enterprises during the Enterprise Bankruptcy
Procedure approved by Government Resolution No. 276 of 20 April
1993 to the extent that it provides that after the court has
adopted a ruling to institute enterprise bankruptcy
proceedings, the debtor enterprise must not only fulfil current
payments which are necessary for the enterprise to continue the
process of its activities during the investigation of the case
but also fulfil other current payments linked with the economic
activity of the enterprise conflicts with Article 5 of the
Constitution.
IV
On the compliance of Item 1 of the Procedure of Payment of
Financial Liabilities by Enterprises during the Enterprise
Bankruptcy Procedure approved by Government Resolution No. 276
of 20 April 1993 with Paragraph 3 of Article 127 and Item 2 of
Article 67 of the Constitution.
1. The petitioner doubts if Item 1 of the Procedure is in
compliance with Paragraph 3 of Article 127 and Item 2 of
Article 67 of the Constitution.
Paragraph 3 of Article 127 of the Constitution provides:
"Taxes, other budgetary payments, and dues shall be established
by the laws of the Republic of Lithuania."
This constitutional provision consolidates both the
prerogative of the Seimas to establish taxes and the form of a
legal act by which taxes are established: they may be
established by the Seimas and by a law only.
As mentioned, Item 1 of the Procedure provides as to what
current payments the debtor enterprise must fulfil after the
court has instituted bankruptcy proceedings. It needs to be
noted that Item 1 of the Procedure does not establish any new
taxes, nor any other budgetary payments nor dues.
On the grounds of the arguments set forth, one is to
conclude that Item 1 of the Procedure of Payment of Financial
Liabilities by Enterprises during the Enterprise Bankruptcy
Procedure approved by Government Resolution No. 276 of 20 April
1993 is in compliance with Paragraph 3 of Article 127 of the
Constitution.
2. Item 2 of Article 67 of the Constitution provides that
the Seimas shall enact laws.
Item 1 of the Procedure does not contain any legal norms
that would deny or restrict the powers of the Seimas to enact
laws.
Taking account of this, one is to conclude that Item 1 of
the Procedure of Payment of Financial Liabilities by
Enterprises during the Enterprise Bankruptcy Procedure approved
by Government Resolution No. 276 of 20 April 1993 is in
compliance with Item 2 of Article 67 of the Constitution.
Conforming to Article 102 of the Constitution of the
Republic of Lithuania and Articles 53, 54, 55 and 56 of the
Republic of Lithuania Law on the Constitutional Court, the
Constitutional Court of the Republic of Lithuania has passed
the following
ruling:
1. To recognise that Item 1 of the Procedure of Payment of
Financial Liabilities by Enterprises during the Enterprise
Bankruptcy Procedure approved by Government of the Republic of
Lithuania Resolution No. 276 of 20 April 1993 to the extent
that it provides that after the court has adopted a ruling to
institute enterprise bankruptcy proceedings, the debtor
enterprise must not only fulfil current payments which are
necessary for the enterprise to continue the process of its
activities during the investigation of the case but also fulfil
other current payments linked with the economic activity of the
enterprise conflicts with Article 5 and Item 2 of Article 94 of
the Constitution of the Republic of Lithuania.
2. To recognise that Item 1 of the Procedure of Payment of
Financial Liabilities by Enterprises during the Enterprise
Bankruptcy Procedure approved by Government of the Republic of
Lithuania Resolution No. 276 of 20 April 1993 to the extent
that it provides that after the court has adopted a ruling to
institute enterprise bankruptcy proceedings, the debtor
enterprise must not only fulfil current payments which are
necessary for the enterprise to continue the process of its
activities during the investigation of the case but also fulfil
other current payments linked with the economic activity of the
enterprise conflicts with Item 2 of Paragraph 7 of Article 6 of
the 15 September 1992 Republic of Lithuania Law on Enterprise
Bankruptcy (together with the amendments and supplements of 19
May 1994).
This Constitutional Court ruling is final and not subject
to appeal.
The ruling is promulgated on behalf of the Republic of
Lithuania.