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On the bankruptcy of enterprises (banks) and the application of measures to enhance the financial stability of banks

Case No. 2/2012-12/2012-9/2013

 THE CONSTITUTIONAL COURT OF THE REPUBLIC OF LITHUANIA

IN THE NAME OF THE REPUBLIC OF LITHUANIA

 RULING

ON THE COMPLIANCE OF CERTAIN PROVISIONS OF THE REPUBLIC OF LITHUANIA’S LAW ON BANKS, THE REPUBLIC OF LITHUANIA’S LAW ON ENTERPRISE BANKRUPTCY, THE REPUBLIC OF LITHUANIA’S LAW ON FINANCIAL SUSTAINABILITY, THE REPUBLIC OF LITHUANIA’S LAW ON THE PROCEEDINGS OF ADMINISTRATIVE CASES, AND THE CODE OF CIVIL PROCEDURE OF THE REPUBLIC OF LITHUANIA WITH THE CONSTITUTION OF THE REPUBLIC OF LITHUANIA

 5 July 2013

Vilnius

 

The Constitutional Court of the Republic of Lithuania, composed of the following Justices of the Constitutional Court: Egidijus Bieliūnas, Pranas Kuconis, Gediminas Mesonis, Ramutė Ruškytė, Egidijus Šileikis, Algirdas Taminskas, Romualdas Kęstutis Urbaitis, and Dainius Žalimas

The court reporter—Daiva Pitrėnaitė

The lawyers Gediminas Sagatys and Rimantas Simaitis, acting as the representatives of a group of members of the Seimas of the Republic of Lithuania, a petitioner

Antanas Nesteckis, a member of the Seimas, acting as the representative of the Seimas of the Republic of Lithuania, the party concerned

The Constitutional Court of the Republic of Lithuania, pursuant to Articles 102 and 105 of the Constitution of the Republic of Lithuania and Article 1 of the Law on the Constitutional Court of the Republic of Lithuania, on 17 June 2013, in the Court’s public hearing heard constitutional justice case No. 2/2012-12/2012-9/2013 subsequent to:

1) the petition (No. 1B-1/2012) of the group of members of the Seimas of the Republic of Lithuania, a petitioner, requesting an investigation into whether:

– Item 2 (wording of 30 March 2004) of Paragraph 3 of Article 85 of the Republic of Lithuania’s Law on Banks, insofar as it prohibits the discharge of any financial obligation—including any set-off of counterclaims of the same kind—not discharged prior to the opening of a bankruptcy case, is not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution of the Republic of Lithuania and the constitutional principle of a state under the rule of law,

– Paragraph 2 (wording of 30 March 2004) of Article 87 of the Republic of Lithuania’s Law on Banks, in view of the content of norms, is not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution of the Republic of Lithuania and the constitutional principle of a state under the rule of law,

– the provision “the claims concerning the payment of taxes and the making of other payments to the budget <...>, as well as the claims concerning the granted loans received on behalf of the state and with the guarantee of the state, shall be satisfied third in order of priority” of Paragraph 3 (wording of 4 November 2004) of Article 87 of the Republic of Lithuania’s Law on Banks is not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution of the Republic of Lithuania and the constitutional principle of a state under the rule of law,

– Item 3 (wording of 20 April 2006) of Paragraph 7 of Article 10 of the Republic of Lithuania’s Law on Enterprise Bankruptcy, insofar as it prohibited the discharge of any financial obligation—including any set-off of counterclaims of the same kind—not discharged prior to the opening of a bankruptcy case, was not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution of the Republic of Lithuania and the constitutional principle of a state under the rule of law,

– the provision “the discharge of any financial obligations not discharged prior to the opening of the bankruptcy case against the enterprise, including the payment of interest, default interest, taxes, and other compulsory contributions, as well as the recovery of debts from the said enterprise through either judicial or extrajudicial means, shall be prohibited, save the set-off of counterclaims of the same kind where such a set-off is allowed under the provisions of tax laws providing for the set-off of tax overpayment (difference)” of Item 3 (wording of 22 December 2011) of Paragraph 7 of Article 10 of the Republic of Lithuania’s Law on Enterprise Bankruptcy, is not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution of the Republic of Lithuania and the constitutional principle of a state under the rule of law,

– Paragraph 9 (wording of 17 November 2011) of Article 85 of the Republic of Lithuania’s Law on Banks, insofar as it prescribes that, upon the opening of a bankruptcy case against a bank, the bank administrator has no right to inspect any transactions concluded during the time when the temporary bank administrator had conducted the transfer of the assets, rights, transactions, and liabilities of the said bank to another bank, nor to bring any actions before a court for the invalidation of such transactions, is not in conflict with Article 23 and Paragraph 1 of Article 30 of the Constitution of the Republic of Lithuania and the constitutional principle of a state under the rule of law,

– Paragraph 2 of Article 131 (wording of 17 November 2011) of the Republic of Lithuania’s Law on Financial Sustainability, Paragraph 10 (wording of 17 November 2011) of Article 72 and Paragraph 14 of Article 761 (wording of 17 November 2011) of the Republic of Lithuania’s Law on Banks, Article 881 (wording of 17 November 2011) of the Republic of Lithuania’s Law on the Proceedings of Administrative Cases, and Article 2671 (wording of 17 November 2011) of the Code of Civil Procedure of the Republic of Lithuania, insofar as, according to the petitioner, they impose the prohibition on bringing before a court any claims concerning the annulment of the actions (acts) of the Government or an institution authorised by it, of the Bank of Lithuania, or other institutions or subjects taken (adopted) in connection with the application of measures to enhance financial stability, also any claims concerning the imposition of the obligation to take certain actions as a result of which the validity of the contested action (act) would be suspended or annulled, or the situation that existed prior to the performance (adoption) of the impugned action (act) would be otherwise restored, as well as any claims concerning the actions of the Bank of Lithuania, the temporary administrator, or other subjects taken in connection with the conduct of the transfer (return) of the assets, rights, transactions, and liabilities of a certain bank, as well as insofar as, in the cases where the said claims have been brought, when satisfying such a claim or complaint (petition), the court concerned is prohibited from annulling the contested action (act) or imposing the obligation to take any such actions as a result of which the validity of the contested action (act) would be suspended or annulled, or the situation that existed prior to the performance (adoption) of the impugned action (act) would be otherwise restored, are not in conflict with Article 23 and Paragraph 1 of Article 30 of the Constitution of the Republic of Lithuania and the constitutional principle of a state under the rule of law,

– Paragraph 1 of Article 131 (wording of 17 November 2011) of the Republic of Lithuania’s Law on Financial Sustainability, Paragraph 14 of Article 761 (wording of 17 November 2011) of the Republic of Lithuania’s Law on Banks, Paragraph 2 (wording of 17 November 2011) of Article 71 of the Republic of Lithuania’s Law on the Proceedings of Administrative Cases, and Paragraph 3 (wording of 17 November 2011) of Article 145 of the Code of Civil Procedure of the Republic of Lithuania, insofar as they prohibit courts from applying any temporary protective measures and measures to secure a claim that would limit the performance of actions related to the application of measures to enhance financial stability and the performance (execution) of the actions (acts) of the Bank of Lithuania, the temporary administrator, or other subjects taken (adopted) in connection with the organisation and conduct of the transfer (return) of the assets, rights, transactions, and liabilities of a certain bank, are not in conflict with Article 23 and Paragraph 1 of Article 30 of the Constitution of the Republic of Lithuania and the constitutional principle of a state under the rule of law;

2) the petition (No. 1B-22/2012) of the Vilnius Regional Court, a petitioner, requesting an investigation into whether:

– Paragraph 2 (wording of 30 March 2004) of Article 87 of the Republic of Lithuania’s Law on Banks is not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution of the Republic of Lithuania and the constitutional principle of a state under the rule of law,

– the provision “the claims concerning the payment of taxes and the making of other payments to the budget <...>, as well as the claims concerning the granted loans received on behalf of the state and with the guarantee of the state, shall be satisfied third in order of priority” of Paragraph 3 (wording of 4 November 2004) of Article 87 of the Republic of Lithuania’s Law on Banks is not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution of the Republic of Lithuania and the constitutional principle of a state under the rule of law,

– the provision “the claims concerning the payment of taxes and the making of other payments to the budget <...>, the claims concerning the loans granted from the funds borrowed on behalf of the state and the loans granted with the guarantee of the state or a guarantee institution the performance of whose obligations is guaranteed by the state <...>, shall be satisfied second in order of priority” of Paragraph 3 (wording of 22 May 2008) of Article 35 of the Republic of Lithuania’s Law on Enterprise Bankruptcy is not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution of the Republic of Lithuania and the constitutional principle of a state under the rule of law;

3) the petition (No. 1B-14/2013) of the Vilnius Regional Court, a petitioner, requesting an investigation into whether:

– Item 2 (wording of 30 March 2004) of Paragraph 3 of Article 85 and Paragraph 4 (wording of 22 December 2011) of Article 85 of the Republic of Lithuania’s Law on Banks, insofar as, according to the petitioner, they prohibit the discharge of any financial obligation—including any set-off of counterclaims of the same kind—not discharged prior to the opening of a bankruptcy case, save in the cases specified in the laws governing the functioning of the payment and securities settlement systems, as well as in other laws, where a bank is directly instructed to discharge its obligations after the opening of the bankruptcy case against it, are not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution of the Republic of Lithuania and the constitutional principle of a state under the rule of law,

– Item 3 (wording of 22 December 2011) of Paragraph 7 of Article 10 of the Republic of Lithuania’s Law on Enterprise Bankruptcy, insofar as it prohibits the discharge of any financial obligation—including any set-off of counterclaims of the same kind—not discharged prior to the opening of a bankruptcy case, save the set-off of counterclaims of the same kind where such a set-off is allowed under the provisions of tax laws providing for the set-off of tax overpayment (difference), is not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution of the Republic of Lithuania and the constitutional principle of a state under the rule of law.

By the Constitutional Court’s decision of 10 June 2013, the foregoing petitions were joined into one case, and it was given reference No. 2/2012-12/2012-9/2013.

The Constitutional Court

has established:

I

  1. The petitions of the group of members of the Seimas (petition No. 1B-1/2012) and the Vilnius Regional Court (petition No. 1B-22/2012), the petitioners, requesting an investigation into the compliance of the provisions of the Law on Banks and the Law on Enterprise Bankruptcy concerning the order of priority for the satisfaction of the claims of creditors with the Constitution are substantiated by the following arguments.

1.1. Under the regulation established in Paragraph 2 of Article 87 of the Law on Banks, in the event of the bankruptcy of a bank, the claims of one insurer—the state enterprise (hereinafter also referred to as the SE) “Deposit and Investment Insurance”—are satisfied in priority to the claims of other creditors of the bank in bankruptcy proceedings. In this way, the only one subject is singled out from a large number of the subjects operating in Lithuania and providing insurance services, i.e. privileges are granted to one enterprise. Due to the said reason, the legal regulation in question is discriminatory, and it violates the principle of the equality of rights, which is consolidated in Paragraph 1 of Article 29 of the Constitution. The possible losses of the SE “Deposit and Investment Insurance” that may be incurred upon the payment of deposit insurance funds in the event of the bankruptcy of a bank are transferred to other creditors whose claims rank lower in the order of priority for the satisfaction of claims, i.e. the rights of the said state enterprise, as a creditor in the bankruptcy process, are satisfied to the detriment of the rights of other creditors of the bank concerned, without reimbursing for that, in any way, the rest of the affected creditors, and thus violating the principle of the protection of ownership, which is consolidated in Article 23 of the Constitution. In addition, the rights and legitimate interests of the economic subjects who are the creditors of a lower priority rank than the second one in the order for the satisfaction of claims are limited more than it is necessary to ensure the public interest and secure constitutional values, which violates the provision consolidated in Paragraph 3 of Article 46 of the Constitution, according to which the state regulates economic activity so that it serves the general welfare of the nation, as well as the constitutional principle of a state under the rule of law.

1.2. The doubt of the petitioners regarding the conflict of the regulation established in Paragraph 3 (wording of 4 November 2004) of Article 87 of the Law on Banks, as well as the doubt of the Vilnius Regional Court, a petitioner (petition No. 1B-22/2012), regarding the conflict of the regulation established in Paragraph 3 (wording of 22 May 2008) of Article 35 of the Law on Enterprise Bankruptcy, with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law is substantiated by the same arguments as the doubt of the petitioners regarding the compliance of Paragraph 2 (wording of 30 March 2004) of Article 87 of the Law on Banks with the same provisions of the Constitution.

  1. The petitions of the group of members of the Seimas (petition No. 1B-1/2012) and the Vilnius Regional Court (petition No. 1B-14/2013), the petitioners, requesting an investigation into the compliance of the provisions of the Law on Banks and the Law on Enterprise Bankruptcy concerning the set-off of counterclaims of the same kind with the Constitution are substantiated by the following arguments.

2.1. Under the impugned legal regulation, as consolidated in Item 2 (wording of 30 March 2004) of Paragraph 3 of Article 85 of the Law on Banks and Item 3 (wording of 20 April 2006) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy, upon the opening of a bankruptcy case against a bank (enterprise), the bank (enterprise) is prohibited from discharging any financial obligations, thus, also from setting off any counterclaims of the same kind. Paragraph 4 (wording of 22 December 2011) of Article 85 of the Law on Banks contains an exception to the said prohibition, which permits the set-off of a claim of a depositor or an investor who is concurrently a recipient of a loan from the bank concerned against the claim of the bank against that depositor or investor concerning the outstanding loan where the claim of the depositor or investor is of the amount established in the Law on the Insurance of Deposits and Liabilities to Investors and where no insurance payment for the claim is paid to the said depositor or investor. Item 3 (wording of 22 December 2011) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy provides for another exception, under which the set-off of counterclaims of the same kind is not prohibited where such a set-off is allowed under the provisions of tax laws providing for the set-off of tax overpayment (difference).

The group of members of the Seimas, a petitioner, maintains that, by establishing such a differentiated legal regulation, which singles out only certain subjects who, differently from other subjects, are not prohibited from setting off their counterclaims of the same kind, the legislature has not, in substance, solved the question of set-off in the bankruptcy process. From the entirety of the arguments set forth in the petitions of both petitioners it is clear that, according to the petitioners, the impugned legal regulation would be in line with the Constitution if, after the opening of a bankruptcy case against an enterprise (bank), it did not prohibit the set-off of the counterclaims of the same kind of any creditors and debtors of the enterprise (bank) concerned where the possibility of such a set-off had been provided for prior to the opening of the bankruptcy case against the said enterprise (bank).

2.2. According to the group of members of the Seimas, a petitioner, the right of a creditor to a claim, as well as any other type of assets, is an object of the law of private ownership. The situation where a claim of a bank (enterprise) in bankruptcy proceedings is satisfied, while a counterclaim of the same kind of another party to the liability, inter alia, the depositors, whose counterclaims against the bank in bankruptcy proceedings exceed the amounts insured under the Law on the Insurance of Deposits and Liabilities to Investors, or that of a solvent enterprise, is not satisfied or is satisfied only in part (although both claims could be satisfied prior to the opening of the bankruptcy case), violates the principle of the legal protection of ownership.

2.3. Subjects who are the creditors of an insolvent bank (enterprise) must be regarded as equal and be subject to uniform conditions. The creditors whose counterclaims against a bank in bankruptcy proceedings exceed the amounts insured under the Law on the Insurance of Deposits and Liabilities to Investors, who had not set off their counterclaims of the same kind prior to the opening of the bankruptcy case against the bank, while being deprived of the possibility of setting off their whole claim, are obliged to repay the outstanding loan for the bank in bankruptcy proceedings, although the assets of that bank will be, in accordance with the procedure established by law, distributed among all its creditors. The said creditors are discriminated if compared to other creditors who are not the debtors of an insolvent bank (who have no undischarged liabilities to such a bank), or if compared to an insolvent bank itself, since they are obliged to return for the said bank the owed debts in full, whereas the debts owed by the bank may be recovered only in accordance with the procedure established in the Law on Banks and the Law on Enterprise Bankruptcy; thus, the constitutional principle of the equality of the rights of persons is violated.

2.4. As a result of the impugned legal regulation, the rights of that part of the creditors of a bank (enterprise) in bankruptcy proceedings who are concurrently the borrowers of the bank (enterprise) are limited more than it is necessary to ensure the public interest. Satisfying the claims of some creditors to the detriment of other creditors may not be regarded as serving the general welfare of the nation; therefore, it violates Paragraph 3 of Article 46 of the Constitution.

2.5. The indicated prohibition on set-off during the process of the bankruptcy of a bank violates the principles of justice and proportionality, since consideration is given only to the interests of an insolvent bank (enterprise), and no account is taken of the interests of the solvent creditors who are concurrently the debtors of such an insolvent bank (enterprise). As it does not provide for any possibility of the set-off of counterclaims of the same kind after the opening of a bankruptcy case, the legal regulation in question disregards the legitimate expectations of the persons concerned.

2.6. According to the petitioners, the exception established in Item 3 (wording of 22 December 2011) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy, according to which the set-off of counterclaims of the same kind is not prohibited where such a set-off is allowed under the provisions of tax laws providing for the set-off of tax overpayment (difference), consolidates a constitutionally unjustified privilege of the state and state institutions to satisfy their claims in priority to the claims of other creditors in the event of the bankruptcy of an enterprise. The legal regulation that lays down with respect to creditors other than the state and state institutions less favourable possibilities for defending their rights in the event of the bankruptcy of an enterprise (bank) is incompatible with the duty of the state to regulate economic activity in such a way that it can serve the general welfare of the nation; the said regulation limits the rights and legitimate interests of the economic subjects concerned more than it is necessary to ensure the public interest.

The regulation that permits the state, as a creditor of an insolvent bank (enterprise), to set off counterclaims of the same kind in an unlimited manner and gives the state the priority in setting off its counterclaims of the same kind that arise from tax overpayment (difference), if compared to the regulation of the situation of other creditors who, while holding the status of both creditors and debtors of a bank (enterprise) in bankruptcy proceedings, had not set off their counterclaims of the same kind prior to the opening of the bankruptcy case, violates the principle of the equality of persons before the law.

  1. The petition (No. 1B-1/2012) of the group of members of the Seimas, a petitioner, requesting an investigation into the compliance of Paragraph 10 (wording of 17 November 2011) of Article 72, Paragraph 14 of Article 761 (wording of 17 November 2011), and Paragraph 9 (wording of 17 November 2011) of Article 85 of the Law on Banks, Article 131 (wording of 17 November 2011) of the Law on Financial Sustainability, Paragraph 2 (wording of 17 November 2011) of Article 71 and Article 881 (wording of 17 November 2011) of the Law on the Proceedings of Administrative Cases, and Paragraph 3 (wording of 17 November 2011) of Article 145 and Article 2671 (wording of 17 November 2011) of the Code of Civil Procedure with the Constitution, is substantiated by the following arguments.

As the impugned provisions of the indicated laws groundlessly limit the right of persons to apply to court and the powers of courts, these provisions restrict, in substance, the possibilities of the administrator and creditors of a bank in bankruptcy proceedings as well as other persons to defend their rights of ownership that have been violated by the possibly unlawful actions (acts) of the Government or an institution authorised by it, of the Bank of Lithuania, the temporary administrator, or other institutions or subjects. As a result of the exclusion of the possibility for courts to decide as to which procedural measure and/or remedy for the violation of rights is the most appropriate in a concrete situation, the rights of the aforesaid persons as well as the powers of the judiciary have been groundlessly limited. The foregoing, according to the petitioner, provides a ground to believe that the impugned legal regulation is in conflict with Article 23 and Paragraph 1 of Article 30 of the Constitution and the constitutional principle of a state under the rule of law.

II

In the course of the preparation of the case for the Constitutional Court’s hearing, written explanations were received from A. Nesteckis, the member of the Seimas acting as the representative of the Seimas, the party concerned, in which it is maintained that the impugned legal regulation is not in conflict with the Constitution.

  1. The position of A. Nesteckis, the member of the Seimas acting as the representative of the Seimas, the party concerned, regarding the equality of the rights of the creditors of a bank in the bankruptcy process is substantiated by the following arguments.

1.1. The activity of the SE “Deposit and Investment Insurance”, which is responsible for the administration of the funds of the system of deposit and investment guarantees in Lithuania, is similar to insurance activity, but the objectives, legal status, rights, and duties of this enterprise are different from those of other insurance enterprises; therefore, it would be misleading to treat this enterprise as one of a large number of the subjects operating in Lithuania and providing insurance services. The fact that, in the process of the bankruptcy of a bank, the SE “Deposit and Investment Insurance” is given privileges over other creditors is a measure by means of which the state seeks to avoid negative social consequences. The purpose of the system of deposit and investment guarantees is not only to compensate (to pay compensation in the amount established by law) for the losses of the depositors and investors of a bank facing problems, but also to maintain the stability of the entire financial system of the state. The protection of the banking and financial system is deemed in European Union (hereinafter referred to as EU) law to be one of the public interests. Under EU law, the order of priority according to which the claims of an institution paying compensation are satisfied must be established by national legal acts. In Lithuania, it has been decided to give the SE “Deposit and Investment Insurance” priority over other creditors, save the employees of a bank in bankruptcy proceedings and the persons who have suffered damage to their health, in view of the fact that the said institution takes over the rights of depositors to whom it pays compensation (subrogation). By means of the said provision, it is sought to ensure that the system of deposit and investment guarantees does not collapse, and the amounts paid to depositors and investors are restored. If the indicated privilege were not consolidated, the system of deposit and investments guarantees would not be able to function effectively, which could shatter confidence in banks and, consequently, would result in a mass withdrawal of deposits from banks and lead to considerable negative consequences for the stability of the entire financial system of the state.

Lithuania is not the sole state in which a deposit and investment insurance institution has the right of priority over other creditors: such a right has also been consolidated in some other EU and other states.

1.2. The state is a special legal subject, and its purpose is to ensure the rights and freedoms of citizens and guarantee the public interest. The state is not a commercial creditor; in view of its functions and its relationship with a bank (as a taxpayer), the state differs in substance from other creditors; therefore, the regulation placing the satisfaction of the claims of the state in a separate rank and granting the state priority over the creditors the settlement of whose claims is not secured by the assets of the respective bank is proportionate and well-grounded. Granting the state privileges in the bankruptcy process, insofar as this is related to the raising of the funds of the state budget, is one of the measures that helps to reach the objectives useful for the public and ensure the implementation of public interests and the rights and freedoms of the citizens of the state. The privileges of the state in the bankruptcy process are consolidated in the law, and these privileges are known to all in advance; therefore, the creditors of a bank may assess the involved risk ahead of time and take appropriate measures. Lithuania is one of a large number of the states in which, in the bankruptcy process, the tax claims of the state take priority over the claims of other affected creditors.

The claims concerning the granted loans received on behalf of the state and with the guarantee of the state are given in the order for the satisfaction of claims the same priority rank as the claims concerning the payment of taxes and the making of other payments to the budget, since both groups of the said claims are inseparable from the property obligations of the state and the formation and execution of the state budget.

  1. The position of A. Nesteckis, the member of the Seimas acting as the representative of the Seimas, the party concerned, regarding the set-off of counterclaims of the same kind is substantiated by the following arguments.

The purpose of bankruptcy as a legal institute is namely to protect, insofar as this is possible, the rights of ownership of the persons concerned in the process of bankruptcy. Bankruptcy proceedings may be instituted only against an insolvent subject, i.e. an entity that is unable and in the nearest time will remain unable to fulfil the undertaken obligations, whereas those obligations may exceed the possessed assets (half of the book value of its assets). The opening of a bankruptcy case entails the limitation of the rights of ownership of both the entity against which the bankruptcy case has been opened and the creditors of that entity. On the other hand, the institute of bankruptcy constitutes one of the measures designated to protect the rights of ownership, and in the absence of this institute the creditors of a subject in bankruptcy proceedings could be exposed to far greater losses. The amounts of the funds received after selling out the assets of an enterprise in bankruptcy proceedings are, as a rule, insufficient to satisfy the claims of all its creditors; therefore, the claims of the affected creditors are satisfied according to the order of priority established in the law. During any bankruptcy process it is of the utmost importance to ensure that the distribution of the assets of a subject in bankruptcy proceedings is as fair as possible.

The legal norms under which the set-off of counterclaims of the same kind is permitted in certain cases is not a general rule but, on the contrary, an exception to a general rule. The prohibition on the discharge of any financial obligations during the bankruptcy process is a measure that contributes to protecting the rights and interests of all creditors as well as to ensuring that the claims of creditors are satisfied from the available remaining assets in the fairest manner possible. The set-off of counterclaims of the same kind is a means of discharging certain owed obligations. If the prohibition on the set-off of counterclaims of the same kind during the bankruptcy process were not consolidated, it is probable that not an inconsiderable amount of funds would be removed from the assets of an enterprise in bankruptcy proceedings from which the claims of all its creditors must be satisfied in accordance with the order of priority as established in the law. Thus, in the absence of the indicated prohibition, a situation could occur in which the claims of some creditors who rank third in the order of priority would be satisfied, while the available assets would be insufficient to satisfy the claims of the creditors of the first priority rank. Thus, the provisions of the Law on Banks and the Law on Enterprise Bankruptcy concerning the prohibition on the set-off of counterclaims of the same kind in the event of the bankruptcy of a legal person do not violate any provisions of the Constitution concerning the rights of ownership and the equality of persons before the law, since the said provisions are established in laws and are necessary, proportionate, and well-grounded. Otherwise, i.e. in the absence of the indicated prohibition, the rights of creditors (including the employees of an entity in bankruptcy proceedings and the persons who have suffered damage to their health) who do not have any such claims, could be violated, as the possibilities for satisfying their claims from the assets of the bank concerned would obviously be reduced. The set-off of counterclaims of the same kind during the bankruptcy process is, in one or another way, also limited in other states.

The provisions of Paragraph 4 of Article 85 of the Law on Banks concerning the permission to set off the claims of depositors and investors who are concurrently the recipients of loans from a bank in bankruptcy proceedings, as well as the provisions of Item 3 of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy under which the set-off of counterclaims of the same kind is not prohibited where such a set-off is allowed under the provisions of tax laws providing for the set-off of tax overpayment (difference), can be justified on the grounds of the public interest; moreover that the consolidation of the indicated exceptions has not undermined the possibilities of other creditors to have their claims satisfied from the assets of the respective entity in bankruptcy proceedings.

If the valid legal regulation were changed, and the set-off of claims of the same kind were allowed during the bankruptcy process, the situation of creditors who have such claims could become even better than that of mortgage creditors, whose claims, differently from counterclaims of the same kind, are known in advance, as they are publicly accessible through the Mortgage Register.

Under the impugned legal regulation, the exception to the prohibition on the set-off of counterclaims of the same kind during the bankruptcy process is made only with respect to the state, i.e. the state is not bound to return any tax overpayment to any legal entity in bankruptcy proceedings, but it may set off such an overpayment against the tax arrears of the said entity or debt owed by that entity to the state; however, the state already has the right of priority over other creditors; therefore, the exception in question limits the rights of other creditors to a far lesser extent than they would be limited if creditors other than the state were also allowed to exercise the right to the set-off of their claims of the same kind during the bankruptcy process.

  1. The position of A. Nesteckis, the member of the Seimas acting as the representative of the Seimas, the party concerned, regarding the right of persons to apply to court and the limitation of the powers of courts is substantiated by the following arguments.

The impugned provisions were adopted in view of the provisions of the Communication from the European Commission “An EU Framework for Crisis Management in the Financial Sector” of 20 October 2010 (COM(2010) 579 final), as well as the experience of other states in consolidating in legal acts the mechanisms that make it feasible, with the lowest possible amount of the expenses of the public sector and the least extent of the harm caused to depositors, the financial system, and the entire society as a result of the collapse of banks, to discontinue the activity of the banks that are important for the entire banking system but have run into serious financial difficulties.

The impugned legal regulation may be applied only upon the emergence of special conditions, i.e. the occurrence of a real threat to the stability and reliability of the banking system; this legal regulation does not deny the right of persons to apply to court, nor the right of courts to administer justice, adopt a just decision, and protect the rights and freedoms of persons, but rather it lays down certain peculiarities of the means of solving disputes as well as certain limits on the implementation of rights; it does not deny the right of persons to ownership but creates preconditions for receiving fair compensation where harm has been caused by the actions of certain state institutions or persons authorised by them; therefore, the limitations established by the impugned laws are necessary, well-grounded, and proportionate to the objective sought.

III

In the course of the preparation of the case for the Constitutional Court’s hearing, written explanations were received from Rimantas Šadžius, the Minister of Finance of the Republic of Lithuania, Vitas Vasiliauskas, the Chairman of the Board of the Bank of Lithuania, Deividas Kriaučiūnas, the Director General of the European Law Department under the Ministry of Justice of the Republic of Lithuania, Prof. Dr. Rima Ažubalytė, the Dean of the Faculty of Law of Mykolas Romeris University, and Tomas Pilipavičius, the Director of the Association of Investors.

IV

  1. At the Constitutional Court’s hearing, the advocates G. Sagatys and R. Simaitis, acting as the representatives of the group of members of the Seimas, the petitioner, virtually reiterated the arguments set forth in the petition of the petitioner, provided additional explanations, and answered the questions of the Justices of the Constitutional Court.
  2. At the Constitutional Court’s hearing, A. Nesteckis, the member of the Seimas acting as the representative of the Seimas, the party concerned, virtually reiterated the arguments set forth in his written explanations and answered the questions of the Justices of the Constitutional Court.

The Constitutional Court

holds that:

I

  1. The Vilnius Regional Court, a petitioner (petition No. 1B-22/2012), requests, inter alia, an investigation into whether the provision “the claims concerning the payment of taxes and the making of other payments to the budget <...>, the claims concerning the loans granted from the funds borrowed on behalf of the state and the loans granted with the guarantee of the state or a guarantee institution the performance of whose obligations is guaranteed by the state <...>, shall be satisfied second in order of priority” of Paragraph 3 (wording of 22 May 2008) of Article 35 of the Law on Enterprise Bankruptcy is not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law.

The petitioner doubts about the compliance of Paragraph 3 (wording of 22 May 2008) of Article 35 of the Law on Enterprise Bankruptcy with the Constitution insofar as it prescribes that the claims of the state concerning the payment of taxes and the making of other payments to the budget, as well as the claims concerning the loans granted from the funds borrowed on behalf of the state and the loans granted with the guarantee of the state or a guarantee institution the performance of whose obligations is guaranteed by the state, are satisfied second in order of priority.

  1. Article 35 “The Order of Priority and Procedure for the Satisfaction of the Claims of Creditors” (wording of 22 May 2008) of the Law on Enterprise Bankruptcy prescribes:

“1. The claims of the affected creditors shall be satisfied in two stages. During the first stage, the claims of the affected creditors, excluding the accrued interest and default interest, shall be satisfied according to the order of priority as established in this Article; during the second stage, the same order of priority shall apply to the remaining part of the claims of the affected creditors (interest and default interest).

  1. The claims of the affected employees concerning employment relations, also the claims for compensation for damage suffered as a result of mutilation or other bodily injury, the contraction of an occupational disease, or death caused by an accident at work, as well as the claims of the affected natural and legal persons for payment for the agricultural produce purchased for processing, shall be satisfied first in order of priority.
  2. The claims concerning the payment of taxes and the making of other payments to the budget, also the claims concerning compulsory state social insurance contributions and compulsory health insurance contributions, the claims concerning the loans granted from the funds borrowed on behalf of the state and the loans granted with the guarantee of the state or a guarantee institution the performance of whose obligations is guaranteed by the state, as well as the claims concerning the support granted from the EU funds, shall be satisfied second in order of priority.
  3. All the remaining claims of the affected creditors shall be satisfied third in order of priority.
  4. The claims of creditors ranked first in the order of priority for the satisfaction of claims shall not include the computed income tax of residents, which is payable on the remuneration of individuals. Such a claim shall be of the second priority rank in the order for the satisfaction of claims. Where the claims of the affected employees concerning employment relations, which are referred to in Paragraph 2 of this Article, as well as the claims for compensation for damage suffered as a result of mutilation or other bodily injury, the contraction of an occupational disease, or death caused by an accident at work, have been satisfied from the funds of the Guarantee Fund, also where the decision has been adopted to pay compensation for damage instead of the enterprise concerned from the funds of the state budget, or where the claims of the affected natural and legal persons for payment for the agricultural produce purchased for processing have been satisfied from the funds allocated by the Ministry of Agriculture, the recourse claims of the Guarantee Fund, the territorial office of the State Social Insurance Fund Board, and the Ministry of Agriculture, arising by reason of the foregoing, shall be satisfied second in order of priority.
  5. At each stage, the claims of the creditors of each succeeding priority rank shall only start to be satisfied following the full satisfaction of the claims of the creditors of the respective preceding priority rank. If funds are insufficient to satisfy in full all the claims of one priority rank at any stage, such claims shall be satisfied in proportion to an amount due to each creditor. Where the principle of proportionality, referred to in this Paragraph, fails to be observed when the first-ranking claims of creditors are satisfied from the funds of the Guarantee Fund or the Ministry of Agriculture in the manner provided for by legal acts, the resulting inconsistencies in proportionality must be rectified in the course of satisfying the remaining unsatisfied claims of these creditors from the funds of the enterprise concerned.
  6. The claims concerning employment relations brought by the employees of an enterprise either in bankruptcy proceedings or declared bankrupt, which are referred to in Paragraph 2 of this Article, may be satisfied from the funds of the Guarantee Fund, and the claims of the affected natural and legal persons for payment for the agricultural produce purchased for processing may be satisfied in accordance with the procedure laid down by the Government. The confirmed claims of the said employee or natural and legal person shall be reduced by the amount of the sum paid from the aforementioned funds.”

Thus, this article lays down the order of priority and procedure for the satisfaction of the claims of the creditors of enterprises in bankruptcy proceedings.

  1. In the context of the constitutional justice case at issue it should be noted that, under Paragraph 2 (wording of 22 May 2008) of Article 1 “The Purpose of This Law” of the Law on Enterprise Bankruptcy, the special laws governing the activities of legal persons may provide for certain specific features of the bankruptcy process.
  2. It should also be noted that the Vilnius Regional Court, a petitioner, was considering a civil case subsequent to the actions brought by the Bank of Lithuania, the CJSC “Prekybos bazė urmas”, and the Lithuanian National Road Carriers’ Association “Linava”, the plaintiffs, concerning the opening of a bankruptcy case against the SC Bank “Snoras”, the defendant.
  3. The peculiarities of the process of the bankruptcy of banks are established in the Law on Banks, Article 87 “The Order of Priority for the Satisfaction of the Claims of Creditors” (wording of 21 April 2011) whereof prescribes:

“1. The claims of the affected employees concerning employment relations, also the claims for compensation for damage suffered as a result of mutilation or other bodily injury, the contraction of an occupational disease, or death caused by an accident at work, shall be satisfied first in order of priority.

  1. The claims of the state enterprise “Deposit and Investment Insurance” for the expenses related to the payment of insurance payments to the depositors or investors (who are specified in the Law on the Insurance of Deposits and Liabilities to Investors) of the bank concerned, shall be satisfied second in order of priority.
  2. The claims concerning the payment of taxes and the making of other payments to the budget, also the claims concerning state social insurance contributions and compulsory health insurance contributions, as well as the claims concerning the loans granted on behalf of the state and with the guarantee of the state, shall be satisfied third in order of priority.
  3. Other claims of the creditors of the bank concerned, save the claims referred to in Paragraphs 1, 2, 3, 5, and 6 of this Article, shall be satisfied fourth in order of priority.
  4. The claims of the affected creditors concerning the subordinated loans granted to the bank concerned and the non-equity securities issued by this bank that have all the properties of a subordinated loan, save the claims referred to in Paragraph 6 of this Article, shall be satisfied fifth in order of priority.
  5. The claims of the affected creditors concerning the non-equity securities that have been issued by the bank concerned and have all the properties of a subordinated loan and the acquisition transactions of which stipulate that the claims under these transactions are satisfied only subsequent to other claims of the creditors of the bank, including the claims concerning the subordinated loans granted to the bank and other non-equity securities that have been issued by the bank and have all the properties of a subordinated loan, shall be satisfied sixth in order of priority.
  6. The claims of the shareholders of the bank concerned who have a qualifying holding in the authorised capital and/or voting rights of the bank, also the claims of the members of the supervisory board of the bank, the members of the board of the bank, and the heads of the administration of the bank, shall be satisfied seventh in order of priority.”

Thus, this article lays down the order of priority for the satisfaction of the claims of the creditors of banks in bankruptcy proceedings.

  1. It should be noted that Article 87 of the Law on Banks, which lays down the order of priority for the satisfaction of the claims of the creditors of a bank in bankruptcy proceedings, is a special norm in respect of Article 35 of the Law on Enterprise Bankruptcy, which lays down the order of priority for the satisfaction of the claims of the creditors of enterprises in bankruptcy proceedings. Thus, the order of priority for the satisfaction of the claims of the creditors of banks in bankruptcy proceedings is laid down in Article 87 of the Law on Banks, but not in Article 35 of the Law on Enterprise Bankruptcy. Consequently, the Vilnius Regional Court had not to (and could not) apply Paragraph 3 (wording of 22 May 2008) of Article 35 of the Law on Enterprise Bankruptcy in the civil case in which it adopted the ruling to apply to the Constitutional Court.
  2. In view of the foregoing circumstances, the conclusion should be drawn that, in the aforementioned civil case, the Vilnius Regional Court, a petitioner, adopted the ruling on the suspension of the consideration of the case and application to the Constitutional Court regarding, inter alia, Paragraph 3 (wording of 22 May 2008) of Article 35 of the Law on Enterprise Bankruptcy, though the latter paragraph of the said law should not be applied in that civil case considered by the Vilnius Regional Court.
  3. Under the Constitution and the Law on the Constitutional Court, no court has locus standi to apply to the Constitutional Court with a petition requesting an investigation into whether a law (part thereof) or another legal act (part thereof) that should not (could not) be applied in the case considered by the court is not in conflict with the Constitution (the Constitutional Court’s decisions of 22 May 2007, 27 June 2007, and 5 July 2007, its ruling of 24 October 2007, its decision of 29 October 2009, its rulings of 29 November 2010 and 2 September 2011).

Under Item 1 of Paragraph 1 of Article 69 of the Law on the Constitutional Court, by means of its decision, the Constitutional Court refuses to consider petitions requesting an investigation into the compliance of a legal act with the Constitution if the petition was filed by an institution or a person who does not have the right to apply to the Constitutional Court, and, under Paragraph 3 of Article 69 of the Law on the Constitutional Court, if the grounds for the refusal to consider a petition have been established after the commencement of the investigation of the case during the Constitutional Court’s hearing, a decision to dismiss the case is adopted.

  1. In view of the foregoing arguments, the part of the constitutional justice case subsequent to the petition (No. 1B-22/2012) of the Vilnius Regional Court, a petitioner, requesting an investigation into whether the provision “the claims concerning the payment of taxes and the making of other payments to the budget <...>, the claims concerning the loans granted from the funds borrowed on behalf of the state and the loans granted with the guarantee of the state or a guarantee institution the performance of whose obligations is guaranteed by the state <...>, shall be satisfied second in order of priority” of Paragraph 3 (wording of 22 May 2008) of Article 35 of the Law on Enterprise Bankruptcy is not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law, should be dismissed.

II

  1. In the constitutional justice case at issue, the Constitutional Court is requested to investigate whether the regulation under which, in the event of the bankruptcy of a bank, the claims of the SE “Deposit and Investment Insurance” for the expenses related to the payment of insurance payments to the depositors or investors of the bank are satisfied second in order of priority, and the claims of the state concerning the payment of taxes and the making of other payments to the budget and the claims concerning the loans granted on behalf of the state and with the guarantee of the state—third in order of priority, which is established in the Law on Banks, as well as the regulation imposing the prohibition on the discharge of any financial obligation—including any set-off of counterclaims of the same kind—not discharged prior to the opening of a bankruptcy case, save the exceptions provided for by law, which is established in the Law on Enterprise Bankruptcy and the Law on Banks, is not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law.

In the constitutional justice case at issue, the Constitutional Court is also requested to investigate whether the regulation, as established in the Law on Banks, the Law on Financial Sustainability, the Law on the Proceedings of Administrative Cases, and the Code of Civil Procedure, under which the administrator of a bank in bankruptcy proceedings has no right to inspect any transactions concluded prior to the opening of the bankruptcy case against the bank and related to the transfer of the assets, rights, transactions, and liabilities of the said bank to another bank, and also which, according to the petitioner, limits the right of the administrator of a bank in bankruptcy proceedings and other persons to apply to court concerning decisions (actions) to ensure financial stability as well as limits the powers of a court to administer justice where it has to solve issues related to ensuring financial stability, is not in conflict with Article 23 and Paragraph 1 of Article 30 of the Constitution and the constitutional principle of a state under the rule of law.

  1. Paragraph 3 of Article 46 of the Constitution provides that the state regulates economic activity so that it serves the general welfare of the nation. The said provision consolidates the constitutional principle that outlines the objectives, directions, ways, and limits of the regulation of economic activity (inter alia, the Constitutional Court’s rulings of 6 October 1999, 6 January 2011, 21 June 2011, and 24 May 2013).

2.1. The Constitutional Court has noted that, in order to regulate economic activity in such a way that it can serve the general welfare of the nation, the state may establish a differentiated legal regulation determined by the specificity of a certain economic activity; the state, by taking account of the specificity of a certain economic activity, may use different means of legal regulation (the Constitutional Court’s ruling of 2 March 2009, 3 February 2010, and 24 May 2013). The regulation of economic activity must follow the principle of the reconciliation of the interests of a person and society and must ensure the interests of both a private person (a subject of economic activity) and society (inter alia, the Constitutional Court’s rulings of 13 May 2005, 6 January 2011, 21 June 2011, and 24 May 2013).

The Constitutional Court has also pointed out that the establishment of certain exceptions to a certain general legal regulation may be constitutionally justified if these exceptions are aimed at ensuring a constitutionally justifiable and universally important interest, and only to the extent to which this is sought; the said exceptions must be proportional to the constitutionally justifiable objective that is being sought and must not limit the rights of the subjects concerned more than it is necessary to ensure the said constitutionally justifiable and universally significant interest (the Constitutional Court’s rulings of 12 December 2005, 2 March 2009, and 24 May 2013).

2.2. The economic activity carried out in the area of finances, inter alia, the provision of financial services, constitutes one of the specific types of economic activity; the said activity is characterised, inter alia, by the fact that when this activity is carried out, a direct influence is exerted on the national financial system as well as the entire national economy; the stability and efficiency of the financial system constitute a significant public interest and, in terms of the functioning of the market, form an essential condition, which determines the growth of the national economy; therefore, under the Constitution, inter alia, Paragraph 3 of Article 46 thereof, in order to regulate financial economic activity in such a way that it can serve the general welfare of the nation, the legislature is obliged to establish such legal regulation that would ensure the security, stability, and reliability of the financial system functioning in this country; when establishing such legal regulation, the legislature must pay heed to the imperatives stemming from the Constitution, inter alia, from the constitutional principle of a state under the rule of law (the Constitutional Court’s ruling of 24 May 2013).

2.3. In the context of the constitutional justice case at issue it should be noted that one of the means of guaranteeing the security, stability, and reliability of the financial system is to establish such legal regulation that would be aimed at ensuring the confidence of persons in financial institutions, inter alia, in banks. The said objective can be achieved by various means: inter alia, it is possible to establish the legal regulation under which the creditors (depositors, investors) of a bank in bankruptcy proceedings would be, under the established conditions, compensated for the incurred losses. The legislature may opt for various models of compensation for losses, inter alia, the insurance of deposits and investment. When establishing such legal regulation, the legislature must observe the principle of the reconciliation of the interests of a person and those of society as well as other constitutional imperatives.

  1. Article 23 of the Constitution consolidates the inviolability of ownership and its protection.

The Constitutional Court has held that the protection of the rights of ownership may be regulated in laws in a differentiated manner provided that account is taken of a different situation of the subjects of the rights of ownership when they seek certain definite objectives (the Constitutional Court’s ruling of 18 April 1996).

The Constitutional Court has also held on more than one occasion that, under the Constitution, the right of ownership is not absolute, and that this right can be limited by means of a law due to the character of an object of ownership, due to the committed deeds that are contrary to law, and/or due to a constitutionally justifiable need that is essential to society. In all cases where the rights of ownership are limited, the following conditions must always be observed: ownership may be limited only by invoking the law; limitations must be necessary in a democratic society in order to protect the rights and freedoms of other persons, the values consolidated in the Constitution, and the constitutionally important objectives that are essential to society; heed must be paid to the principle of proportionality (inter alia, the Constitutional Court’s rulings of 21 December 2000, 14 March 2006, 10 April 2009, and 8 June 2009), under which the measures provided for in laws must be in line with the constitutionally justifiable objectives that are being sought and are essential to society (the Constitutional Court’s ruling of 31 January 2011).

It needs to be noted that, under the Constitution, the existence of a public interest (constitutionally important objective) may serve as a ground for limiting the right of a person to ownership only in the cases where the non-limitation of this right, due to the nature of property and/or other important reasons, would render the protection of the values consolidated in the Constitution impossible and would harm the public interest (the Constitutional Court’s rulings of 14 March 2002 and 31 January 2011).

  1. Paragraph 1 of Article 29 of the Constitution provides that all persons shall be equal before the law, the court, and other state institutions and officials. The constitutional principle of the equality of all persons before the law requires that the main rights and duties be established by law equally to all (inter alia the Constitutional Court’s rulings of 24 December 2008, 2 March 2009, 22 December 2011, 29 March 2012, 4 June 2012, and 24 May 2013). The said principle would be violated if certain persons or groups of such persons were treated in a different manner, even though there would not be any differences of such a character and to such an extent between the said groups or persons that could objectively justify the said uneven treatment (inter alia the Constitutional Court’s rulings of 28 May 2010, 22 December 2011, 6 February 2012, 27 February 2012, 4 June 2012, and 24 May 2013).

Under the Constitution, the state, when regulating economic activity, must pay heed to the constitutional requirement of the equality of the rights of economic subjects, which is directly linked to the principle of the equality of the rights of all persons, which is consolidated in Article 29 of the Constitution; otherwise the regulation of economic activity could not be regarded as serving the general welfare of the nation (the Constitutional Court’s rulings of 13 May 2005, 31 May 2006, 2 March 2009, and 24 May 2013).

The Constitutional Court has held on more than one occasion that the constitutional principle of the equality of the rights of persons in itself does not deny the opportunity to establish a diverse and differentiated legal regulation by means of legislation with respect to certain persons who belong to different categories if between these persons there are differences of such a character that can objectively justify that differentiated regulation. Any differentiated legal regulation, when it is applied to certain groups of persons, which are characterised by the same features, and when it strives for positive and socially meaningful goals, or when the establishment of certain limitations or conditions is linked to the peculiarities of the regulated social relations, should not, in itself, be regarded as discriminatory. The Constitutional Court has also noted that the differentiated establishment of the legal situation of separate economic subjects (provided that account is taken of the importance and nature of the regulated relations) should be linked to the objectives raised by the state in the respective economic area and the striving to arrange the economy of this country in a corresponding manner (inter alia, the Constitutional Court’s rulings of 31 May 2006, 26 September 2006, 21 December 2006, 2 March 2009, 21 June 2011, and 24 May 2013).

In the context of the constitutional justice case at issue, it should be noted that the legislature, when establishing the legal regulation aimed at ensuring the stability and efficiency of the financial system, is obliged to pay heed to the constitutional principle of the equality of the rights of subjects taking part in financial activity. In order to regulate financial economic activity in such a way that it can serve the general welfare of the nation, and in order to consolidate the legal regulation aimed at ensuring the security, stability, and reliability of the financial system functioning in this country, the legislature may establish a diverse and differentiated legal regulation with respect to the creditors of a financial institution (inter alia, a bank) who belong to different categories. When establishing a differentiated legal regulation in the area of financial activity, the legislature is obliged to pay heed to the requirements concerning the balance of constitutional values and social harmony, also the constitutional principles of justice and proportionality, as well as the requirements stemming from Paragraph 2 of Article 127 and Paragraph 1 of Article 128 of the Constitution.

  1. The state budget is a plan of the state revenue and expenditure (allocations) for a specific period, i.e. a financial plan of the state, according to which public funds are redistributed; in the legal sense, the state budget is a law, by means of which a plan of the state revenue and expenditure (allocations) for a budget year is approved (inter alia, the Constitutional Court’s ruling of 14 January 2002 and decision of 13 November 2007). The funds of the budget of the state, as the organisation of the entire society and as the organisation that is obliged to act in the interests of the entire society, so that social harmony is ensured, must be allocated for the performance of various functions of the state and the provision of public services (the Constitutional Court’s ruling of 16 May 2013).

Paragraph 2 of Article 127 of the Constitution prescribes: “The State budget revenue shall be raised from taxes, compulsory payments, levies, income from State property and other income.”

Taxes are compulsory and unrequited payments established by means of a law and paid to the state budget by legal and natural persons at a fixed time (the Constitutional Court’s ruling of 17 November 2003). The Constitutional Court has held that taxes form an essential part of the financial system of the state and that they constitute the main part of the revenue of the state budget (the Constitutional Court’s rulings of 9 October 1998 and 15 March 2000) and are one of the primary conditions for the existence of the state (the Constitutional Court’s ruling of 9 October 1998). The Constitutional Court has also held that taxes are established with a view to receiving revenue to perform the functions of the state (municipality) and meet the public needs of both society and the state (the Constitutional Court’s ruling of 17 November 2003); when taxes are not paid or are overdue, the state (municipal) budget does not receive part of its revenue, and the possibilities for the state (municipality) in order to perform the functions ascribed to it are limited (the Constitutional Court’s rulings of 10 July 1997 and 17 November 2003).

  1. Paragraph 1 of Article 128 of the Constitution prescribes: “Decisions concerning the State loan and other basic property liabilities of the State shall be adopted by the Seimas on the proposal of the Government”.

In order to construe the said provision of the Constitution, the Constitutional Court has held that the state loan is monetary funds (it may also be material assets, services) received on behalf of the state on the grounds of loan agreements or other loan liabilities and repayable in corresponding (internal or foreign) currency; the funds of state loans are state revenue, and the repayment of these loans is the expenditure of the state budget (the Constitutional Court’s ruling of 17 June 1997).

  1. The Constitutional Court has held that the constitutional principle of a state under the rule of law is a universal principle, upon which the entire legal system of Lithuania and the Constitution itself are based, also that the content of the aforesaid constitutional principle is disclosed in various provisions of the Constitution, inter alia, Article 29 thereof, which consolidates the principle of the equality of the rights of persons. Any violation of the constitutional principle of the equality of the rights of persons is, at the same time, a violation of the constitutional imperatives of justice and harmonious society, and, thus, also a violation of the constitutional principle of a state under the rule of law (the Constitutional Court’s rulings of 6 February 2012, 14 December 2012, and 22 February 2013).
  2. Paragraph 1 of Article 30 of the Constitution consolidates the constitutional principle of judicial defence. Every person who believes that his rights or freedoms have been violated has the right to judicial defence of his constitutional rights and freedoms that have been violated; the defence of violated rights in court is guaranteed to a person regardless of his legal status; the right to apply to court is an absolute one; and this right may not be limited or denied (inter alia, the Constitutional Court’s rulings of 18 April 1996, 8 May 2000, 30 June 2000, 17 August 2004, and 13 December 2004, its decision of 8 August 2006, and its ruling of 13 May 2010).

The Constitutional Court has held on more than one occasion that, under the Constitution, the legislature has the duty to lay down such legal regulation by means of which all disputes concerning the violation of the constitutional rights and freedoms and acquired rights of a person, could be resolved in court (inter alia, the Constitutional Court’s rulings of 2 July 2002, 4 March 2003, 29 December 2004, 7 February 2005, and 16 January 2006). The constitutional right of a person to apply to court may not be construed as meaning that the legislature, purportedly, may not establish any such legal regulation under which a person seeking to defend, in his opinion, his violated rights or freedoms would be allowed to apply to court only in the manner provided for by means of a law. When fulfilling its constitutional duty to lay down such legal regulation by means of which all disputes concerning the violation of the rights and freedoms of a person could be resolved in court, and by paying heed, inter alia, to the imperatives consolidated in Paragraph 2 of Article 29 and Paragraph 1 of Article 30 of the Constitution, the legislature may establish certain procedure governing the constitutional right to apply to court, inter alia, the conditions, time limits, and means of implementing this right, which are determined, inter alia, by the public interest; however, the legislature may not establish any such legal regulation that would deny the right of a person to defend his rights and freedoms in court where he believes that his rights and freedoms have been violated.

  1. The Constitutional Court has also held that the guarantee of the judicial defence of the rights and freedoms of persons is a guarantee of procedural nature, also that it is an essential element of the constitutional institute of the rights and freedoms of persons, an indispensable condition for the administration of justice and an inseparable element of the content of the constitutional principle of a state under the rule of law (the Constitutional Court’s rulings of 30 June 2000, 17 August 2004, 13 December 2004, and 16 January 2006). The principle of a state under the rule of law, which is consolidated in the Constitution, is inseparable from the imperative of justice (the Constitutional Court’s ruling of 17 November 2003). When construing, inter alia, the constitutional principle of a state under the rule of law, the Constitutional Court has noted that, under the Constitution, the legislature has the duty to lay down such legal regulation under which the measures that are established in legal acts and are applied would be proportionate to the sought objective and would not limit the rights of a person more than it is necessary in order to attain a legitimate and universally significant objective (inter alia, the Constitutional Court’s ruling of 31 January 2011).
  2. Paragraph 1 of Article 30 of the Constitution should be construed in conjunction with Paragraph 2 of the same article, in which it is established that compensation for the material and moral damage inflicted upon a person shall be established by law. The Constitutional Court has held on more than one occasion that the necessity to compensate for the material and moral damage inflicted upon a person is a constitutional principle (the Constitutional Court’s rulings of 20 January 1997, 13 December 2004, 19 August 2006, 27 March 2009, and 3 February 2010). The constitution guarantees the right of a person to compensation for the material and moral damage suffered as a result of unlawful actions, including the recovery of damages through court (the Constitutional Court’s rulings of 30 June 2000, 13 December 2004, and 18 April 2012). The Constitution imperatively requires that, by means of a law, such legal regulation be established according to which a person upon whom damage has been inflicted by unlawful actions would be able in all cases to claim for just compensation for that damage and receive such compensation (the Constitutional Court’s rulings of 19 August 2006, 27 March 2009, 3 February 2010, and 13 May 2010).

When Paragraph 1 of Article 30 of the Constitution is construed in conjunction with Paragraph 2 of the same article of the Constitution in the context of the constitutional justice case at issue, it should be noted that the judicial awarding of damages is one of the means of the defence of violated rights and freedoms in court.

  1. The provisions of Article 30 of the Constitution should be construed in conjunction with the provisions consolidated in Article 109 of the Constitution.

In order to construe Paragraph 1 of Article 109 of the Constitution, wherein it is established that in the Republic of Lithuania justice is administered only by courts, the Constitutional Court, has held on more than one occasion (inter alia, in its rulings of 21 December 1999, 9 May 2006, 6 June 2006, 27 November 2006, 24 October 2007, 21 January 2008, and 25 September 2012) that, in the course of administering justice, courts must ensure the implementation of law formulated in the Constitution, laws, and other legal acts, must guarantee the supremacy of law, and must protect human rights and freedoms. From Paragraph 1 of Article 109 of the Constitution, the duty arises for courts to decide cases justly and objectively and to adopt reasoned and well-grounded decisions (inter alia, the Constitutional Court’s rulings of 15 May 2007, 17 September 2008, 31 January 2011, and 25 September 2012). Under the Constitution, the legislature is not allowed to lay down any such legal regulation under which a court, when deciding a case, would be forced to adopt such a decision that would violate a certain public interest and, consequently, a certain value consolidated in and defended and protected under the Constitution (the Constitutional Court’s ruling of 21 September 2006).

In the context of the constitutional justice case at issue, it should be noted that, by means of a law, the legislature may establish certain means of defending violated rights; however, the legislature may not establish any such legal regulation that would deny the possibility of the defence of the violated rights and freedoms in court or would deny the powers of a court to administer justice.

  1. Paragraph 3 of Article 109 of the Constitution prescribes that, when considering cases, judges obey only the law. The Constitutional Court has held that courts administer justice by following a certain procedure, which is governed by means of a law (the Constitutional Court’s rulings of 5 February 1999 and 16 January 2006). The legal regulation requiring that courts, in the course of considering cases, follow the relevant norms of procedural law is not in itself in conflict with the constitutional principle of the independence of judges and courts, nor does it violate any rights of the persons who have applied to a court.

III

On the compliance of Paragraph 2 and Paragraph 3 (wording of 4 November 2004) of Article 87 of the Law on Banks with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law.

  1. It has been mentioned that, in the constitutional justice case at issue, the Constitutional Court is investigating whether, inter alia, Paragraph 2 and the provision “the claims concerning the payment of taxes and the making of other payments to the budget <...>, as well as the claims concerning the granted loans received on behalf of the state and with the guarantee of the state, shall be satisfied third in order of priority” of Paragraph 3 (wording of 4 November 2004) of Article 87 of the Law on Banks is not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law.
  2. On 30 March 2004, the Seimas adopted the Republic of Lithuania’s Law on Banks, which came into force on 1 May 2004. That law laid down the procedure for the setting up, licensing, carrying out and terminating the activity, restructuring, and supervision of commercial banks, specialised banks, and foreign banks operating in the Republic of Lithuania, including the establishments of the said banks (Article 1).

Article 87 “The Order of Priority for the Satisfaction of the Claims of Creditors” of the Law on Banks, Paragraph 2 whereof is impugned in the constitutional justice case at issue, prescribed:

“1. The claims of the affected employees concerning employment relations, also the claims for compensation for damage suffered as a result of mutilation or other bodily injury, the contraction of an occupational disease, or death caused by an accident at work, shall be satisfied first in order of priority.

  1. The claims of the state enterprise ‘Deposit and Investment Insurance’ for the expenses related to the payment of insurance payments to the depositors or investors (who are specified in the Law on the Insurance of Deposits and Liabilities to Investors) of the bank concerned, shall be satisfied second in order of priority.
  2. The claims concerning the payment of taxes and the making of other payments to the budget, also the claims concerning compulsory state social insurance contributions and compulsory health insurance contributions, as well as the claims concerning the granted loans received on behalf of the state and with the guarantee of the state, shall be satisfied third in order of priority.
  3. Other claims of the creditors of the bank concerned, save the claims referred to in Paragraphs 1, 2, 3, 5, and 6 of this Article, shall be satisfied fourth in order of priority.
  4. The claims of the affected creditors resulting from the transactions that have all the properties of a subordinated loan shall be satisfied fifth in order of priority.
  5. The claims of the shareholders of the bank concerned who have a qualifying holding in the authorised capital and/or voting rights of the bank, also the claims of the members of the supervisory board of the bank, the members of the board of the bank, and the heads of the administration of the bank, shall be satisfied sixth in order of priority.”

Thus, Article 87 of the Law on Banks prescribed the order of priority according to which the claims of the creditors of a bank in bankruptcy proceedings were satisfied, i.e. it laid down six ranks of priority that had to be observed during the satisfaction of the claims of the said creditors.

Under Paragraph 2 of Article 87 of the Law on Banks, which is impugned by the petitioners, the claims of the SE “Deposit and Investment Insurance” for the expenses related to the payment of insurance payments to the depositors or investors of a bank in bankruptcy proceedings are satisfied second in order of priority.

  1. Article 87 of the Law on Banks was amended, inter alia, by the Republic of Lithuania’s Law Amending the Law on Bailiffs, the Law on the Notarial Profession, the Law on Banks, and the Law on the Central Credit Union, which was adopted by the Seimas on 4 November 2004 and came into force on 1 January 2005. By Article 1 of the third section “The Amendment of Article 87 of the Law on Banks” of the said law, Paragraph 3 of Article 87 of the Law on Banks was amended—the word “compulsory” was deleted, and this paragraph, which is impugned by the petitioners in the case at issue, was set forth in the following way: “The claims concerning the payment of taxes and the making of other payments to the budget, also the claims concerning state social insurance contributions and compulsory health insurance contributions, as well as the claims concerning the granted loans received on behalf of the state and with the guarantee of the state, shall be satisfied third in order of priority.”

Thus, under Paragraph 3 (wording of 4 November 2004) of Article 87 of the Law on Banks, which is impugned by the petitioners, the claims concerning the payment of taxes and the making of other payments to the budget, as well as the claims concerning the granted loans received on behalf of the state and with the guarantee of the state, are satisfied third in order of priority.

  1. In the context of the constitutional justice case at issue it should be noted that, although Article 87 of the Law on Banks has subsequently been amended and supplemented, Paragraph 2 and Paragraph 3 (wording of 4 November 2004) of Article 87 of the Law on Banks have been neither amended nor supplemented.

It should also be noted that, on 21 April 2011, the Seimas adopted the Republic of Lithuania’s Law Amending and Supplementing Articles 38, 39, 40, 41, 44, 48, 54, 56, 58, 59, 60, 61, 64, 65, 67, 87 and the Title of the Ninth Section of, and the Annex to the Law on Banks, as well as Supplementing the Law with Article 701, which came into force on 3 May 2011. By Paragraph 3 of Article 18 of that law, Article 87 (wording of 4 November 2004) of the Law on Banks was supplemented with Paragraph 6: “The claims of the affected creditors concerning the non-equity securities that have been issued by the bank concerned and have all the properties of a subordinated loan, and the acquisition transactions of which stipulate that the claims under these transactions are satisfied only subsequent to other claims of the creditors of the said bank, including the claims concerning the subordinated loans granted to the bank and other non-equity securities that have been issued by the bank and have all the properties of a subordinated loan, shall be satisfied sixth in order of priority.”

Paragraph 4 of Article 18 of the aforementioned law prescribes:

“The former Paragraph 6 of Article 87 shall be regarded as Paragraph 7, and the word ‘sixth’ therein shall be replaced with the word ‘seventh’, and this paragraph shall be set forth as follows:

‘7. The claims of the shareholders of the bank concerned who have a qualifying holding in the authorised capital and/or voting rights of the bank, also the claims of the members of the supervisory board of the bank, the members of the board of the bank, and the heads of the administration of the bank, shall be satisfied seventh in order of priority.’”

Thus, Article 87 (wording of 21 April 2011) provides for seven ranks of priority that must be observed during the satisfaction of the claims of the creditors of a bank in bankruptcy proceedings.

  1. The Law on Banks does not disclose the meaning of the order of priority established therein for the satisfaction of the claims of creditors.

In this context, it should be mentioned that the procedures of the bankruptcy of banks are regulated by the Law on Banks, the Republic of Lithuania’s Law on Financial Establishments, and the Law on Enterprise Bankruptcy unless the Law on Banks and the Law on Financial Establishments provide otherwise (Article 83 of the Law on Banks).

Paragraph 6 (wording of 22 May 2008) of Article 35 “The Order of Priority and Procedure for the Satisfaction of the Claims of Creditors” of the Law on Enterprise Bankruptcy prescribes:

“At each stage, the claims of the creditors of each succeeding priority rank shall only start to be satisfied following the full satisfaction of the claims of the creditors of the respective preceding priority rank. If the funds are insufficient to satisfy in full all the claims of one priority rank at any stage, such claims shall be satisfied in proportion to an amount due to each creditor <...>.”

When the regulation established in Article 87 (wording of 21 April 2011) of the Law on Banks is construed in conjunction with the regulation established in Paragraph 6 (wording of 22 May 2008) of Article 35 of the Law on Enterprise Bankruptcy, it should be noted that, in the event of the bankruptcy of a bank, the claims of the SE “Deposit and Investment Insurance”, which is the second-ranking creditor, can be satisfied following the full satisfaction of the claims of first-ranking creditors, i.e. the claims of the affected employees concerning employment relations and the claims for compensation for damage suffered as a result of mutilation or other bodily injury, the contraction of an occupational disease, or death caused by an accident at work; the third-ranking claims of creditors, i.e. the claims concerning the payment of taxes and the making of other payments to the budget, the claims concerning compulsory state social insurance contributions and compulsory health insurance contributions, as well as the claims concerning the granted loans received on behalf of the state and with the guarantee of the state, can be satisfied following the full satisfaction of the claims of the first-ranking creditors and the claims of the second-ranking creditor (the SE “Deposit and Investment Insurance”), etc. In addition, if the funds are insufficient to satisfy in full the claims of the same priority rank, such claims are satisfied in proportion to an amount due to each creditor of that rank.

  1. It has been mentioned that, under the impugned Paragraph 2 of Article 87 of the Law on Banks, the claims of the SE “Deposit and Investment Insurance” for the expenses related to the payment of insurance payments to the depositors or investors of a bank in bankruptcy proceedings are satisfied second in order of priority.

In the context of the constitutional justice case at issue, it is important to elucidate certain aspects in the development of the legal regulation of the bankruptcy of banks as regards the order of priority of creditors.

6.1. On 2 July 1992, the Supreme Council-Reconstituent Seimas of the Republic of Lithuania adopted the Republic of Lithuania’s Law on Commercial (Joint-Stock) Banks. Paragraphs 4 and 5 of Article 38 of that law prescribed:

“4. During the liquidation of a commercial bank, priority shall be given to settlements with the depositors of the bank and its other creditors.

  1. The remaining funds shall be distributed among the affected shareholders in proportion to the shares of stock held by them.”

Thus, under the regulation established in Paragraph 4 of Article 38 of the Law on Commercial (Joint-Stock) Banks, during the liquidation of a commercial bank, priority was given to settlements with the depositors of the bank and its other creditors.

6.2. On 20 July 1994, the Seimas adopted the Republic of Lithuania’s Provisional Law “On the Opening of Bankruptcy Cases Against Commercial Banks and the Peculiarities of the Procedure for Judicial Investigation”, Article 4 “The Order of Priority and Procedure for the Satisfaction of the Claims of Creditors” whereof prescribed:

 “The claims of the creditors of the commercial bank concerned shall only start to be satisfied after the court adopts the decision to liquidate the bank.

 The following settlements shall rank first in order of priority:

 1) the remuneration of the liquidator appointed by the court and other expenses related to the performance of the functions of the liquidator;

 2) the claims of the affected employees concerning employment relations.

 The claims of other creditors shall be satisfied second in order of priority.

 The second-ranking claims of creditors shall be satisfied following the satisfaction of the first-ranking claims of creditors.

 The second-ranking claims of creditors shall be satisfied in the following order:

 from the funds held in the correspondent account, each creditor shall be paid the same amount but not larger than the amount of the claims of the particular creditor;

 the remaining claims of the creditors shall be further settled by distributing the funds subsequently credited to the correspondent account in proportion to the amount of the remaining claims.”

Thus, under the regulation established in Article 4 of the Provisional Law “On the Opening of Bankruptcy Cases Against Commercial Banks and the Peculiarities of the Procedure for Judicial Investigation”, the claims of the depositors of a bank in bankruptcy proceedings were satisfied second in order of priority.

6.3. On 21 December 1994, the Seimas adopted the Republic of Lithuania’s Law on Commercial Banks, by Paragraph 1 of Article 56 whereof, the Seimas recognised the Law on Commercial (Joint-Stock) Banks (wording of 2 July 1992 with the subsequent amendment and supplement) and the Provisional Law “On the Opening of Bankruptcy Cases Against Commercial Banks and the Peculiarities of the Procedure for Judicial Investigation” (wording of 20 July 1994) as no longer valid.

Article 54 “The Order of Priority and Procedure for the Satisfaction of the Claims of Creditors” of the Law on Commercial Banks (wording of 21 December 1994) prescribed:

“The claims of the creditors of a bank in bankruptcy proceedings shall only start to be satisfied after the court adopts the decision to liquidate the bank.

The following settlements shall rank first in order of priority:

1) the claims secured by a pledge;

2) the remuneration of the liquidator appointed by the court and other expenses related to the functions of the liquidator;

3) the claims of the affected employees concerning employment relations.

The claims of the affected depositors who are natural persons for the deposit or part thereof not exceeding 5,000 litas shall be satisfied second in order of priority.

The second-ranking claims shall be satisfied following the satisfaction of the first-ranking claims.

The claims of other affected creditors and depositors for the part of the deposit exceeding 5,000 litas shall be satisfied third in order of priority.

The third-ranking claims of the affected creditors shall be satisfied following the satisfaction of the second-ranking claims.

If the funds of the bank concerned are insufficient to satisfy in full the claims of a certain rank, such claims shall be satisfied in proportion to the amount of these claims.”

Thus, under the regulation established in Article 54 of the Law on Commercial Banks, the claims of the affected depositors who were natural persons for the deposit or part thereof not exceeding 5,000 litas were satisfied second in order of priority, whereas the claims of other affected creditors and depositors for the part of the deposit exceeding 5,000 litas were satisfied third in order of priority.

Article 54 (wording of 21 December 1994) of the Law on Commercial Banks was amended and supplemented on more than one occasion.

6.3.1. On 24 June 1997, the Seimas adopted the Republic of Lithuania’s Law Supplementing the Law on Commercial Banks with Article 531 and Amending Articles 17, 37, 39, 40, 53, and 54 of the Law, by Article 7 whereof, Article 54 (wording of 21 December 1994) of the Law on Commercial Banks was amended and set forth in the following way:

“Article 54. The Order of Priority and Procedure for the Satisfaction of the Claims of Creditors

The claims of the creditors of a bank in bankruptcy proceedings shall only start to be satisfied after the court adopts the decision to commence the procedure of the liquidation of the bank.

The claims of the affected employees concerning employment relations shall be satisfied first in order of priority.

The claims of the Deposit Insurance Fund for the expenses related to the payment of insurance compensation to the depositors of the bank concerned, as well as the claims of the Ministry of Finance for the expenses not exceeding the partial deposit compensation paid to the depositors of the said bank, shall be satisfied second in order of priority.

The claims of the affected natural persons for the deposit or part thereof not exceeding the amount of the insured deposit shall be satisfied third in order of priority. Where the deposits (or part thereof) of the said natural persons have been compensated from the funds of the Deposit Insurance Fund or the Residents’ Deposit Compensation Fund, only the difference between the amount of the insured deposit and the sum of the paid compensation shall be satisfied third in order of priority.

Other claims of the creditors of the bank concerned, save the claims referred to in the second, third, fourth, sixth, seventh, and eighth paragraphs of this Article, shall be satisfied fourth in order of priority.

The claims of the affected creditors (loan providers) arising under the respective loan agreement shall be satisfied fifth in order of priority provided that the parties to the loan agreement have agreed that, in the event of the liquidation of the loan recipient, the claims resulting from the loan are to be satisfied only upon the settlement of the liabilities owed to all the other creditors of the loan recipient.

The claims of the holders of the cumulative preferred shares of the bank concerned for the unpaid accrued dividend shall be satisfied sixth in order of priority.

The claims of the shareholders of the bank concerned, save those indicated in the seventh paragraph of this Article, for the unpaid accrued dividend shall be satisfied seventh in order of priority.

The claims of the creditors of each succeeding rank of priority shall be satisfied following the full satisfaction of the claims of the creditors of the respective preceding rank.

If the funds of the bank concerned are insufficient to satisfy in full the claims of the creditors of a certain rank, such claims shall be satisfied in proportion to the amount of these claims.”

Thus, under the regulation laid down in Paragraph 3 of Article 54 (wording of 24 June 1997) of the Law on Commercial Banks, the claims of the Deposit Insurance Fund for the expenses related to the payment of insurance compensation to the depositors of a bank in bankruptcy proceedings were satisfied second in order of priority.

In this context, it should be mentioned that the then valid Republic of Lithuania’s Law on the Insurance of Deposits of Residents, adopted on 21 December 1995, laid down the procedure for the compulsory insurance of the deposits of residents held with the banks of Lithuania, as well as for the compensation of these deposits from the funds of the Deposit Insurance Fund (Article 1). Under that law, the Deposit Insurance Fund insured the deposits of residents and paid them insurance compensation (Item 2 of Article 10 and Article 11), and the insurance sum was equal to the amount of the deposit but could not exceed 5,000 litas and/or an equivalent thereof in foreign currency (Paragraph 3 of Article 3 (wording of 1 February 1996)). Later the said sum was increased: from 1 January 1998—up to 25,000 litas, from 1 January 1999—up to 45,000 litas, and from 1 January 2000—up to 65,000 litas (Paragraph 3 of Article 3 (wording of 24 June 1997)).

It should also be mentioned that the then valid Republic of Lithuania’s Provisional Law on the Partial Compensation for the Deposits of Residents Held with Banks in Bankruptcy Proceedings, adopted on 6 February 1996, provided for the partial compensation for the deposits of residents held with Lithuanian commercial banks in bankruptcy proceedings from the funds of the Residents’ Deposit Compensation Fund (Article 1). The said law applied to those deposits of residents that were not insured in the manner provided for in the Law on the Insurance of Deposits of Residents (Article 3 (wording of 18 February 1997)). Under that law, partial compensation for a deposit was a sum payable to residents in partial compensation for the losses incurred in the event of the bankruptcy of a bank with which they held their deposits (Article 2). The said sum was equal to that part of the deposit of the resident that was remaining on the day of the opening of a bankruptcy case against the bank but could not exceed 4,000 litas (Paragraph 2 of Article 4). The Residents’ Deposit Compensation Fund was accumulated by and was at the disposal of the Ministry of Finance (Paragraph 1 of Article 7), which, upon the payment of deposit compensation to the affected residents in the event of the bankruptcy of a bank, would make claims for the incurred expenses not exceeding the partial deposit compensation paid to the depositors concerned (Article 8).

6.3.2. On 7 July 1999, the Seimas adopted the Republic of Lithuania’s Law Amending and Supplementing Articles 6, 53, and 54 of the Law on Commercial Banks, by Article 3 whereof, Article 54 (wording of 24 June 1997) of the Law on Commercial Banks was amended and set forth in the following way:

“1. In Paragraph 3 of Article 54, to enter the words ‘the state enterprise’ after the words ‘claims of’, to substitute the words ‘insurance payments’ for the words ‘insurance compensation’, and to set forth this paragraph as follows:

‘The claims of the state enterprise “Deposit Insurance Fund” for the expenses related to the payment of insurance payments to the depositors of the bank concerned, as well as the claims of the Ministry of Finance for the expenses not exceeding the partial deposit compensation paid to the depositors of the said bank, shall be satisfied second in order of priority.’

  1. To supplement Article 54 with a new Paragraph 4 as follows:

‘The claims concerning the payment of taxes and the making of other payments to the budget, also the claims concerning compulsory state social insurance contributions and compulsory health insurance contributions, as well as the claims concerning the granted loans received on behalf of the state and with the guarantee of the state, shall be satisfied third in order of priority. <...>’”

Thus, under the regulation laid down in Paragraph 3 (wording of 7 July 1999) of Article 54 of the Law on Commercial Banks, the claims of the SE “Deposit Insurance Fund” for the expenses related to the payment of insurance payments to the depositors of a bank in bankruptcy proceedings were satisfied second in order of priority.

6.3.3. On 22 January 2002, the Seimas adopted the Republic of Lithuania’s Law Amending Article 54 of the Law on Commercial Banks, by Article 1 whereof, it amended Paragraph 3 (wording of 7 July 1999) of Article 54 of the Law on Commercial Banks—after the words “payments to the depositors” the words “or investors (who are specified in the Republic of Lithuania’s Law on the Insurance of the Liabilities of Commercial Banks and Financial Brokerage Enterprises to Investors) of the bank concerned” were entered, and the paragraph in question was set forth in the following way: “The claims of the state enterprise ‘Deposit Insurance Fund’ for the expenses related to the payment of insurance payments to the depositors or investors (who are specified in the Republic of Lithuania’s Law on the Insurance of the Liabilities of Commercial Banks and Financial Brokerage Enterprises to Investors) of the bank concerned, as well as the claims of the Ministry of Finance for the expenses not exceeding the partial deposit compensation paid to the depositors of the said bank, shall be satisfied second in order of priority.”

In this context, it should be mentioned that, under the Law on the Insurance of the Liabilities of Commercial Banks and Financial Brokerage Enterprises to Investors, adopted on 17 December 2001, an investor is a natural or legal person who has entrusted his money or securities to the insured in connection with the investment services provided by the insured (Paragraph 8 of Article 2).

Thus, under the regulation laid down in Paragraph 3 (wording of 22 January 2002) of Article 54 of the Law on Commercial Banks, the claims of the SE “Deposit Insurance Fund” for the expenses related to the payment of insurance payments not only to the depositors but also investors of a bank in bankruptcy proceedings were satisfied second in order of priority.

6.3.4. On 20 June 2002, the Seimas adopted the Republic of Lithuania’s Law Amending Article 1 of the Law Amending Article 54 of the Law on Commercial Banks, by Article 1 whereof, the Seimas amended Article 1 of the Law Amending Article 54 of the Law on Commercial Banks and set it forth in the following way:

“To amend Paragraph 3 of Article 54 and set it forth as follows:

‘The claims of the state enterprise “Deposit and Investment Insurance” for the expenses related to the payment of insurance payments to the depositors or investors (who are specified in the Republic of Lithuania’s Law on the Insurance of Deposits and Liabilities to Investors) of the bank concerned, as well as the claims of the Ministry of Finance for the expenses not exceeding the partial deposit compensation paid to the depositors of the said bank, shall be satisfied second in order of priority.’”

Thus, under the regulation established in Paragraph 3 (wording of 20 June 2002) of Article 54 of the Law on Commercial Banks, the claims of the SE “Deposit and Investment Insurance” for the expenses related to the payment of insurance payments to the depositors or investors (who are specified in the Republic of Lithuania’s Law on the Insurance of Deposits and Liabilities to Investors) of a bank in bankruptcy proceedings, were satisfied second in order of priority.

6.4. On 30 March 2004, the Seimas adopted the Republic of Lithuania’s Law on Banks, under Article 97 whereof, upon the entry of this law into force, the Law on Commercial Banks (wording of 21 December 1994 with subsequent amendments and supplements) lost its validity.

6.5. To sum up the regulation laid down in the above-quoted provisions of the Law on Commercial Banks, it should be noted that, although the legal regulation in question, which established the order of priority for the satisfaction of the claims of the creditors of a bank in bankruptcy proceedings, was amended, it still provided that the claims (part thereof) of the affected depositors were satisfied second in order of priority; after the legal bases for the deposit insurance system had been established, the Law on Commercial Banks consolidated that the claims of the SE “Deposit and Investment Insurance” for the expenses related to the payment of insurance payments to the depositors (Paragraph 3 (wordings of 24 June 1997, 7 July 1999, 22 January 2002, and 20 June 2002) of Article 54) and investors (Paragraph 3 (wordings of 22 January 2002 and 20 June 2002) of Article 54) of a bank in bankruptcy proceedings were satisfied second in order of priority.

  1. Paragraph 2 of Article 87 of the Law on Banks, which is impugned by the petitioners, should be construed in the context of the Republic of Lithuania’s Law on Insurance and the Republic of Lithuania’s Law on the Insurance of Deposits and Liabilities to Investors.

7.1. The Law on Insurance regulates insurance, reinsurance, and insurance mediation activities (Paragraph 1 of Article 1 (wording of 17 November 2011)); however, the provisions of this law do not apply to the relations regulated by the Law on the Insurance of Deposits and Liabilities to Investors (Item 2 of Paragraph 3 of Article 1 (wording of 17 November 2011)) of the Law on Insurance).

Thus, when the impugned Paragraph 2 of Article 87 of the Law on Banks is construed in conjunction with Item 2 of Paragraph 3 of Article 1 (wording of 17 November 2011) of the Law on Insurance, it should be noted that the provisions of the Law on Insurance do not apply to the SE “Deposit and Investment Insurance”, whose claims for the expenses related to the payment of insurance payments to the depositors or investors of a bank in bankruptcy proceedings are satisfied second in order of priority.

7.2. The activity of the SE “Deposit and Investment Insurance” is regulated by the Law on the Insurance of Deposits and Liabilities to Investors, which was adopted on 20 June 2002 (and came into force on 1 July 2002). The Law on the Insurance of Deposits and Liabilities to Investors lays down the procedure for insuring deposits held with the banks established in accordance with the procedure laid down in the laws of the Republic of Lithuania (hereinafter referred to as “the banks”), also with the branches of foreign banks established in the Republic of Lithuania (hereinafter referred to as “the branches of banks”), and with the Central Credit Union and credit unions (hereinafter referred to as “the credit unions”), as well as the amounts of insurance payments for these deposits, and the procedure for insuring the liabilities of the banks and the financial brokerage enterprises and management enterprises authorised to provide investment services (hereinafter referred to as “the enterprises”) and the liabilities of the branches of banks and the branches of foreign financial brokerage enterprises and management enterprises (hereinafter referred to as “the branches of enterprises”) to their investors, as well as the amounts of insurance payments for such liabilities (Paragraph 1 (wording of 18 January 2008) of Article 1). The insurance enterprise is a state enterprise established by the Government of the Republic of Lithuania out of the resources of state-owned assets under the Republic of Lithuania’s Law on the Insurance of the Deposits of Residents and registered in accordance with the procedure laid down in the laws of the Republic of Lithuania under the name “State Enterprise ‘Deposit and Investment Insurance’” (Paragraph 1 (wording of 20 January 2005) of Article 16). So that it can implement the objectives of its activity, which are established by the aforesaid law, the insurance enterprise accumulates funds in the Deposit Insurance Fund and the Fund of the Insurance of Liabilities to Investors (Item 1 of Article 18 (wording of 20 January 2005)). Where the banks, the branches of banks, or the credit unions (as specified before) are not able to settle their liabilities owed to their creditors, or where the enterprises or the branches of enterprises (as specified before) are not capable of meeting their liabilities to their investors, i.e. upon the occurrence of the insured event, the SE “Deposit and Investment Insurance” pays to the affected depositors within 20 working days as of the day of the insured event, or to the affected investors—within 3 months as of the day of the insured event, the insurance payments of an established amount: to the said depositors—100 percent of the deposit up to the amount in litas equivalent to 100,000 euros, and to the said investors—100 percent of the liabilities up to the amount in litas equivalent to 3,000 euros and 90 percent of the liabilities from the amount in litas equivalent to 3,000 euros up to the amount in litas equivalent to 22,000 euros (Paragraph 2 of Article 2 (wording of 21 July 2009), Paragraph 3 (wording of 21 July 2009) of Article 9, and Paragraph 1 (wording of 29 November 2011) of Article 10). In the event of the shortage of funds in a fund wherefrom insurance payments are paid, insurance payments are paid from the mandatory reserve of the SE “Deposit and Investment Insurance”, which is formed from the profit of the insurance enterprise (Paragraphs 1 and 2 of Article 261 (wording of 20 January 2005)). After the insurance enterprise pays insurance payments to the depositors or investors of the insured, the insured must, upon the instruction of the insurance enterprise, reduce its liabilities to the said depositors or investors by the amounts indicated by the insurance enterprise and correspondingly increase its liabilities to the insurance enterprise (Paragraph 1 of Article 11). From the day on which an insurance payment is paid to the aforesaid depositor or investor, such a depositor or an investor loses his right to claim from the bank, credit union, or enterprise concerned the sum of money in the amount of the paid insurance payment (Paragraph 2 of Article 11).

When the impugned regulation established in Paragraph 2 of Article 87 of the Law on Banks is construed in conjunction with the regulation established in the Law on the Insurance of Deposits and Liabilities to Investors, it should be noted that the SE “Deposit and Investment Insurance” insures deposits held with the banks, the branches of banks, or the credit unions (as specified before), as well as the liabilities assumed by the enterprises and the branches of enterprises (as specified before) to their investors. Upon the occurrence of the insured event, the SE “Deposit and Investment Insurance” must pay to the depositors and investors of the bank concerned insurance payments, upon the payment of which, this enterprise takes over the rights of the depositors and investors to whom compensation has been paid (subrogation), and the claims of this enterprise for the said payments are satisfied second in order of priority.

Consequently, under the entire legal regulation established in Paragraph 2 of Article 87 of the Law on Banks and the Law on the Insurance of Deposits and Liabilities to Investors, in the event of the bankruptcy of a bank, the satisfaction of the claims of the SE “Deposit and Investment Insurance” (second in order of priority) results in the satisfaction of the claims of the depositors and investors (who are specified in the Law on the Insurance of Deposits and Liabilities to Investors) against the bank in bankruptcy proceedings, i.e. the claims of the depositors for 100 percent of the deposit up to the amount in litas equivalent to 100,000 euros, and the claims of the investors for 100 percent of the liabilities up to the amount in litas equivalent to 3,000 euros and 90 percent of the liabilities from the amount in litas equivalent to 3,000 euros up to the amount in litas equivalent to 22,000 euros, which have been satisfied by the SE “Deposit and Investment Insurance”; the claims of the aforesaid depositors and investors for compensation for the sums exceeding the indicated amounts are satisfied fourth in order of priority.

  1. The Law on the Insurance of Deposits and Liabilities to Investors, which is referred to in the impugned Paragraph 2 of Article 87 of the Law on Banks, is designed to implement inter alia Directive 94/19/EC of the European Parliament and of the Council of 30 May 1994 on deposit-guarantee schemes (hereinafter referred to as Directive 94/19/EC) and Directive 97/9/EC of the European Parliament and of the Council of 3 March 1997 on investor-compensation schemes (hereinafter referred to as Directive 97/9/EC), which regulate the protection of depositors and investors.

In the statement part of Directive 94/19/EC it is indicated: “<...> the harmonious development of the activities of credit institutions throughout the Community should be promoted through the elimination of all restrictions on the right of establishment and the freedom to provide services, while increasing the stability of the banking system and protection for savers” (Item 1); “<...> the cost to credit institutions of participating in a guarantee scheme bears no relation to the cost that would result from a massive withdrawal of bank deposits not only from a credit institution in difficulties but also from healthy institutions following a loss of depositor confidence in the soundness of the banking system <...>” (Item 4); “<...> the minimum guarantee level prescribed in this Directive should not leave too great a proportion of deposits without protection in the interest both of consumer protection and of the stability of the financial system <...>” (Item 16); “<...> it is not indispensable, in this Directive, to harmonize the methods of financing schemes guaranteeing deposits or credit institutions themselves, given, on the one hand, that the cost of financing such schemes must be borne, in principle, by credit institutions themselves and, on the other hand, that the financing capacity of such schemes must be in proportion to their liabilities; whereas this must not, however, jeopardize the stability of the banking system of the Member State concerned” (Item 23).

In the statement part of Directive 97/9/EC it is indicated: “<...> the protection of investors and the maintenance of confidence in the financial system are an important aspect of the completion and proper functioning of the internal market in this area; <...> it is therefore essential that each Member State should have an investor-compensation scheme that guarantees a harmonized minimum level of protection at least for the small investor in the event of an investment firm being unable to meet its obligations to its investor clients” (Item 4).

The said directives of the European Union are aimed at aligning the deposit-guarantee and investor-compensation schemes of the Member States, inter alia, at ensuring such protection of depositors and investors that would increase the stability of the banking system and contribute to the stability of the financial system.

  1. It should be mentioned that Directive 94/19/EC prescribes: “<...> schemes which make payments under guarantee shall have the right of subrogation to the rights of depositors in liquidation proceedings for an amount equal to their payments” (Article 11). The directive does not prescribe as to which rank of priority in the order for the satisfaction of claims must be given to the claims of an institution that has paid compensation.

It should also be mentioned that the material of the constitutional justice case at issue makes it clear that an institution paying insurance payments to depositors and investors is similarly granted the right of priority over other creditors in other states of the European Union, too (as, for instance, in Bulgaria, Latvia, France, Hungary, Portugal, Romania).

  1. The impugned provision of Paragraph 3 (wording of 4 November 2004) of Article 87 of the Law on Banks, under which the claims concerning the payment of taxes and the making of other payments to the budget, as well as the claims concerning the granted loans received on behalf of the state and with the guarantee of the state, are satisfied third in order of priority, should be construed in the context of the Republic of Lithuania’s Law on Tax Administration and the Republic of Lithuania’s Law on State Debt.

10.1. In the context of the constitutional justice case at issue, it should be mentioned that, under the Law on Tax Administration, “tax” means a monetary obligation owed by a taxpayer to the state under the provisions of the tax law (Paragraph 24 of Article 2 (wording of 22 December 2011)).

It should also be mentioned that, under the Law on State Debt, “funds borrowed on behalf of the state” means the funds received upon of the distribution of government securities and the signing of loan agreements and other binding debt documents and, in accordance with the procedure laid down by the Government, borrowed by the Ministry of Finance, representing the Government (Paragraph 19 of Article 2 (wording of 23 November 2010)), while “state-guaranteed loan” means a loan granted to a legal person of the Republic of Lithuania, a branch of an enterprise of a Member State of the European Economic Area established in the Republic of Lithuania, or to a beneficiary of a state-supported loan (which is specified in the Republic of Lithuania’s Law on Education and Studies) under an agreement concluded with a domestic or foreign creditor, or under other binding debt documents, where the fulfilment of the obligations assumed thereunder to repay the debt in full or in part and to pay interest on the debt or part thereof is guaranteed by the state (Paragraph 14 of Article 2 (wording of 23 November 2010)).

10.2. When the regulation established in Paragraph 3 (wording of 4 November 2004) of Article 87 of the Law on Banks is construed in conjunction with the aforementioned provisions of the Law on Tax Administration and the Law on State Debt, it should be noted that the sums received upon the satisfaction of claims concerning the payment of taxes and the making of other payments to the budget are, inter alia, the revenue of the state budget; the sums received upon the satisfaction of claims concerning the granted loans received on behalf of the state and with the guarantee of the state are used to defray the expenditure of the state budget incurred as a result of the repayment of loans received on behalf of the state or with the guarantee of the state.

  1. It has been mentioned that, in the constitutional justice case at issue, the Constitutional Court is investigating, inter alia, whether Paragraph 2 and the provision “the claims concerning the payment of taxes and the making of other payments to the budget <...>, as well as the claims concerning the granted loans received on behalf of the state and with the guarantee of the state, shall be satisfied third in order of priority” of Paragraph 3 (wording of 4 November 2004) of Article 87 of the Law on Banks are not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law.

As mentioned before, according to the petitioners, under the regulation established in Paragraph 2 of Article 87 of the Law on Banks, in the event of the bankruptcy of a bank, the claims of one insurer—the SE “Deposit and Investment Insurance”—are satisfied in priority to the claims of other creditors of the bank in bankruptcy proceedings. In this way, only one subject is singled out from a large number of the subjects operating in Lithuania in the area of the provision of insurance services. Due to the said reason, the legal regulation in question is discriminatory, and it violates the principle of the equality of rights, which is consolidated in Paragraph 1 of Article 29 of the Constitution. The possible losses of the SE “Deposit and Investment Insurance” that may be incurred upon the payment of deposit insurance funds in the event of the bankruptcy of a bank are transferred to other creditors whose claims rank lower in the order for the satisfaction of claims, i.e. the rights of the said state enterprise, as a creditor in the bankruptcy process, are satisfied to the detriment of the rights of other creditors of the bank concerned, without reimbursing for that, in any way, the rest of the affected creditors, and thus violating the principle of the protection of ownership, which is consolidated in Article 23 of the Constitution. In addition, the rights and legitimate interests of the economic subjects who are the creditors of a lower priority rank than the second one in the order for the satisfaction of claims are limited more than it is necessary to ensure the public interest and secure constitutional values, which violates the provision consolidated in Paragraph 3 of Article 46 of the Constitution, according to which the state regulates economic activity so that it serves the general welfare of the nation, as well as the constitutional principle of a state under the rule of law.

It has also been mentioned that the doubt of the petitioners regarding the conflict of the regulation established in Paragraph 3 (wording of 4 November 2004) of Article 87 of the Law on Banks with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law is substantiated by the same arguments as their doubt regarding the compliance of Paragraph 2 of Article 87 of the Law on Banks with the same provisions of the Constitution.

  1. In order to decide whether Paragraph 2 and the provision “the claims concerning the payment of taxes and the making of other payments to the budget <...>, as well as the claims concerning the granted loans received on behalf of the state and with the guarantee of the state, shall be satisfied third in order of priority” of Paragraph 3 (wording of 4 November 2004) of Article 87 of the Law on Banks are not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law, it should be noted that, under the Constitution, as mentioned before:

– when regulating economic activity, the state must follow the principle of the reconciliation of the interests of a person and society and must ensure the interests of both a private person (a subject of economic activity) and society; in order to regulate economic activity in such a way that it can serve the general welfare of the nation, the state may establish a differentiated legal regulation, which is determined by the specificity of a certain economic activity; to this end, the state may use different means of legal regulation; the establishment of certain exceptions to a certain general legal regulation may be constitutionally justified if these exceptions are aimed at ensuring a constitutionally justifiable and universally important interest;

– the provision of financial services constitutes one of the specific types of economic activity; the said activity is characterised, inter alia, by the fact that when this activity is carried out, a direct influence is exerted on the national financial system as well as the entire national economy;

– one of the means of guaranteeing the security, stability, and reliability of the financial system is to establish such legal regulation that would be aimed at ensuring the confidence of persons in financial institutions, inter alia, in banks; the said objective can be achieved by various means: inter alia, it is possible to establish the legal regulation under which the creditors (depositors, investors) of a bank in bankruptcy proceedings would be compensated for the incurred losses under the established conditions; the legislature may opt for various models of compensation for losses, inter alia, the insurance of deposits and investment;

– when regulating economic activity, the state is obliged to pay heed to the constitutional requirement of the equality of the rights of economic subjects, which is directly linked to the principle of the equality of the rights of all persons, which is consolidated in Article 29 of the Constitution, since otherwise the legal regulation of economic activity could not be regarded as serving the general welfare of the nation; the principle of the equality of rights does not in itself deny the opportunity to establish a diverse and differentiated legal regulation by means of legislation with respect to certain persons who belong to different categories if there are differences between these persons of such a character that can objectively justify that differentiated regulation; the differentiated establishment of the legal situation of separate economic subjects (provided that account is taken of the importance and nature of the regulated relations) should be linked to the objectives raised by the state in the particular economic area as well as the striving to arrange the economy of this country in a corresponding manner;

– the protection of the rights of ownership may be regulated in laws in a differentiated manner provided that account is taken of a different situation of the subjects of the rights of ownership when they seek certain definite objectives;

– taxes form an essential part of the financial system of the state; they constitute the main part of the revenue of the state budget and are one of the primary conditions for the existence of the state; when taxes are not paid or are overdue, the state (municipal) budget does not receive part of its revenue, and the possibilities for the state (municipality) to perform the functions ascribed to it are limited; the funds of state loans are part of state revenue, and the repayment of these loans is the expenditure of the state budget.

  1. It has been mentioned that Paragraph 2 of Article 87 “The Order of Priority for the Satisfaction of the Claims of Creditors” of the Law on Banks prescribes: “The claims of the state enterprise ‘Deposit and Investment Insurance’ for the expenses related to the payment of insurance payments to the depositors or investors (who are specified in the Law on the Insurance of Deposits and Liabilities to Investors) of the bank concerned, shall be satisfied second in order of priority.”

It has also been mentioned that, under the regulation established in Paragraph 2 of Article 87 of the Law on Banks, when it is construed in conjunction with the provisions of other laws, inter alia, the Law on Insurance and the Law on the Insurance of Deposits and Liabilities to Investors:

– the provisions of the Law on Insurance do not apply to the SE “Deposit and Investment Insurance”;

– the SE “Deposit and Investment Insurance” insures deposits held with the banks, the branches of banks, or the credit unions (as specified before), as well as the liabilities assumed by the enterprises and the branches of enterprises (as specified before) to their investors;

– upon the occurrence of the insured event, the SE “Deposit and Investment Insurance” must pay to the depositors and investors of the bank concerned insurance payments, upon the payment of which, this enterprise takes over the rights of the depositors and investors to whom compensation has been paid (subrogation), and the claims of this enterprise for the said payments are satisfied second in order of priority;

– in the event of the bankruptcy of a bank, the satisfaction of the claims of the SE “Deposit and Investment Insurance” (second in order of priority) results in the satisfaction of the claims of the depositors and investors (who are specified in the Law on the Insurance of Deposits and Liabilities to Investors) against the bank in bankruptcy proceedings, i.e. the claims of the said depositors for 100 percent of the deposit up to the amount in litas equivalent to 100,000 euros, and the claims of the said investors for 100 percent of the liabilities up to the amount in litas equivalent to 3,000 euros and 90 percent of the liabilities from the amount in litas equivalent to 3,000 euros up to the amount in litas equivalent to 22,000 euros, which have been satisfied by the SE “Deposit and Investment Insurance”; the claims of the aforesaid depositors and investors for compensation for the sums exceeding the indicated amounts are satisfied fourth in order of priority.

13.1. The establishment of the aforementioned impugned legal regulation, under which, in the event of the insolvency of a bank, the claims of the SE “Deposit and Investment Insurance” for the expenses related to the payment of insurance payments to the affected depositors or investors are satisfied second in order of priority, should be assessed as the striving by the legislature to ensure special measures, so that the sums paid to the said depositors and investors would be restored, and that, upon the occurrence of other insured events, it would still be possible to fulfil the obligations owed to the depositors and investors concerned as well as to ensure the stability of the banking system and the entire financial system. If the legislature, upon choosing the system of deposit and investment insurance, did not establish any special measures to recover the sums of the Deposit Insurance Fund and the Fund of the Insurance of Liabilities to Investors, the SE “Deposit and Investment Insurance” would not be able to properly perform its functions, inter alia, in the event of the insolvency of other financial institutions. The said situation could shatter confidence in banks and result in a mass withdrawal of deposits from banks, which, consequently, would have considerable negative consequences for the stability of the whole financial system of the state and be incompatible with the public interest.

Thus, the establishment of such regulation of Paragraph 2 of Article 87 of the Law on Banks under which the claims of the SE “Deposit and Investment Insurance” for the expenses related to the payment of insurance payments to depositors or investors are satisfied second in order of priority, is aimed at, inter alia, ensuring the confidence of persons in financial institutions, inter alia, in banks, and thus guaranteeing not only the protection of the interests of creditors, but also the interests of the whole society to have a stable and reliable financial system.

Consequently, there is no ground to maintain that the regulation consolidated in Paragraph 2 of Article 87 of the Law on Banks, under which the claims of the SE “Deposit and Investment Insurance” for the expenses related to the payment of insurance payments to depositors or investors are satisfied second in order of priority, disregards the imperative stemming from Paragraph 3 of Article 46 of the Constitution for the state to regulate financial economic activity in such a way that it can serve the general welfare of the nation.

13.2. The regulation laid down in Paragraph 2 of Article 87 of the Law on Banks, under which the claims of the SE “Deposit and Investment Insurance” for the expenses related to the payment of insurance payments to the depositors or investors of a bank in bankruptcy proceedings are satisfied second in order of priority, does not deny the right to demand the satisfaction of claims for those creditors of a bank in bankruptcy proceedings whose claims are of a lower priority rank in the order for satisfaction than the claims of the SE “Deposit and Investment Insurance”. Consequently, there is no ground to maintain that the regulation established in Paragraph 2 of Article 87 of the Law on Banks violates the rights of ownership of other creditors of a bank in bankruptcy proceedings, which stem from Article 23 of the Constitution.

13.3. Under the regulation established in Paragraph 2 of Article 87 of the Law on Banks, the SE “Deposit and Investment Insurance”, which ranks second in the order of priority for the satisfaction of the claims of the creditors of a bank in bankruptcy proceedings, and the enterprises carrying out insurance activity under the Law on Insurance belong to different categories of subjects; the SE “Deposit and Investment Insurance” may not be treated as one of the enterprises providing insurance services in the Republic of Lithuania: the essential difference between the categories of the said subjects is determined by the character of the economic activity carried out by the SE “Deposit and Investment Insurance” and the significance of its activity for the stability of the financial system, inter alia, due to the fact that the insolvency of the SE “Deposit and Investment Insurance” can lead to the distrust of financial institutions, inter alia, of banks, and, consequently, have a negative influence upon the financial system and the entire national economy.

Under the regulation established in the Law on the Insurance of Deposits and Liabilities to Investors, upon the occurrence of the insured event, i.e. if the banks, the branches of banks, or the credit unions (as specified before) are not able to settle their liabilities owed to their creditors, or if the enterprises or the branches of enterprises are not capable of meeting their obligations to their investors, the SE “Deposit and Investment Insurance” pays insurance payments: to the affected depositors—100 percent of the deposit up to the amount in litas equivalent to 100,000 euros, and to the affected investors—100 percent of the liabilities up to the amount in litas equivalent to 3,000 euros and 90 percent of the liabilities from the amount in litas equivalent to 3,000 euros up to the amount in litas equivalent to 22,000 euros, upon the payment of which, the SE “Deposit and Investment Insurance” takes over the rights of the depositors and investors to whom compensation has been paid (subrogation). It has been mentioned that, under the regulation established in the previously valid Law on Commercial Banks (wording of 21 December 1994 with subsequent amendments and supplements), the claims (part thereof) of the depositors of a bank in bankruptcy proceedings were satisfied second in order of priority; after the legal bases for the deposit insurance system had been established, the Law on Commercial Banks consolidated that the claims of the SE “Deposit and Investment Insurance” for the expenses related to the payment of insurance payments to the depositors and investors of a bank in bankruptcy proceedings were satisfied second in order of priority. Thus, the SE “Deposit and Investment Insurance”, having paid compensation to the depositors and investors of a bank in bankruptcy proceedings, has, in the order of priority for the satisfactions of the claims of the creditors of the bank concerned, the same rank as would be enjoyed by the depositors and investors to whom compensation has been paid.

Between, on the one hand, the SE “Deposit and Investment Insurance”, which ensures the satisfaction of the claims of the depositors of a bank in bankruptcy proceedings, who hold in their deposits the money that is used, as a rule, to meet personal and, frequently, even the most essential needs, as well as the satisfaction of the claims of non-professional investors, and, on the other, other creditors of the said bank, inter alia, those who rank fourth in the order of priority for the satisfaction of claims, there are essential differences. It should be noted that, under the regulation established in the Law on the Insurance of Deposits and Liabilities to Investors, the SE “Deposit and Investment Insurance” pays compensation to all the depositors and investors (who are specified in this law) of a bank in bankruptcy proceedings within a short period of time (to depositors—within 20 working days, and to investors—within 3 months, of the day of the ensured event), and, in this way, satisfies those their claims against the said bank that do not exceed the amounts indicated in the said law.

Consequently, there is no ground to maintain that the regulation established in Paragraph 2 of Article 87 of the Law on Banks, under which, in the event of the bankruptcy of a bank, the claims of the SE “Deposit and Investment Insurance” are satisfied second in order of priority, i.e. before the claims of other creditors ranking lower in the order of priority, denies the requirements of the principle of the equality of the rights of persons, which is consolidated in Article 29 of the Constitution, and the imperatives stemming from the constitutional principle of a state under the rule of law.

13.4. In view of the foregoing arguments, the conclusion should be drawn that Paragraph 2 of Article 87 of the Law on Banks is not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law.

  1. It has been mentioned that, in the constitutional justice case at issue, the Constitutional Court is investigating, inter alia, whether the provision “the claims concerning the payment of taxes and the making of other payments to the budget <...>, as well as the claims concerning the granted loans received on behalf of the state and with the guarantee of the state, shall be satisfied third in order of priority” of Paragraph 3 (wording of 4 November 2004) of Article 87 of the Law on Banks is not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law.

It has also been mentioned that, under the regulation established in Paragraph 3 (wording of 4 November 2004) of Article 87 of the Law on Banks:

– in the event of the bankruptcy of a bank, the claims concerning the payment of taxes and the making of other payments to the budget, as well as the claims concerning the granted loans received on behalf of the state and with the guarantee of the state, are satisfied third in order of priority, i.e. after the full satisfaction of first-ranking claims (the claims of the affected employees concerning employment relations, also the claims for compensation for damage suffered as a result of mutilation or other bodily injury, the contraction of an occupational disease, or death caused by an accident at work) and the claims of the second-ranking creditor—the SE “Deposit and Investment Insurance”;

– the sums received upon the satisfaction of claims concerning the payment of taxes and the making of other payments to the budget constitute, inter alia, the revenue of the state budget; the sums received upon the satisfaction of claims concerning the granted loans received on behalf of the state and with the guarantee of the state are used to defray the expenditure of the state budget incurred as a result of the repayment of loans received on behalf of the state or with the guarantee of the state.

14.1. The impugned legal regulation, under which, in the event of the bankruptcy of a bank, the claims concerning the payment of taxes and the making of other payments to the budget, as well as the claims concerning the granted loans received on behalf of the state and with the guarantee of the state, are satisfied third in order of priority, should be assessed as the striving by the legislature to receive revenue necessary to perform the functions of the state and meet the public needs of both society and the state. The state is able to properly perform the functions ascribed to it only when it has, for that purpose, sufficient budget revenue at its disposal. Taxes are one of the main sources of budget revenue. If claims concerning the payment of taxes and the making of other payments to the budget were not satisfied, the budget would lose part of its revenue, and if claims concerning the granted loans received on behalf of the state and with the guarantee of the state were not satisfied, these loans or part thereof would have to be repaid by the state; thus, the possibilities for the state to fulfil the functions ascribed to it would be limited.

Thus, by means of the regulation consolidated in Paragraph 3 (wording of 4 November 2004) of Article 87 of the Law on Banks, under which the claims concerning the payment of taxes and the making of other payments to the budget, as well as the claims concerning the granted loans received on behalf of the state and with the guarantee of the state, are satisfied third in order of priority, the legislature has sought to regulate the economic financial activity of this country in such a way that it could serve the general welfare of the nation, inter alia, in such a way that effective possibilities could be ensured for the state to perform the functions ascribed to it, i.e. the legislature has not departed from the requirements of Paragraph 3 of Article 46 of the Constitution.

14.2. The regulation established in Paragraph 3 (wording of 4 November 2004) of Article 87 of the Law on Banks, under which the claims concerning, inter alia, the payment of taxes and the making of other payments to the budget, as well as the claims concerning the granted loans received on behalf of the state and with the guarantee of the state, are satisfied third in order of priority, does not deny the right to demand the satisfaction of claims for those creditors of a bank in bankruptcy proceedings whose claims rank lower in the order of priority. Consequently, there is no ground to maintain that the regulation established in Paragraph 3 of Article 87 of the Law on Banks violates the rights of ownership of other creditors of a bank in bankruptcy proceedings, which stem from Article 23 of the Constitution.

14.3. It should be noted that the satisfaction of the claims specified in Paragraph 3 (wording of 4 November 2004) of Article 87 of the Law on Banks creates preconditions for directing the respective funds, inter alia, to the state budget. It has been mentioned that the state budget provides funds for financing the performance of the functions of the state as well as for meeting the public needs of society and the state; when taxes are not paid or are overdue, the state budget does not receive part of its revenue, and the possibilities for the state to perform the functions ascribed to it are limited. Thus, between, on the one hand, the state, whose claims concerning the payment of taxes and the making of other payments to the budget, as well as the claims concerning the granted loans received on behalf of the state and with the guarantee of the state, are satisfied third in order of priority under the regulation established in Paragraph 3 (wording of 4 November 2004) of Article 87 of the Law on Banks, and, on the other, the creditors of a bank in bankruptcy proceedings, whose claims, as prescribed by Article 87 of the Law on Banks, are of a lower priority rank than the third one, there are significant differences.

Consequently, there is no ground to maintain that the regulation laid down in Paragraph 3 (wording of 4 November 2004) of Article 87 of the Law on Banks, under which the claims concerning the payment of taxes and the making of other payments to the budget, as well as the claims concerning the granted loans received on behalf of the state and with the guarantee of the state, are satisfied third in order of priority, i.e. in priority to other creditors whose claims are of a lower priority rank, denies the requirements of the principle of the equality of the rights of persons, which is consolidated in Article 29 of the Constitution, or the imperatives stemming from the constitutional principle of a state under the rule of law.

14.4. In view of the foregoing arguments, the conclusion should be drawn that the provision “the claims concerning the payment of taxes and the making of other payments to the budget <...>, as well as the claims concerning the granted loans received on behalf of the state and with the guarantee of the state, shall be satisfied third in order of priority” of Paragraph 3 (wording of 4 November 2004) of Article 87 of the Law on Banks is not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law.

IV

On the compliance of Item 3 (wording of 20 April 2006) of Paragraph 7 of Article 10 and Item 3 (wording of 22 December 2011) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy, as well as Item 2 (wording of 30 March 2004) of Paragraph 3 and Paragraph 4 (wording of 22 December 2011) of Article 85 of the Law on Banks, with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law.

  1. In the constitutional justice case at issue, the Constitutional Court is investigating, inter alia, whether:

– Item 3 (wording of 20 April 2006) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy, insofar as it prohibited the discharge of any financial obligation—including any set-off of counterclaims of the same kind—not discharged prior to the opening of a bankruptcy case, was not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law;

– the provision “the discharge of any financial obligations not discharged prior to the opening of the bankruptcy case against the enterprise, including the payment of interest, default interest, taxes, and the payment of other compulsory contributions, as well as the recovery of debts from the said enterprise through either judicial or extrajudicial means, shall be prohibited, save the set-off of counterclaims of the same kind where such a set-off is allowed under the provisions of tax laws providing for the set-off of tax overpayment (difference)” of Item 3 (wording of 22 December 2011) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy, is not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law;

– Item 2 (wording of 30 March 2004) of Paragraph 3 of Article 85 of the Law on Banks, insofar as it prohibits the discharge of any financial obligation—including any set-off of counterclaims of the same kind—not discharged prior to the opening of a bankruptcy case, is not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law;

– Item 2 (wording of 30 March 2004) of Paragraph 3 and Paragraph 4 (wording of 22 December 2011) of Article 85 of the Law on Banks, insofar as, according to the petitioner, they prohibit the discharge of any financial obligation—including any set-off of counterclaims of the same kind—not discharged prior to the opening of a bankruptcy case, save in the cases specified in the laws governing the functioning of the payment and securities settlement systems, as well as in other laws, where a bank is directly instructed to discharge its obligations after the opening of the bankruptcy case against it, are not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law.

  1. The petitioners impugn the provisions of the Law on Enterprise Bankruptcy and the Law on Banks establishing, inter alia, the prohibition on the discharge of any financial obligation—including any set-off of counterclaims of the same kind—not discharged prior to the opening of a bankruptcy case. The general legal regulation concerning the discharge of obligations is laid down in the Civil Code of the Republic of Lithuania (wording of 18 July 2000). The following provisions of the Civil Code (wording of 18 July 2000) concerning the set-off of counterclaims of the same kind should be mentioned:

– “An obligation shall be extinguished by the set-off of a counterclaim of the same kind the time limit whereof has expired, or the time limit whereof is not fixed or is determined by the moment of demand” (Paragraph 1 of Article 6.130);

– “A declaration of intention made by one party shall be sufficient to effect a set-off” (Paragraph 1 of Article 6.131);

– “The following may not be set off: 1) claims disputed in judicial proceedings; 2) claims arising out of a contract of maintenance for life, i.e. a contract for the transfer of property on the condition that the transferee maintains and materially supports the transferor for life; 3) claims the settlement whereof is connected with the person of a concrete creditor; 4) claims for compensation for damage caused to health or as a result of the deprivation of life; 5) claims against the state; though, the state may effect a set-off; 6) where the object of an obligation is assets exempt from the enforcement of recovery; 7) other claims specified by laws” (Paragraph 1 of Article 6.134);

– “After a debtor has proved to be insolvent, the claims of the creditors concerned may be set off, even though they are not due, unless it is otherwise provided by laws” (Article 6.140).

To sum up the above-quoted legal regulation, in the context of the constitutional justice case at issue, it should be noted that the cases of the prohibition on the set-off of counterclaims of the same kind may be established not only in the Civil Code, but also in other laws.

  1. On 20 March 2001, the Seimas adopted the Republic of Lithuania’s Law on Enterprise Bankruptcy, which came into force on 1 July 2001. Item 3 of Paragraph 7 of Article 10 of that law prescribed: “After the court ruling to open a bankruptcy case against an enterprise becomes effective: <...> 3) the discharge of any financial obligations not discharged prior to the opening of the bankruptcy case against the enterprise, including the payment of interest, default interest, taxes, and other compulsory contributions, as well as the recovery of debts from the said enterprise through either judicial or extrajudicial means, shall be prohibited. The computation of default interest and interest on all the obligations of the enterprise, including on default on payments related to employment relations, shall be suspended. It is not permitted to impose any forced (either legal or judicial) mortgage.”

Item 3 of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy (wording of 20 March 2001) was amended and/or supplemented on more than one occasion, inter alia, by means of the laws adopted by the Seimas on 28 January 2003, 5 June 2003, and 15 April 2004.

On 20 April 2006, the Seimas adopted the Republic of Lithuania’s Law Supplementing and Amending Articles 1, 10, and 14 of the Law on Enterprise Bankruptcy, by Article 2 whereof the Seimas amended Item 3 (wording of 15 April 2004) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy and set it forth in the following way: “the discharge of any financial obligations not discharged prior to the opening of the bankruptcy case against the enterprise, including the payment of interest, default interest, taxes, and other compulsory contributions, as well as the recovery of debts from the said enterprise through either judicial or extrajudicial means, shall be prohibited. The computation of default interest and interest on all the obligations of the enterprise, including on default on payments related to employment relations, shall be suspended. It is not permitted to impose any forced (either legal or judicial) mortgage. The validity of a collective agreement of the enterprise shall be limited in the manner prescribed by the meeting of creditors”.

Thus, Item 3 (wording of 20 April 2006) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy, which is impugned by the group of members of the Seimas, a petitioner, consolidated, from the moment of the entry into effect of the court ruling to open a bankruptcy case against an enterprise, the prohibition on the performance of any actions (the obligation to refrain from any actions) that would result in the discharge of any financial obligation, inter alia, any set-off of counterclaims of the same kind, not discharged prior to the opening of the bankruptcy case. The said item did not provide for any exceptions to that prohibition.

In the context of the constitutional justice case at issue, it should be noted that the Supreme Court of Lithuania, which forms the case-law of the courts of general jurisdiction, interpreted that the prohibition on set-off was implied rather than directly prescribed by the regulation established in Item 3 (wording of 20 April 2006) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy (inter alia the ruling of the panel of justices of the Division of Civil Cases of the Supreme Court of Lithuania of 28 January 2008 in civil case No. 3K-3-31/2008, also the ruling of 27 May 2008 in civil case No. 3K-3- 26/2008, and the ruling of 18 December 2009 in civil case No. 3K-3-591/2009).

  1. It has been mentioned that, in the constitutional justice case at issue, the Constitutional Court is investigating, inter alia, whether Item 3 (wording of 20 April 2006) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy, insofar as it prohibited the discharge of any financial obligation—including any set-off of counterclaims of the same kind—not discharged prior to the opening of a bankruptcy case, was not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law.

According to the group of members of the Seimas, a petitioner, the situation where a claim of an enterprise in bankruptcy proceedings is satisfied, while a counterclaim of the same kind of the other party to the liability is not satisfied or is satisfied only in part (although both claims could be satisfied prior to the opening of the bankruptcy case), violates the principle of the legal protection of ownership; the persons who are the creditors of an insolvent enterprise must be regarded as equal and be subject to uniform conditions; in violation of the constitutional principle of the equality of the rights of persons, the creditors who are concurrently the debtors of an insolvent enterprise are discriminated if compared to the insolvent enterprise itself, since they are obliged to repay their debts to the insolvent enterprise in full, but can recover the debts from the said enterprise only in accordance with the procedure established in the Law on Enterprise Bankruptcy; the impugned legal regulation limits, more than it is necessary in order to ensure the public interest, the rights of that part of the creditors of an enterprise in bankruptcy proceedings who are concurrently the borrowers of that enterprise; the satisfaction of the claims of some creditors to the detriment of other creditors may not be regarded as serving the general welfare of the nation.

As mentioned before, according to the group of members of the Seimas, a petitioner, the regulation laid down in Item 3 (wording of 20 April 2006) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy could be in line with the Constitution if, after the opening of a bankruptcy case against an enterprise, it did not prohibit the set-off of counterclaims of the same kind of any creditors and debtors of the enterprise in bankruptcy proceedings where the possibility of such a set-off had been provided for prior to the opening of the bankruptcy case.

  1. In order to decide whether Item 3 (wording of 20 April 2006) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy, insofar as it prohibited the discharge of any financial obligation—including any set-off of counterclaims of the same kind—not discharged prior to the opening of a bankruptcy case, was not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law, it should be noted that, under the Constitution, as mentioned before:

– when regulating economic activity, the state must follow the principle of the reconciliation of the interests of a person and society and must ensure the interests of both a private person (a subject of economic activity) and society; in order to regulate economic activity in such a way that it can serve the general welfare of the nation, the state may establish a differentiated legal regulation, which is determined by the specificity of a certain economic activity; to this end, the state may use different means of legal regulation; the establishment of certain exceptions to a certain general legal regulation may be constitutionally justified if these exceptions are aimed at ensuring a constitutionally justifiable and universally important interest;

– the right of ownership is not absolute; it can be limited by means of a law due to the character of the object of ownership, due to the committed deeds that are contrary to law, and/or due to a constitutionally justifiable need that is essential to society; in all cases where the rights of ownership are limited, the following conditions must be observed: ownership may be limited only by invoking the law; limitations must be necessary in a democratic society in order to protect the rights and freedoms of other persons, the values consolidated in the Constitution, and the constitutionally important objectives that are essential to society; and the principle of proportionality must be observed;

– the constitutional principle of the equality of all persons before the law requires that the main rights and duties be established by law equally to all;

– the state, when regulating economic activity, is obliged to pay heed to the constitutional requirement of the equality of the rights of economic subjects, which is directly linked to the principle of the equality of the rights of all persons, which is consolidated in Article 29 of the Constitution; otherwise the legal regulation of economic activity could not be regarded as serving the general welfare of the nation;

– any violation of the constitutional principle of the equality of the rights of persons is, at the same time, the violation of the constitutional imperatives of justice and harmonious society, and thus, also the violation of the constitutional principle of a state under the rule of law.

5.1. It has been mentioned that Item 3 (wording of 20 April 2006) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy imposed, as from the moment of the entry into effect of the court ruling to open a bankruptcy case, the prohibition on the performance of any actions (the obligation to refrain from any actions) that could result in the discharge of any financial obligation, inter alia, any set-off of counterclaims of the same kind, not discharged prior to the opening of the bankruptcy case. The said item did not provide for any exceptions to that prohibition.

It should be noted that, when regulating the relations connected to the activity of enterprises, and by paying heed to the Constitution, inter alia, to the constitutional imperatives of the balance of constitutional values, a state under the rule of law, justice, reasonableness, and the equality of rights, the legislature may lay down such legal regulation that would prohibit the set-off of any mutual financial claims of a creditor and its debtor in bankruptcy proceedings, as well as certain exceptions to such a prohibition, which, inter alia, would be grounded in a legitimate and universally significant objective and be in the public interest.

It has been held in this Constitutional Court’s ruling that Paragraph 2 of Article 87 of the Law on Banks, which provides that the claims of the SE “Deposit and Investment Insurance” for the expenses related to the payment of insurance payments to the depositors or investors (who are specified in the Law on the Insurance of Deposits and Liabilities to Investors) of a bank in bankruptcy proceedings are satisfied second in order of priority, and the provision “the claims concerning the payment of taxes and the making of other payments to the budget <...>, as well as the claims concerning the granted loans received on behalf of the state and with the guarantee of the state, shall be satisfied third in order of priority” of Paragraph 3 (wording of 4 November 2004) of the same Article 87 of the Law on Banks are not in conflict with the Constitution. Consequently, the legal regulation under which the claims of some creditors of an insolvent bank are satisfied prior to the claims of other creditors of such a bank is constitutionally justifiable.

In view of the foregoing, the impugned legal regulation consolidated in Item 3 (wording of 20 April 2006) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy, under which, upon the entry into effect of the court ruling to open a bankruptcy case, the discharge of any financial obligations not discharged prior to the opening of the bankruptcy case was prohibited, should be assessed as being not in violation of the order of priority established for the satisfaction of the claims of the creditors of an enterprise in bankruptcy proceedings. If any such legal regulation were established under which the set-off of counterclaims of the same kind of an enterprise in bankruptcy proceedings and its creditors would not be limited, the preconditions would be created to distort the order of priority established in the law for the satisfaction of the claims of the creditors of an enterprise in bankruptcy proceedings. The legal regulation at issue, which, upon the entry into force of the court ruling to open a bankruptcy case, prohibited the discharge of any financial obligations not discharged prior to the opening of the bankruptcy case, was aimed at ensuring that the claims of all the creditors of an enterprise in bankruptcy proceedings could be satisfied in accordance with the procedure established by means of a law and known in advance, i.e. so that the principle of the reconciliation of the interests of the persons concerned and society would be observed.

Consequently, there is no ground to maintain that the regulation laid down in Item 3 (wording of 20 April 2006) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy disregarded the imperative, stemming from Paragraph 3 of Article 46 of the Constitution, that the economic activity of the state be regulated in such a way that it can serve the general welfare of the nation.

5.2. The regulation established in Item 3 (wording of 20 April 2006) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy, which, upon the entry into effect of the court ruling to open a bankruptcy case, prohibited the discharge of any financial obligations, inter alia, any set-off of counterclaims of the same kind, did not deny the right of the creditors of an enterprise in bankruptcy proceedings to demand the satisfaction of their claims. Consequently, there is no ground to maintain that the regulation established in Item 3 (wording of 20 April 2006) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy violated the rights of ownership of creditors, which stem from Article 23 of the Constitution.

5.3. It has been mentioned that Item 3 (wording of 20 April 2006) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy did not provide for any exceptions to the prohibition on the set-off of counterclaims of the same kind, i.e. the said prohibition applied to all persons. Consequently, there is no legal ground to maintain that the aforesaid regulation, established by the said law, denied the requirements of the principle of the equality of the rights of persons, as consolidated in Article 29 of the Constitution, and the imperatives stemming from the constitutional principle of a state under the rule of law.

It should also be noted that, contrary to what is indicated by the petitioner, there are essential differences between an insolvent enterprise and its creditors, and, therefore, they cannot be compared with one another.

5.4. In view of the foregoing arguments, the conclusion should be drawn that Item 3 (wording of 20 April 2006) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy, insofar as it prohibited the discharge of any financial obligation—including any set-off of counterclaims of the same kind—not discharged prior to the opening of a bankruptcy case, was not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law.

  1. On 22 December 2011, the Seimas adopted the Republic of Lithuania’s Law Amending and Supplementing Articles 1, 4, 5, 6, 8, 9, 10, 11, 12, 18, 21, 23, 26, 33, 35, 36, and 37 of the Law on Enterprise Bankruptcy and Supplementing the Law with Article 111 and with the Third1 Section, by Paragraph 2 of Article 7 whereof, the Seimas amended Item 3 (wording of 20 April 2006) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy and set it forth as follows: “[T]he discharge of any financial obligations not discharged prior to the opening of the bankruptcy case against the enterprise, including the payment of interest, default interest, taxes, and other compulsory contributions, as well as the recovery of debts from the said enterprise through either judicial or extrajudicial means, shall be prohibited, save the set-off of counterclaims of the same kind where such a set-off is allowed under the provisions of tax laws providing for the set-off of tax overpayment (difference). The computation of default interest and interest on all the obligations of the enterprise, including on default on payments related to employment relations, shall be suspended. It is not permitted to impose any forced (either legal or judicial) mortgage. The validity of a collective agreement of the enterprise shall be limited in the manner prescribed by the meeting of creditors;”.

6.1. The comparison of the impugned regulation established in Item 3 (wording of 20 April 2006) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy with the regulation established in Item 3 (wording of 22 December 2011) of Paragraph 7 of Article 10 of the same law makes it clear that the latter regulation preserves the prohibition on the discharge of any financial obligations not discharged prior to the opening of a bankruptcy case, however, it also includes an exception to the said prohibition: i.e. the prohibition does not apply to the set-off of counterclaims of the same kind where such a set-off is allowed under the provisions of tax laws providing for the set-off of tax overpayment (difference).

6.2.  In the context of the limiting condition “save the set-off of counterclaims of the same kind where such a set-off is allowed under the provisions of tax laws providing for the set-off of tax overpayment (difference)”, as established in Item 3 (wording of 22 December 2011) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy, consideration should be given inter alia to the following provisions of the Republic of Lithuania’s Law on Tax Administration (wording of 13 April 2004 with subsequent amendments and supplements), which inter alia sets forth the relevant notions, as well as the rules applicable during the execution of tax laws and the basic principles of the legal regulation of taxation, and contains a list of taxes payable in the Republic of Lithuania:

– “‘Tax overpayment’ shall mean an amount of tax paid by a taxpayer in excess of the established amount of tax” (Paragraph 11 (wording of 22 December 2011) of Article 2);

– “‘Tax difference’ shall mean an amount that must be refunded (credited) from the budget to a taxpayer where such an amount arises on the basis of a tax return completed by the taxpayer in accordance with the procedure laid down in the tax law” (Paragraph 12 (wording of 22 December 2011) of Article 2);

 – “A concrete taxpayer shall be deemed to have discharged a tax obligation if:  <...> 3) the owed tax overpayment (tax difference) has been set off against the tax arrears of the taxpayer” (Item 3 of Article 82);

– “The tax amounts overpaid by a taxpayer shall be set off against the tax arrears of the taxpayer in accordance with the procedure established by the central tax administrator” (Paragraph 1 of Article 87).

In order to construe the regulation established in Item 3 (wording of 22 December 2011) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy, inter alia, the limiting condition “save the set-off of counterclaims of the same kind where such a set-off is allowed under the provisions of tax laws providing for the set-off of tax overpayment (difference)” established therein, in the context of the above-quoted provisions of the Law on Tax Administration, it should be pointed out that the tax amounts overpaid by a taxpayer—an enterprise against which a bankruptcy case has been opened—are, in keeping with the regulation established in the law, set off against the tax arrears of that taxpayer also in the cases where such a set-off had not been discharged prior to the opening of the bankruptcy case against the said taxpayer. Thus, the said set-off is a means of discharging a tax obligation owed by a taxpayer.

6.3. As mentioned before, according to the group of members of the Seimas, a petitioner, the exception whereby the set-off of counterclaims of the same kind is not prohibited where it is allowed under the provisions of tax laws providing for the set-off of tax overpayment (difference), as established by the regulation laid down in Item 3 (wording of 22 December 2011) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy, consolidates a constitutionally unjustified privilege for state institutions, in the event of the bankruptcy of an enterprise, to satisfy their claims in an unrestricted manner and in priority to the claims of other creditors, and thus violates the principle of the equality of persons before the law; such legal regulation is incompatible with the duty of the state to regulate economic activity in such a way that it can serve the general welfare of the nation; the regulation in question limits the rights and legitimate interests of economic subjects more than it is necessary to ensure the public interest.

6.4. In order to decide whether the aforementioned limiting condition “save the set-off of counterclaims of the same kind where such a set-off is allowed under the provisions of tax laws providing for the set-off of tax overpayment (difference)”, as established in Item 3 (wording of 22 December 2011) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy, is not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law, it should be noted that, under the Constitution, as mentioned before:

– in order to regulate economic activity in such a way that it can serve the general welfare of the nation, the state may establish a differentiated legal regulation, which is determined by the specificity of a certain economic activity; to this end, the state may use different means of legal regulation; the establishment of certain exceptions to a certain general legal regulation may be constitutionally justified if these exceptions are aimed at ensuring a constitutionally justifiable and universally important interest;

– the constitutional principle of the equality of the rights of persons does not in itself deny the opportunity to establish, by means of a law, a diverse and differentiated legal regulation with respect to certain persons that belong to different categories if there are differences between the said persons of such a character that can objectively justify that differentiated regulation;

– the protection of the rights of ownership may be regulated in laws in a differentiated manner provided that account is taken of a different situation of the subjects of the rights of ownership when they seek certain definite objectives; the establishment of priority with respect to certain subjects under certain conditions does not in itself deny the principle of the right of ownership, which is consolidated in Article 23 of the Constitution, nor the principle of the equality of persons before the law, the court, and other state institutions, which is consolidated in Article 29 of the Constitution;

– taxes form an essential part of the financial system of the state; they constitute the main part of the revenue of the state budget; the establishment of taxes is aimed at receiving revenue to perform the functions of the state (municipality) and meet the public needs of both society and the state; when taxes are not paid or are overdue, the state (municipal) budget does not receive part of its revenue, and the possibilities for the state (municipality) to perform the functions ascribed to it are limited.

6.4.1. It has been mentioned in this ruling that, when regulating relations connected to the activity of enterprises, and by paying heed to the Constitution, inter alia, the constitutional imperatives of the balance of constitutional values, a state under the rule of law, justice, reasonableness, and the equality of rights, the legislature may lay down such legal regulation that would prohibit the set-off of any mutual financial claims of a creditor and its debtor in bankruptcy proceedings, as well as provide for certain exceptions to the said prohibition, which, inter alia, would be grounded in a legitimate and universally significant objective and be in the public interest.

It should also be pointed out that, in view of the constitutional significance of taxes, inter alia, in ensuring the accumulation of the state budget revenue that is necessary to perform the functions of the state and meet the public needs of both society and the state, the legislature may also lay down such legal regulation that, in the event of the bankruptcy of an enterprise, would not prohibit (limit) any set-off of the mutual financial claims of the state and the enterprise in bankruptcy proceedings arising in the cases of tax overpayment and tax arrears, which are established in laws.

6.4.2. As mentioned before, under the regulation established in Item 3 (wording of 22 December 2011) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy, which does not prohibit any set-off of counterclaims of the same kind where such a set-off is allowed under the provisions of tax laws providing for the set-off of tax overpayment (difference), the set-off in question is a means of discharging a tax obligation owed by a taxpayer. Thus, the said regulation ensures the collection of taxes to the state budget.

Having established that state institutions, differently from other subjects in the cases where they have counterclaims of the same kind, are not prohibited from setting off their claims arising under the provisions of tax laws providing for the set-off of tax overpayment (difference), the legislature has exercised its discretion, granted under the Constitution, to establish an exception to the prohibition on the set-off of the mutual financial claims of a creditor and its debtor in bankruptcy proceedings, which is grounded in a legitimate and universally significant objective and is in the public interest—insofar as it ensures the collection of taxes to the state budget.

It has been mentioned in this ruling that the state budget provides funds for financing the performance of the functions of the state and for meeting the public needs of both society and the state; when taxes are not paid or are overdue, the state budget does not receive part of its revenue, and the possibilities for the state to perform the functions ascribed to it are limited. Thus, in this respect, there are constitutionally significant differences between the state and other creditors of an enterprise in bankruptcy proceedings; therefore, the legal regulation in question, which does not prohibit the set-off of counterclaims of the same kind where such a set-off is allowed under the provisions of tax laws providing for the set-off of tax overpayment (difference), does not deny the principle of the equality of the rights of persons, which stems from Paragraph 1 of Article 29 of the Constitution, and does not deviate from the imperatives stemming from the constitutional principle of a state under the rule of law.

It should also be noted that, in order to fulfil its duty consolidated in Paragraph 3 of Article 46 of the Constitution, the legislature has, by means of the aforesaid legal regulation, sought to regulate the economic financial activity of the state in such a way that it can serve the general welfare of the nation, as well as to ensure the protection of not only the interests of certain creditors, but also the interests of the whole society.

The regulation established in Item 3 (wording of 22 December 2011) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy, which does not prohibit the set-off of counterclaims of the same kind where such a set-off is allowed under the provisions of tax laws providing for the set-off of tax overpayment (difference), does not deny the right of the creditors of an enterprise in bankruptcy proceedings to demand that their claims be satisfied. Consequently, there is no ground to maintain that the regulation at issue violates the rights of ownership of other creditors of an enterprise in bankruptcy proceedings, which stem from Article 23 of the Constitution.

6.4.3. In view of the arguments set forth, the conclusion should be drawn that the limiting condition “save the set-off of counterclaims of the same kind where such a set-off is allowed under the provisions of tax laws providing for the set-off of tax overpayment (difference)”, as established in Item 3 (wording of 22 December 2011) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy, is not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law.

  1. The group of members of the Seimas, a petitioner, impugns not only the compliance of the aforementioned limiting condition established in Item 3 (wording of 22 April 2011) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy with the Constitution, but also the compliance of the general prohibition, laid down in the same item, on the discharge of any financial obligation—including any set-off of counterclaims of the same kind—not discharged prior to the opening of a bankruptcy case, with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law. In the latter respect, the petitioner provides the same arguments as regarding the compliance of Item 3 (wording of 20 April 2006) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy, to the extent specified before, with the Constitution.

7.1. It has been mentioned that Item 3 (wording of 22 April 2011) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy, as well as Item 3 (wording of 20 April 2006) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy, imposes (imposed) the prohibition on the discharge of any financial obligations not discharged prior to the opening of a bankruptcy case, inter alia any set-off of counterclaims of the same kind not discharged prior to the opening of a bankruptcy case.

It has been held in this Constitutional Court’s ruling that Item 3 (wording of 20 April 2006) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy, insofar as it prohibited the discharge of any financial obligation—including any set-off of counterclaims of the same kind—not discharged prior to the opening of a bankruptcy case, was not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law.

Having held this, on the grounds of the same arguments, the Constitutional Court should also hold that Item 3 (wording of 22 April 2011) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy, insofar as it prohibits the discharge of any financial obligation—including any set-off of counterclaims of the same kind—not discharged prior to the opening of a bankruptcy case, is not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law.

7.2. In view of the foregoing arguments, the conclusion should be drawn that the provision “the discharge of any financial obligations not discharged prior to the opening of the bankruptcy case against the enterprise, including the payment of interest, default interest, taxes, and the payment of other compulsory contributions, as well as the recovery of debts from the said enterprise through either judicial or extrajudicial means, shall be prohibited, save the set-off of counterclaims of the same kind where such a set-off is allowed under the provisions of tax laws providing for the set-off of tax overpayment (difference)” of Item 3 (wording of 22 December 2011) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy, is not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law.

  1. It has been mentioned that, in the constitutional justice case at issue, the Constitutional Court is investigating, inter alia, the compliance of Item 2 (wording of 30 March 2004) of Paragraph 3 and Paragraph 4 (wording of 22 December 2011) of Article 85 of the Law on Banks, to the extent specified by the petitioners, with the Constitution.

8.1. Item 2 of Paragraph 3 of Article 85 of the Law on Banks (wording of 30 March 2004) prescribes: “Upon the handing down of the court ruling to open a bankruptcy case against a bank: <...> 2) the discharge of any financial obligations not discharged prior to the opening of the bankruptcy case, including the payment of interest, default interest, taxes, and other compulsory contributions, as well as the recovery of any debts from the bank in bankruptcy proceedings through either judicial or extrajudicial means, shall be prohibited.”

Paragraph 4 of Article 85 of the Law on Banks (wording of 30 March 2004) prescribed: “The prohibitions established in Item 2 of Paragraph 3 of this Article shall not apply in the cases specified in the laws governing the functioning of the payment and securities settlement systems, as well as in other laws, where the bank concerned is directly instructed to discharge its obligations after the opening of the bankruptcy case against it.”

Thus, Item 2 of Paragraph 3 of Article 85 of the Law on Banks (wording of 30 March 2004), inter alia, established, from the moment of the handing down of the court ruling to open a bankruptcy case against a bank, the prohibition on the discharge of any financial obligations not discharged prior to the opening of the bankruptcy case, while Paragraph 4 of Article 85 laid down certain exceptions to the said prohibition.

8.2. On 22 December 2011, the Seimas adopted the Republic of Lithuania’s Law Amending Articles 1, 2, 4, 14, 40, 48, 49, and 85 of the Law on Banks and the Annex Thereto, by means of Article 8 whereof, the Seimas amended Paragraph 4 (wording of 30 March 2004) of Article 85 of the Law on Banks and set it forth in the following way:

“The prohibitions established in Item 2 of Paragraph 3 of this Article shall not apply in the cases specified in the laws governing the functioning of the payment and securities settlement systems, as well as in other laws, where the bank concerned is directly instructed to discharge its obligations after the opening of the bankruptcy case against it. During the procedure of the bankruptcy of a bank it shall also be permitted to set off a claim of a depositor or an investor (in keeping with the meaning of these notions as defined in Paragraphs 3 and 11 of Article 2 of the Law on the Insurance of Deposits and Liabilities to Investors) who is concurrently a recipient of a loan from the bank concerned, where no insurance payment is payable to that depositor or investor on the grounds of Item 4 of Paragraph 1 of Article 12 of the Law on the Insurance of Deposits and Liabilities to Investors, against the claim of the bank for the outstanding loan owed by the depositor or investor, but the amount that is set off (and where the depositor or investor has been paid an insurance payment—the amount that is set off in conjunction with the amount of the paid insurance payment) may not exceed the amounts of insurance payments to depositors or investors established in Paragraph 3 of Article 9 of the Law on the Insurance of Deposits and Liabilities to Investors.”

Upon the comparison of the regulation established in Paragraph 4 (wording of 2004 m. March 30) of Article 85 of the Law on Banks with the regulation established in Paragraph 4 (wording of 22 December 2011) of the same article, it should be noted that Paragraph 4 (wording of 22 December 2011) of Article 85 of the Law on Banks consolidates one more exception to the effect that a depositor or an investor who is concurrently a recipient of a loan from the bank concerned is not prohibited from setting off, in keeping with the provisions of the Law on the Insurance of Deposits and Liabilities to Investors, his claim against the counterclaim of the bank for the outstanding loan.

8.3. The aforementioned provision in Paragraph 4 (wording of 22 December 2011) of Article 85 of the Law on Banks, under which a depositor or an investor who is concurrently a recipient of a loan from the bank concerned is not prohibited from setting off his claim against the counterclaim of the bank for the outstanding loan, should be construed in the context of the Law on the Insurance of Deposits and Liabilities to Investors. The following provisions of the Law on the Insurance of Deposits and Liabilities to Investors should be mentioned:

– “‘Depositor’ shall mean a natural or legal person holding a deposit with a bank, branch of a bank, or a credit union, with the exception of the subjects whose deposits may not, under this Law, be covered by insurance. Where the said natural or legal person (save a management enterprise responsible for the management of collective investment entities and pension funds) holding a deposit acts as a trustee, the trustor shall be regarded as a depositor. Where a group of persons holds the rights of claim to the funds under contracts, each person of the group shall be regarded as a depositor, and the funds shall be divided among them in equal shares, unless the contracts out of which their rights of claim arise, or the relevant court decisions, provide otherwise” (Paragraph 3 of Article 2 (wording of 18 January 2008));

– “‘Investor’ shall mean a natural or legal person who has entrusted his funds or securities to the insured, so that he can make use of the investment services provided by the insured. Where a group of persons holds the rights of claim to the funds and/or securities under contracts, each person of the group shall be regarded as an investor, and the securities and funds shall be divided among them in equal shares, unless the contracts out of which their rights of claim arise, or the relevant court decisions, provide otherwise. Where a person who has entrusted his funds or securities (with the exception of a management enterprise responsible for the management of collective investment entities and pension funds) acts as a trustee, the trustor shall be regarded as an investor” (Paragraph 11 of Article 2 (wording of 18 January 2008));

– “Insurance payments shall not be paid in the following cases: <...> 4) to recipients of a loan from a bank, a credit union, or an enterprise where the deposits or liabilities to investors are not in excess of their liabilities (the outstanding loans including interest). If the deposit of a recipient of a loan from a bank, a credit union, or an enterprise, or liabilities to an investor, are in excess of the liabilities (the outstanding loans and interest) of that recipient, the insured amount shall be calculated by deducting the liabilities of the recipient from the deposit or the liabilities to the investor, however, it may not exceed the amount indicated in Paragraph 3 of Article 9 of this Law” (Item 4 (wording of 20 January 2005) of Paragraph 1 of Article 12);

– “The amounts of insurance payments to depositors or investors shall be as follows: 1) to investors—100 percent of the liabilities up to the amount in litas equivalent to 3,000 euros and 90 percent of the liabilities from the amount in litas equivalent to 3,000 euros up to the amount in litas equivalent to 22,000 euros;  2) to depositors—100 percent of the deposit up to the amount in litas equivalent to 100,000 euros” (Paragraph 3 (wording of 21 July 2009) of Article 9).

8.4. When the regulation established in Item 2 of Paragraph 3 of Article 85 of the Law on Banks (wording of 30 March 2004) is construed in conjunction with the regulation established in Paragraph 4 (wording of 22 December 2011) of the same article, it should be held that, from the moment of the handing down of the court ruling to open a bankruptcy case against a bank, inter alia, the discharge of any financial obligations not discharged prior to the opening of the bankruptcy case, including the payment of interest, default interest, taxes, and other compulsory contributions, is prohibited; however, this prohibition does not apply in the cases specified in the laws governing the functioning of the payment and securities settlement systems, as well as in other laws, where the bank concerned is directly instructed to discharge its obligations after the opening of the bankruptcy case against it, as well as in the cases of the set-off of a claim of a depositor or an investor who is concurrently a recipient of a loan from the bank concerned against the counterclaim of the bank for the outstanding loan under the conditions and in the amounts established in Paragraph 4 (wording of 22 December 2011) of Article 85 of the Law on Banks and in the Law on the Insurance of Deposits and Liabilities to Investors.

8.5. It should be noted that the aforesaid exceptions, as established in Paragraph 4 (wording of 22 December 2011) of Article 85 of the Law on Banks in connection to the prohibition on the discharge of any financial obligations, are not impugned by the petitioners, and the compliance of these exceptions with the Constitution is not a matter of investigation in the constitutional justice case at issue.

The petitioners impugn the compliance of Item 2 (wording of 30 March 2004) of Paragraph 3 and Paragraph 4 (wording of 22 December 2011) of Article 85 of the Law on Banks with the Constitution, insofar as they prohibit the set-off of counterclaims of the same kind in all cases other than those provided for in Paragraph 4 (wording of 22 December 2011) of Article 85 of the Law on Banks, inter alia, in the cases where the prohibition in question applies to the set-off of a claim of a depositor or an investor who is concurrently a recipient of a loan from the bank concerned against the counterclaim of the bank for the outstanding loan owed by that depositor or investor if the claim of the said depositor or investor exceeds the amounts specified in the Law on the Insurance of Deposits and Liabilities to Investors. Thus, the petitioners impugn the compliance of Item 2 (wording of 30 March 2004) of Paragraph 3 and Paragraph 4 (wording of 22 December 2011) of Article 85 of the Law on Banks with the Constitution, insofar as they prohibit the discharge of any financial obligation—including any set-off of counterclaims of the same kind—not discharged prior to the opening of a bankruptcy case, save in the cases provided for by law.

8.6. As mentioned before, according to the petitioners, the regulation established in Item 2 (wording of 30 March 2004) of Paragraph 3 and Paragraph 4 (wording of 22 December 2011) of Article 85 of the Law on Banks would be in line with the Constitution if, after the opening of a bankruptcy case against a bank, it did not prohibit the set-off of the counterclaims of the same kind of any creditors and debtors of the bank concerned where the possibility of such a set-off had been provided for prior to the opening of the bankruptcy case against the bank.

8.7. In order to decide whether Item 2 (wording of 30 March 2004) of Paragraph 3 and Paragraph 4 (wording of 22 December 2011) of Article 85 of the Law on Banks, insofar as they prohibit the discharge of any financial obligation—including any set-off of counterclaims of the same kind—not discharged prior to the opening of a bankruptcy case, save in the cases provided for by law, are not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law, it should be noted that, the comparison of the regulation established in Item 2 (wording of 30 March 2004) of Paragraph 3 and Paragraph 4 (wording of 22 December 2011) of Article 85 of the Law on Banks with the regulation established in Item 3 (wording of 20 April 2006) of Paragraph 7 of Article 10 and Item 3 (wording of 22 December 2011) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy makes it clear that the legal regulation at issue is identical insofar as it consolidates the prohibition on the discharge of any financial obligations not discharged prior to the opening of a bankruptcy case, inter alia, the discharge of any counterclaims of the same kind, save in the cases of the established exceptions.

8.8. It has been held in this Constitutional Court’s ruling that Item 3 (wording of 20 April 2006) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy, as well as Item 3 (wording of 22 December 2011) of Paragraph 7 of Article 10 of the Law on Enterprise Bankruptcy, insofar as this paragraph prohibited (prohibits) the discharge of any financial obligation—including any set-off of counterclaims of the same kind—not discharged prior to the opening of a bankruptcy case, was (is) not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law.

Having held this, on the grounds of the same arguments, the Constitutional Court should also hold that Item 2 (wording of 30 March 2004) of Paragraph 3 and Paragraph 4 (wording of 22 December 2011) of Article 85 of the Law on Banks, insofar as they prohibit the discharge of any financial obligation—including any set-off of counterclaims of the same kind—not discharged prior to the opening of a bankruptcy case, save in the cases provided for by law, are not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law.


V

On the compliance of Paragraph 10 (wording of 17 November 2011) of Article 72, Paragraph 14 of Article 761 (wording of 17 November 2011), and Paragraph 9 (wording of 17 November 2011) of Article 85 of the Law on Banks, Article 131 (wording of 17 November 2011) of the Law on Financial Sustainability, Paragraph 2 (wording of 17 November 2011) of Article 71 and Article 881 (wording of 17 November 2011) of the Law on the Proceedings of Administrative Cases, and Paragraph 3 (wording of 17 November 2011) of Article 145 and Article 2671 (wording of 17 November 2011) of the Code of Civil Procedure with Article 23 and Paragraph 1 of Article 30 of the Constitution and the constitutional principle of a state under the rule of law.

  1. In the constitutional justice case at issue, the Constitutional Court is investigating, inter alia, whether Paragraph 9 (wording of 17 November 2011) of Article 85 of the Law on Banks, insofar as it prescribes that, upon the opening of a bankruptcy case against a bank, the bank administrator has no right to inspect any transactions concluded during the time when the temporary bank administrator had conducted the transfer of the assets, rights, transactions, and liabilities of the said bank to another bank, nor to bring any actions before a court for the invalidation of such transactions, is not in conflict with Article 23 and Paragraph 1 of Article 30 of the Constitution and the constitutional principle of a state under the rule of law.

1.1. Paragraph 9 (wording of 17 November 2011) of Article 85 “Bankruptcy Proceedings Against a Bank” of the Law on Banks prescribes: “Upon the opening of a bankruptcy case against a bank that has, in keeping with the provisions of Article 761 of this Law, transferred its assets, rights, transactions, and liabilities to another bank, the bank administrator shall not have the right to inspect any transactions concluded during the transfer of the assets, rights, transactions, and liabilities of the said bank, conducted in keeping with the provisions of Article 761 of this Law, nor to bring any actions before a court for the invalidation of such transactions.”

1.2. The regulation laid down in the impugned Paragraph 9 (wording of 17 November 2011) of Article 85 of the Law on Banks should be construed in conjunction with Article 761 “The Transfer of the Assets, Rights, Transactions, and Liabilities of a Bank” (wording of 17 November 2011) of this law, which prescribes:

“1. The assets, rights, transactions, and liabilities of a bank whose activities are subject to limitation (moratorium) and for which a temporary administrator has been appointed in compliance with Article 76 of this Law (hereinafter in this Article referred to as ‘the bank subject to administration’) may be transferred to another bank if:

1) there is a real threat that the net value of the assets of the bank subject to administration will fall below its liabilities, or that the said bank will meet other conditions, as established by legal acts adopted by the supervisory institution under Paragraph 1 of Article 84 of this Law, for recognising banks as insolvent, or it has been established that the said bank has already met the conditions for recognising it as insolvent, and

2) the transfer of the assets, rights, transactions, and liabilities of the bank subject to administration to another bank could contribute to maintaining the confidence of depositors in the stability and reliability of the banking system and otherwise protect public interests, while the liquidation of the bank subject to administration as a result of bankruptcy proceedings would not protect the said interests to the same extent.

  1. The transfer of the assets, rights, transactions, and liabilities of the bank subject to administration, upon the approval and in keeping with the instructions from the supervisory institution, shall be organised and conducted by the temporary administrator.
  2. If the supervisory institution approves the transfer of the assets, rights, transactions, and liabilities of the bank subject to administration, the temporary administrator shall, acting in observance of the instructions from the supervisory institution, organise and hold negotiations for the takeover of assets, rights, transactions, and liabilities of the bank subject to administration with the banks authorised to provide financial services related to the assets, rights, transactions, and liabilities of the bank subject to administration. The banks participating in the negotiations shall have the right to familiarise themselves with the information about the financial situation of the bank subject to administration, which, according to the temporary administrator, is necessary for the adoption of a decision concerning the takeover of the assets, rights, transactions, and liabilities of the bank subject to administration. The protection of such information shall be governed mutatis mutandis by the provisions of Article 55 of this Law.
  3. Having regard to the need to address the matter of the transfer of the assets, rights, transactions, and liabilities of the bank subject to administration with particular urgency and effectiveness, also relying on the information available to the supervisory institution at the moment of adopting a decision about the capacity of the banks authorised to provide financial services in the Republic of Lithuania to take over the assets, rights, transactions, and liabilities of the bank subject to administration, or believing, due to other reasons, that the organisation and holding of the negotiations in compliance with the provisions of Paragraph 3 of this Article would be inappropriate, the supervisory institution shall have the right to instruct the temporary administrator to organise and hold the negotiations only with certain banks authorised to provide financial services related to the assets, rights, transactions, and liabilities of the bank subject to administration, or with one of such banks, or to instruct the temporary administrator not to organise and not to hold any negotiations at all, but to prepare for the transfer of, or to transfer, the assets, rights, transactions, and liabilities of the bank subject to administration to a provisional bank that may be established or has already been established in accordance with the provisions of Article 71 of the Republic of Lithuania’s Law on Financial Sustainability. <...>
  4. The assets, rights, transactions, and liabilities of the bank subject to administration may be transferred only after their assessment has been carried out by an audit firm and/or a property appraisal company engaged by the temporary administrator. The costs of the assessment shall be borne by the bank subject to administration. When it is necessary to address the matter of the transfer of the assets, rights, transactions, and liabilities of the bank subject to administration with particular urgency, the assets, rights, transactions, and liabilities of the bank subject to administration may be transferred only after their preliminary assessment has been carried out by the temporary administrator and after the conclusions of the temporary administrator have been approved by the supervisory institution; the assessment by an audit firm and/or a property appraisal company may follow already after the transfer of the assets, rights, transactions, and liabilities of the said bank. When the value of the assets, rights, transactions, and liabilities of the bank is being determined, consideration must be given to the conclusion presented by the supervisory institution as to the existence of any grounds for the revocation of the licence of the bank subject to administration as well as to the consequences of licence revocation as specified in Article 10 of this Law, however, regard must not be had to any measures for enhancing financial stability that have already been applied or may possibly be applied to the bank in accordance with the Republic of Lithuania’s Law on Financial Sustainability. <...>”

Thus, Article 761 of the Law on Banks lays down the conditions and procedure for the transfer of the assets, rights, transactions, and liabilities of a bank whose activities are subject to limitation (moratorium), and for which a temporary administrator has been appointed, to another bank. According to that procedure, the transfer of the assets, rights, transactions, and liabilities of a bank subject to administration is organised and conducted by the respective temporary administrator upon the approval and in keeping with the instructions from the supervisory institution—the Bank of Lithuania.

In this context, it should be mentioned that, under Paragraph 3 (wording of 17 November 2011) of Article 4 of the Law on Financial Establishments, the supervisory institution that is responsible for the supervision of the activities of financial establishments engaged in the provision of licensed financial services is the Bank of Lithuania; “[t]he procedure of the bankruptcy of a financial establishment may be carried out only through judicial means” (Paragraph 2 of Article 57 of the Law on Financial Establishments).

1.3. In order to construe the impugned regulation established in Paragraph 9 (wording of 17 November 2011) of Article 85 of the Law on Banks in conjunction with the regulation established in Article 761 (wording of 17 November 2011) of this law, it should be noted that, upon the opening of a bankruptcy case against a bank, the bank administrator has no right to inspect any transactions concluded during the time when the temporary bank administrator, in keeping with the instructions and upon the approval from the supervisory institution—the Bank of Lithuania—had conducted the transfer of the assets, rights, transactions, and liabilities of the said bank to another bank, nor to bring any actions before a court for the invalidation of such transactions.

  1. In the constitutional justice case at issue, the Constitutional Court is investigating, inter alia, whether Paragraph 2 of Article 131 (wording of 17 November 2011) of the Law on Financial Sustainability, Paragraph 10 (wording of 17 November 2011) of Article 72 and Paragraph 14 of Article 761 (wording of 17 November 2011) of the Law on Banks, Article 881 (wording of 17 November 2011) of the Law on the Proceedings of Administrative Cases, and Article 2671 (wording of 17 November 2011) of the Code of Civil Procedure, insofar as, according to the petitioner, they impose the prohibition on bringing before a court any claims concerning the annulment of the actions (acts) of the Government or an institution authorised by it, of the Bank of Lithuania, or other institutions or subjects taken (adopted) in connection with the application of measures to enhance financial stability, also any claims concerning the imposition of the obligation to take certain actions as a result of which the validity of the contested action (act) would be suspended or annulled, or the situation that existed prior to the performance (adoption) of the impugned action (act) would be otherwise restored, as well as any claims concerning the actions of the Bank of Lithuania, the temporary administrator, and other subjects taken in connection with the conduct of the transfer (return) of the assets, rights, transactions, and liabilities of a certain bank, and insofar as, in the cases where the said claims have been brought, a court, when satisfying such a claim or complaint (petition), is prohibited from annulling the contested action (act) or imposing the obligation to take any such actions as a result of which the validity of the contested action (act) would be suspended or annulled, or the situation that existed prior to the performance (adoption) of the impugned action (act) would be otherwise restored, are not in conflict with Article 23 and Paragraph 1 of Article 30 of the Constitution and the constitutional principle of a state under the rule of law.

2.1. On 22 July 2009, the Seimas adopted the Republic of Lithuania’s Law on Financial Sustainability, which came into force on 4 August 2009. The purpose of this Law is to provide for the measures enhancing the financial sustainability of the banking system with a view to protecting the key public interests (Paragraph 1 of Article 1).

Paragraph 2 of Article 131 “The Peculiarities of the Judicial Consideration of Administrative and Civil Cases Related to the Application of Measures to Enhance Financial Stability” (wording of 17 November 2011) of the Law on Financial Sustainability, which is impugned by the group of members of the Seimas, a petitioner, prescribes: “Having examined a claim or complaint (petition) concerning certain actions (acts) of the Government or an institution authorised by it, of the Bank of Lithuania, or other institutions or subjects taken (adopted) in connection with the application of the measures to enhance financial stability that are provided for in this Law, a court shall have the right, provided that the conditions set forth in this Law exist, to award damages, but, when satisfying the said claim or complaint (petition), it may not annul the contested action (act) or impose the obligation to take any such actions as a result of which the validity of the contested action (act) would be suspended or annulled, or the situation that existed prior to the performance (adoption) of the contested action (act) would be otherwise restored.”

2.1.1. The regulation established in Article 131 (wording of 17 November 2011) of the Law on Financial Sustainability should be construed in conjunction with the following provisions of the same law (wording of 22 July 2009):

– “Under this Law, the following measures to enhance financial stability may be applied: 1) state guarantee; 2) the redemption of the assets of the bank concerned; 3) the participation of the state in the capital of the bank concerned; 4) the establishment of a bank (hereinafter referred to as the provisional bank) all the shares of which belong to the state under the right of ownership and the purpose of which is to temporarily carry out certain activities related to the assets, rights, and liabilities taken over from a bank the financial position of which posed a threat to the stability and reliability of the banking system; 5) the taking over of the shares of the bank concerned for public needs” (Paragraph 1 (wording of 17 November 2011) of Article 2);

– “Measures to enhance financial stability shall, in accordance with the procedure laid down by means of laws and other legal acts, be applied by the Government of the Republic of Lithuania (hereinafter referred to as the ‘Government’) or an institution authorised by it. The Bank of Lithuania shall participate in enhancing the stability of the banking system as well as in applying the measures to enhance financial stability in accordance with the procedure laid down by the legal acts governing its activities as well as by this Law” (Paragraph 2 of Article 2);

– “The Government or an institution authorised by it shall decide on the application of measures to enhance financial stability where the application of such measures is requested by a bank and/or the shareholders of a bank who have the holding in the authorised capital and/or voting rights of the bank that grants them the right to control the activities of the bank (hereinafter referred to as the ‘shareholders controlling the bank’), or by a person who is the founder of a branch of a foreign bank (in the case of a branch of a foreign bank) in the Republic of Lithuania, as well as where the Bank of Lithuania submits to the Government or an institution authorised by it the conclusion referred to in Item 1 of Paragraph 1 of Article 3 of this Law” (Paragraph 3 of Article 2);

“Measures to enhance financial stability may be applied with respect to a bank the financial position of which jeopardises the stability and reliability of the banking system and/or with respect to a bank that takes over the liabilities of the aforesaid bank in the event of reorganisation or in other cases” (Paragraph 6 of Article 2);

– “The Government or an institution authorised by it shall apply measures to enhance financial stability under the following circumstances: 1) upon the conclusion by the Bank of Lithuania that a certain bank has liquidity problems or that there is a real threat that a certain bank will have such problems in the future and the measures that the Bank of Lithuania is allowed to apply under the valid legal acts are insufficient to deal with the liquidity problems of the bank concerned, or upon the conclusion that there is a real threat that a certain bank will become insolvent; 2) where there is a ground to draw the conclusion that any failure to apply the measures to enhance financial stability provided for by this Law will result in a threat to the stability and reliability of the banking system” (Paragraph 1 of Article 3).

In order to sum up the regulation laid down in the Law on Financial Sustainability, it should be noted that, with the participation of the Bank of Lithuania and under the circumstances established by means of the law, with respect to a bank the financial position of which jeopardises the stability and reliability of the banking system or/and with respect to a bank that takes over the obligations of the aforesaid bank in the event of reorganisation or in other cases, the Government or an institution authorised by it may apply certain measures to enhance financial stability (i.e., state guarantee; the redemption of the assets of the bank concerned; the participation of the state in the capital of the bank concerned; the establishment of a bank all the shares of which belong to the state under the right of ownership and the purpose of which is to temporarily carry out certain activities in connection to the assets, rights, and liabilities taken over from a bank the financial position of which posed a threat to the stability and reliability of the banking system; or the taking over of the shares of the bank concerned for public needs).

2.1.2. Thus, under the regulation established in Paragraph 2 of Article 131 (wording of 17 November 2011) of the Law on Financial Sustainability, after having examined a claim or complaint (petition) concerning certain actions (acts) of the Government or an institution authorised by it, of the Bank of Lithuania, or other institutions or subjects taken (adopted) in connection with the application of measures to enhance financial stability, inter alia, the taking over of the shares of a certain bank for public needs, a court is not authorised to annul the contested action (act) or impose the obligation to take any such actions as a result of which the validity of the contested action (act) would be suspended or annulled, or the situation that existed prior to the performance (adoption) of the impugned action (act) would be otherwise restored; in the cases at issue, provided the conditions established by means of the law exist, the court has the right to award damages.

2.2. The group of members of the Seimas, a petitioner, impugns, inter alia, Paragraph 10 (wording of 17 November 2011) of Article 72 “Sanctions” of the Law on Banks, wherein it is prescribed: “Having examined a complaint (petition) concerning the decision of the Bank of Lithuania to impose the sanctions specified in Items 6, 7, and 8 of Paragraph 1 and Items 2 and 3 of Paragraph 3 of this Article, a court shall have the right, provided that the conditions set forth in this Law exist, to award damages, but, when satisfying the said complaint (petition), the court may not annul the contested decision or impose on the Bank of Lithuania the obligation to take any such actions as a result of which the validity of the contested decision would be suspended or annulled, or the situation that existed prior to the adoption of the decision would be otherwise restored.”

The regulation established in Paragraph 10 (wording of 17 November 2011) of Article 72 of the Law on Banks, which is impugned by the group of members of the Seimas, a petitioner, should be construed in conjunction with Paragraph 1 (wording of 30 March 2004 with subsequent amendments) and Paragraph 3 (wording of 30 March 2004) of Article 72 of this law, which are referred to in the said Paragraph 10 and wherein it is prescribed:

“1. The supervisory institution shall have the right to impose the following sanctions on a licensed bank or a branch of a foreign bank:

1) to warn of an infringement of this Law and other legal acts governing safe and reliable activities or of failure to carry out the instructions of the supervisory institution;

2) to impose penalties provided for under this Law;

3) to temporarily remove from office a member (members) of the supervisory board of a bank, a member (members) of the board of a bank, the head (heads) of the administration of a bank, the head (heads) of a branch of a foreign bank, or to remove from office a member (members) of the supervisory board of a bank, a member (members) of the board of a bank, the head (heads) of the administration of a bank, the head (heads) of a branch of a foreign bank and require that they be suspended from office and/or the respective contracts concluded with them be terminated or that their powers be revoked;

4) to temporarily prohibit the provision of one or several financial services;

5) to temporarily or permanently prohibit the activities of one or several branches of a bank or other divisions of a bank or a branch of a foreign bank. Where the supervisory institution takes the decision to temporarily prohibit the activities of a branch or another division, that branch or division shall not have the right to provide any financial services, and where the decision is taken to permanently prohibit the activities of a branch or another division, the bank concerned must additionally take the decision to terminate the activities of the said branch or another division;

6) to announce limitation (moratorium) on the activities of a bank or a branch of a foreign bank;

7) to temporarily limit the right to make use of the funds held in the respective accounts with the Bank of Lithuania and with other credit establishments as well as of other respective assets;

8) to revoke the issued licence or to temporarily suspend the validity thereof so long as the grounds for the suspension of the licence exist; when the grounds for license suspension cease to exist, the supervisory institution, without any delay but not later than within 5 working days of ascertaining that the grounds for license suspension have ceased to exist, shall restore the validity of the licence. <...>

  1. The supervisory institution shall have the right to impose the following sanctions on a foreign bank licensed in a Member State of the European Union and engaged in the provision of financial services in the Republic of Lithuania without establishing any its branches therein or on a branch established in the Republic of Lithuania by a foreign bank licensed in the European Union:

1) to warn of an infringement of this Law and other legal acts governing safe and reliable activities or of any shortcomings in the respective activities;

2) to temporarily limit the right of a branch of a foreign bank to make use of the funds held in the respective accounts with the Bank of Lithuania and with other credit establishments as well as of other respective assets;

3) to temporarily or permanently prohibit the provision of financial services in the Republic of Lithuania.”

Thus, under the regulation established in Paragraph 10 (wording of 17 November 2011) of Article 72 of the Law on Banks, after having examined a claim or complaint (petition) concerning the application of certain sanctions by the supervisory institution—the Bank of Lithuania, inter alia, concerning the announcement of the limitation (moratorium) on the activities of a certain bank or a certain branch of a foreign bank, or concerning the temporary limitation on the right to make use of the funds held in the respective accounts with the Bank of Lithuania and other credit establishments as well as of other respective assets, as well as concerning the revocation of the issued respective licence or the temporary suspension of the validity thereof, a court is not authorised to annul the contested decision or impose the obligation on the Bank of Lithuania to take any such actions as a result of which the validity of the contested decision would be suspended or annulled, or the situation that existed prior to the adoption of the said decision would be otherwise restored; in the cases at issue, provided the conditions established by means of the law exist, the court has the right to award damages.

It needs to be mentioned that, under Paragraph 1 of Article 73 of the Law on Banks, the supervisory institution has the right to impose the sanctions established in this law, save the penalties specified in this law, provided there is at least one of the following grounds: 1) the information that is specified or requested by the law in question or by the legal acts of the supervisory institution and is required to exercise supervision has not been supplied within fixed time limits, or incorrect information has been supplied; 2) the instructions given by the supervisory institution on the grounds of the said law have not been carried out in the prescribed manner; 3) the requirements established for the authorisation to establish a bank or a branch of a foreign bank or for the receipt of the licence have no longer been met; 4) the requirements established in the laws governing the safe and reliable activity of banks and the requirements established in the legal acts adopted by the supervisory institution have been violated, or there is a threat that the activity or financial situation of a bank or a branch of a foreign bank may result in the violation of the interests of society and/or the respective clients or may lead to the disturbance of the functioning of the banking system of the Republic of Lithuania. In addition, under Paragraph 6 of Article 72 of the Law on Banks, the supervisory institution, when taking a decision on the imposition of sanctions and selecting a concrete sanction (sanctions), takes account of the content, scope, and recurrence of the determined infringements and shortcomings in activities, also of the influence thereof on the interests of the depositors and other creditors concerned, as well as of the financial situation of the subject on whom a particular sanction is being imposed, the preparedness and possibilities of the founder, shareholders, and heads concerned to eliminate the respective infringements and shortcomings, as well as of the consequences of the determined infringements and shortcomings in activities and the consequences of a sanction (sanctions) intended to be imposed for the stability and reliability of the subject on whom that sanction is being imposed and the banking system as a whole.

2.3. Paragraph 14 of Article 761 “The Transfer of the Assets, Rights, Transactions, and Liabilities of a Bank” (wording of 17 November 2011) of the Law on Banks, which is impugned by the group of members of the Seimas, a petitioner, prescribes: “When the claims or complaints (petitions) concerning certain actions (acts) of the Bank of Lithuania, the temporary administrator, or other subjects taken (adopted) in connection with the organisation and conduct of the transfer (return) of the assets, rights, transactions, and liabilities of a certain bank are examined in court, the provisions of Article 131 of the Republic of Lithuania’s Law on Financial Sustainability shall apply mutatis mutandis.”

It should be noted that, as mentioned before, according to the procedure for the transfer of the assets, rights, transactions, and liabilities of a bank the activities of which have been subject to limitation (moratorium), and for which the temporary administrator has been appointed, to another bank, as established in Article 761 of the Law on Banks, the transfer of the assets, rights, transactions, and liabilities of a bank subject to administration to another bank is organised and conducted by the temporary administrator upon the approval and in keeping with the instructions from the supervisory institution—the Bank of Lithuania.

In order to construe the impugned regulation established in Paragraph 14 of Article 761 (wording of 17 November 2011) of the Law on Banks in conjunction with the regulation established in Paragraph 2 of Article 131 (wording of 17 November 2011) of the Law on Financial Sustainability, it should be noted that, according to this regulation, after having examined a claim or complaint (petition) concerning certain actions (acts) of the Bank of Lithuania, the temporary administrator, or other subjects taken (adopted) in connection with the organisation and conduct of the transfer (return) of the assets, rights, transactions, and liabilities of a certain bank, a court is not authorised to annul the contested action (act) or impose the obligation to take any such actions as a result of which the validity of the contested action (act) would be suspended or annulled, or the situation that existed prior to the adoption of the impugned action (act) would be otherwise restored; in the cases at issue, provided the conditions established by means of the law exist, the court has the right to award damages.

2.4. On 14 January 1999, the Seimas adopted the Republic of Lithuania’s Law on the Proceedings of Administrative Cases, which came into force on 1 May 1999.

Article 881 “Decisions That May Have Influence on the Effectiveness of Measures to Enhance the Financial Stability and Reliability of Banks” (wording of 17 November 2011) of the Law on the Proceedings of Administrative Cases, which is impugned by the group of members of the Seimas, a petitioner, prescribes: “Other laws may provide for the cases where court decisions that may have influence on the effectiveness of measures to enhance the financial stability and reliability of banks can be adopted only in connection with the awarding of damages.”

2.5. On 28 February 2002, the Seimas adopted the Republic of Lithuania’s Law on the Approval, Entry into Force, and Implementation of the Code of Civil Procedure, by means of Article 1 whereof, the Seimas approved the Code of Civil Procedure. Paragraph 2 of that law prescribes that the Code of Civil Procedure comes into force as from 1 January 2003.

Article 2671 “Decisions That May Have Influence on the Effectiveness of Measures to Enhance the Financial Stability and Reliability of Banks” (wording of 17 November 2011) of the Code of Civil Procedure, which is impugned by the group of members of the Seimas, a petitioner, prescribes: “Other laws may provide for the cases where court decisions that may have influence on the effectiveness of measures to enhance the financial stability and reliability of banks can be adopted only in connection with the awarding of damages.”

2.6. It should be noted that the measures to enhance the financial stability and reliability of banks, which are referred to in Article 881 (wording of 17 November 2011) of the Law on the Proceedings of Administrative Cases and Article 2671 (wording of 17 November 2011) of the Code of Civil Procedure are, as mentioned before, provided for in the Law on Financial Sustainability. It should be mentioned that the sanctions specified in Article 72 of the Law on Banks, inter alia, create preconditions for enhancing the stability and reliability of the banking system.

Thus, under the regulation laid down in Article 881 (wording of 17 November 2011) of the Law on the Proceedings of Administrative Cases and Article 2671 (wording of 17 November 2011) of the Code of Civil Procedure, other laws, inter alia, the Law on Financial Sustainability and the Law on Banks, may provide for the cases where decisions that may have influence on the effectiveness of measures to enhance the financial stability and reliability of banks can be adopted by a court only in connection with the awarding of damages, i.e. the court is not authorised to annul the contested action (act) or impose the obligation to take any such actions as a result of which the validity of the contested action (act) would be suspended or annulled, or the situation that existed prior to the adoption of the impugned action (act) would be otherwise restored.

2.7. In order to sum up the regulation established in Paragraph 2 of Article 131 (wording of 17 November 2011) of the Law on Financial Sustainability, Paragraph 10 (wording of 17 November 2011) of Article 72 and Paragraph 14 of Article 761 (wording of 17 November 2011) of the Law on Banks, Article 881 (wording of 17 November 2011) of the Law on the Proceedings of Administrative Cases, and Article 2671 (wording of 17 November 2011) of the Code of Civil Procedure, insofar as it is impugned by the petitioner, it should be noted that, under the regulation at issue, after having examined the claims or complaints (petitions) concerning the actions (acts) of the Government or an institution authorised by it, of the Bank of Lithuania, or other institutions or subjects taken (adopted) in connection with the application of measures to enhance financial stability, or concerning the actions (acts) of the Bank of Lithuania, the temporary administrator, or other subjects taken (adopted) in connection with the organisation and conduct of the transfer (return) of the assets, rights, transactions, and liabilities of a certain bank, a court is not authorised to annul the contested action (act) or impose the obligation to take any such actions as a result of which the validity of the contested action (act) would be suspended or annulled, or the situation that existed prior to the adoption of the impugned action (act) would be otherwise restored; in the cases at issue, provided the conditions established by means of the law exist, the court has the right to award damages.

  1. In the constitutional justice case at issue, the Constitutional Court is investigating whether, inter alia, Paragraph 1 of Article 131 (wording of 17 November 2011) of the Law on Financial Sustainability, Paragraph 14 of Article 761 (wording of 17 November 2011) of the Law on Banks, Paragraph 2 (wording of 17 November 2011) of Article 71 of the Law on the Proceedings of Administrative Cases, and Paragraph 3 (wording of 17 November 2011) of Article 145 of the Code of Civil Procedure, insofar as, according to the petitioner, they prohibit courts from applying any temporary protective measures and measures to secure a claim that would limit the performance of actions related to the application of measures to enhance financial stability as well as the performance (execution) of the actions (acts) of the Bank of Lithuania, the temporary administrator, or other subjects taken (adopted) in connection with the organisation and conduct of the transfer (return) of the assets, rights, transactions, and liabilities of a certain bank, are not in conflict with Article 23 and Paragraph 1 of Article 30 of the Constitution and the constitutional principle of a state under the rule of law.

3.1. Paragraph 1 of Article 131 “The Peculiarities of the Judicial Consideration of Administrative and Civil Cases Related to the Application of Measures to Enhance Financial Stability” (wording of 17 November 2011) of the Law on Financial Sustainability, which is impugned by the group of members of the Seimas, a petitioner, prescribes: “In the cases where claims or complaints (petitions) are examined concerning certain actions (acts) of the Government or an institution authorised by it, of the Bank of Lithuania, or other institutions or subjects taken (adopted) in connection with the application of the measures to enhance financial stability provided for in this law, a court examining such a case may not apply any measures specified in Items 6, 7, 12, and 13 of Paragraph 1 of Article 145 of the Code of Civil Procedure of the Republic of Lithuania or any other temporary protective measures that would limit the performance of actions related to the application of measures to enhance financial stability (where the case is examined in the manner provided for in the Code of Civil Procedure of the Republic of Lithuania), nor the measures to secure a claim that are provided for in Items 1 and 3 of Paragraph 3 of Article 71 of the Republic of Lithuania’s Law on the Proceedings of Administrative Cases (where the case is examined in the manner provided for in the Republic of Lithuania’s Law on the Proceedings of Administrative Cases).”

3.1.1. The impugned regulation established in Paragraph 1 of Article 131 (wording of 17 November 2011) of the Law on Financial Sustainability should be construed in conjunction with Paragraph 1 of Article 145 (wording of 21 June 2011) of the Code of Civil Procedure, which is referred to in the former paragraph and prescribes the following:

“1. The following temporary protective measures may be established:

1) the seizure of an object of immovable property owned by the defendant;

2) a record in a public register concerning the prohibition on the transfer of the right of ownership;

3) the seizure of the objects of movable property, funds, or property rights belonging to the defendant and held by the defendant or third persons;

4) the detention of an object owned by the defendant;

5) the appointment of an administrator of the property of the defendant;

6) the prohibition precluding the defendant from taking part in certain transactions or taking certain actions;

7) the prohibition precluding other persons from transferring any property to the defendant or discharging any other obligations;

8) in exceptional cases—the prohibition precluding the defendant from leaving his permanent place of residence and/or from taking a child away from the permanent place of residence in the absence of authorisation by a court;

9) the suspension of the realisation of property where a claim has been brought for the annulment of the seizure of that property;

10) the suspension of recovery during the enforcement process;

11) the judicial award of material support or the imposition of temporary restrictions;

12) the imposition of the obligation to take certain actions precluding the emergence or growth of damage;

13) other measures provided for by laws or applied by court the failure to take which can hinder the enforcement of a court decision or render it impossible.”

3.1.2. The impugned regulation established in Paragraph 1 of Article 131 (wording of 17 November 2011) of the Law on Financial Sustainability should be construed in conjunction with Paragraph 3 (wording of 17 November 2011) of Article 71 of the Law on the Proceedings of Administrative Cases, which is referred to in the former paragraph and prescribes the following:

“3. Measures to secure a claim may be as follows:

1) the prohibition precluding the defendant from taking certain actions;

2) the suspension of recovery under a writ of execution;

3) the temporary suspension of the validity of a contested act.”

3.1.3. In order to sum up the regulation laid down in Paragraph 1 of Article 131 (wording of 17 November 2011) of the Law on Financial Sustainability, Paragraph 1 of Article 145 (wording of 21 June 2011) of the Code of Civil Procedure, and Paragraph 3 (wording of 17 November 2011) of Article 71 of the Law on the Proceedings of Administrative Cases, it should be noted that, under the regulation in question, in the cases in which a court examines the claims or complaints (petitions) concerning certain actions (acts) of the Government or an institution authorised by it, of the Bank of Lithuania, or other institutions or subjects taken (adopted) in connection with the application of the measures to enhance financial stability as provided for in the Law on Financial Sustainability, the court is not authorised to apply any temporary protective measures provided for in the Code of Civil Procedure, nor any measures to secure a claim established in the Law on the Proceedings of Administrative Cases, that would limit the performance of actions related to the application of measures to enhance financial stability.

3.2. As mentioned before, the impugned Paragraph 14 of Article 761 “The Transfer of the Assets, Rights, Transactions, and Liabilities of a Bank” (wording of 17 November 2011) of the Law on Banks prescribes: “When the claims or complaints (petitions) concerning certain actions (acts) of the Bank of Lithuania, the temporary administrator, or other subjects taken (adopted) in connection with the organisation and conduct of the transfer (return) of the assets, rights, transactions, and liabilities of a certain bank are examined in court, the provisions of Article 131 of the Republic of Lithuania’s Law on Financial Sustainability shall apply mutatis mutandis.”

Thus, in order to construe the impugned regulation established in Paragraph 14 of Article 761 (wording of 17 November 2011) of the Law on Banks in conjunction with the regulation established in Paragraph 1 of Article 131 (wording of 17 November 2011) of the Law on Financial Sustainability, it should be noted that, under the regulation in question, when examining a claim or complaint (petition) concerning certain actions (acts) of the Bank of Lithuania, the temporary administrator, or other subjects taken (adopted) in connection with the organisation and conduct of the transfer (return) of the assets, rights, transactions, and liabilities of a certain bank, a court is not authorised to apply any temporary protective measures provided for in the Code of Civil Procedure or any other temporary protective measures, nor any measures to secure a claim provided for in the Law on the Proceedings of Administrative Cases, that would limit the organisation and conduct of the transfer (return) of the assets, rights, transactions, and liabilities of the bank concerned.

3.3. The impugned Paragraph 2 (wording of 17 November 2011) of Article 71 “Measures to Secure a Claim” of the Law on the Proceedings of Administrative Cases prescribes: “A court or a judge may not, upon a reasoned petition of the participants in the proceedings or upon its/his own initiative, apply any measures to secure a claim provided for in Paragraph 3 of this Law if such a prohibition is prescribed by other laws governing the imposition of sanctions or measures to enhance financial stability and reliability on banks.”

3.4. Paragraph 3 (wording of 17 November 2011) of Article 145 “The Types of Temporary Protective Measures, the Application Thereof, and Responsibility for Prohibitions Imposed by Court” of the Code of Civil Procedure, which is impugned by the group of members of the Seimas, a petitioner, prescribes: “A court may not, upon a petition of the participants in the case or other parties concerned or upon its own initiative, take any interim protective measures provided for in Items 6, 7, 12, and 13 of Paragraph 1 of this Law if such a prohibition is prescribed by other laws governing the imposition of sanctions or measures to enhance financial stability and reliability on banks.”

3.5. It should be noted that the measures to enhance financial stability and reliability that are referred to in Paragraph 2 (wording of 17 November 2011) of Article 71 of the Law on the Proceedings of Administrative Cases and Paragraph 3 (wording of 17 November 2011) of Article 145 of the Code of Civil Procedure, as mentioned before, are provided for in the Law on Financial Sustainability. It should also be mentioned that, under Paragraph 9 (wording of 17 November 2011) of Article 72 of the Law on Banks, the measures to secure a claim that are provided for in Items 1 and 3 of Paragraph 3 of Article 71 of the Law on the Proceedings of Administrative Cases may not be applied in the cases in which a court examines the complaints (petitions) concerning the decision of the Bank of Lithuania to impose certain sanctions.

Thus, Paragraph 2 (wording of 17 November 2011) of Article 71 of the Law on the Proceedings of Administrative Cases and Paragraph 3 (wording of 17 November 2011) of Article 145 of the Code of Civil Procedure prescribe that a court or judge may not apply certain measures to secure a claim, nor certain interim protective measures, where such a prohibition is provided for, inter alia, in the Law on Financial Sustainability and the Law on Banks.

3.6. In order to sum up the regulation laid down in Paragraph 1 of Article 131 (wording of 17 November 2011) of the Law on Financial Sustainability, Paragraph 14 of Article 761 (wording of 17 November 2011) of the Law on Banks, Paragraph 2 (wording of 17 November 2011) of Article 71 of the Law on the Proceedings of Administrative Cases, and Paragraph 3 (wording of 17 November 2011) of Article 145 of the Code of Civil Procedure, to the extent impugned by the petitioner, it should be noted that, under the regulation in question, a court may not apply any interim protective measures and measures to secure a claim that would limit the performance of actions related to the application of measures to enhance financial stability as well as the performance (execution) of the actions (acts) of the Bank of Lithuania, the temporary administrator, or other subjects taken (adopted) in connection with the organisation and conduct of the transfer (return) of the assets, rights, transactions, and liabilities of a certain bank.

  1. In the context of the constitutional justice case at issue, it should be pointed out that the aforementioned impugned legal regulation is laid down in the Laws Amending and Supplementing the Law on Banks, the Law on Financial Sustainability, the Law on the Proceedings of Administrative Cases, and the Code of Civil Procedure, which were considered and adopted by the Seimas on 17 November 2011 and came into force on 18 November 2011. In the travaux préparatoires of the said laws, inter alia, in the explanatory note to the draft thereof, it is maintained: “The proposed amendments to the laws at issue do not deny the right of a person to apply to court, nor any values of legal defence and other constitutional values. These amendments are exceptionally aimed at establishing certain necessary conditions, so that state institutions, where they seek to protect important public interests, would have the possibility of solving, by timely and effective means, any problems arising in relation to an imminent insolvency of a bank. <...> if the problems of a bank that is of significance to the whole banking system but is facing solvency difficulties were not dealt with in a timely and effective manner, the problems of such a bank and their impact on the stability and reliability of the entire banking system would increase very rapidly and, consequently, the solving of the problems would become much more complex or even impossible, and the public interests would be harmed to a far greater extent.”
  2. The Constitutional Court has held on more than one occasion that the jurisprudence of the European Court of Human Rights (hereinafter referred to as the ECtHR), as a source of construction of law, is also important for the construction and application of Lithuanian law. In the context of the constitutional justice case at issue, it needs to be noted that the ECtHR has held that, according to its established case-law, the right of access to a court is not absolute but may be subject to limitations, if they pursue a legitimate aim and the means employed to achieve that aim are proportionate; in particular, such limitations are permissible in situations involving bankruptcy (the decision of 1 April 2004 as to the admissibility of the application in the case Camberrow MM5 AD v. Bulgaria (application No. 50357/99). The ECtHR has also held that, in such a sensitive economic area as the stability of the banking system, the Contracting Parties to the Convention for the Protection of Human Rights and Fundamental Freedoms enjoy a wide margin of appreciation (inter alia the final decision of 7 November 2002 as to the admissibility of the application in the case Olczak v. Poland (application No. 30417/96)), and that in certain situations there may be a need to act expeditiously and without advance notice in order to avoid irreparable harm to the bank, its depositors, and other creditors, or the banking and financial system as a whole (the judgement of 24 November 2005 in the case Capital Bank AD v. Bulgaria (application No. 49429/99)).
  3. In the constitutional justice case at issue, the Constitutional Court is investigating, inter alia, the compliance of the aforementioned provisions of the Law on Banks, the Law on Financial Sustainability, the Law on the Proceedings of Administrative Cases, and the Code of Civil Procedure with Article 23 and Paragraph 1 of Article 30 of the Constitution and the constitutional principle of a state under the rule of law.
  4. As mentioned before, according to the group of members of the Seimas, a petitioner, as the impugned regulation established in Paragraph 10 (wording of 17 November 2011) of Article 72, Paragraph 14 of Article 761 (wording of 17 November 2011), and Paragraph 9 (wording of 17 November 2011) of Article 85 of the Law on Banks, Article 131 (wording of 17 November 2011) of the Law on Financial Sustainability, Paragraph 2 (wording of 17 November 2011) of Article 71 and Article 881 (wording of 17 November 2011) of the Law on the Proceedings of Administrative Cases, and Paragraph 3 (wording of 17 November 2011) of Article 145 and Article 2671 (wording of 17 November 2011) of the Code of Civil Procedure has, in a groundless manner, limited the right of persons to apply to court as well as the powers of courts, this, in substance, has resulted in the restriction of the possibilities of both the administrator and the creditors of a bank in bankruptcy proceedings, as well as of other subjects, to defend their rights of ownership that have been violated by the possibly unlawful actions (acts) of the Government or an institution authorised by it, of the Bank of Lithuania, the temporary administrator, or other institutions or subjects. As a result of the exclusion of the possibility for the courts to decide as to which procedural measure and/or remedy for the violation of rights is the most appropriate in a concrete situation, the rights of the aforesaid persons as well as the powers of the judiciary have been groundlessly limited. The foregoing, according to the petitioner, provides a ground to believe that the impugned legal regulation is in conflict with Article 23 and Paragraph 1 of Article 30 of the Constitution and the constitutional principle of a state under the rule of law.
  5. In order to decide whether Paragraph 9 (wording of 17 November 2011) of Article 85 of the Law on Banks to the specified extent, Paragraph 2 of Article 131 (wording of 17 November 2011) of the Law on Financial Sustainability, Paragraph 10 (wording of 17 November 2011) of Article 72 and Paragraph 14 of Article 761 (wording of 17 November 2011) of the Law on Banks, Article 881 (wording of 17 November 2011) of the Law on the Proceedings of Administrative Cases, Article 2671 (wording of 17 November 2011) of the Code of Civil Procedure to the specified extent, Paragraph 1 of Article 131 (wording of 17 November 2011) of the Law on Financial Sustainability, Paragraph 14 of Article 761 (wording of 17 November 2011) of the Law on Banks, Paragraph 2 (wording of 17 November 2011) of Article 71 of the Law on the Proceedings of Administrative Cases, and Paragraph 3 (wording of 17 November 2011) of Article 145 of the Code of Civil Procedure to the specified extent are not in conflict with Article 23 and Paragraph 1 of Article 30 of the Constitution and the constitutional principle of a state under the rule of law, it should be noted that, as mentioned before, under the Constitution:

– in all cases where the rights of ownership are limited, the following conditions must be observed: ownership may be limited only by invoking the law; limitations must be necessary in a democratic society in order to protect the rights and freedoms of other persons, the values consolidated in the Constitution, and the constitutionally important objectives that are essential to society; heed must be paid to the principle of proportionality, under which the measures provided for in laws must be in line with the sought objectives that are essential to society and constitutionally justified; the existence of a public interest (constitutionally important objective) may serve as a ground for limiting the right of a person to ownership only in the cases where the non-limitation of the right to ownership, due to the nature of property and/or other important reasons, would render the protection of the values consolidated in the Constitution impossible and would harm the public interest;

– the legislature has the duty to lay down such legal regulation by means of which all disputes regarding the violation of the rights and freedoms and acquired rights of a person could be settled in court; the legislature may establish, inter alia, the conditions, procedure, time limits, and ways for the implementation of the constitutional right to apply to court, which would be determined, inter alia, by the public interest; however, the legislature may not establish any such legal regulation that would deny the right of a person to defend his rights or freedoms in court where the person believes that his rights or freedoms have been violated;

the legislature has the duty to lay down such legal regulation under which the measures that are established in legal acts and are applied would be proportionate to the objective sought and would not limit the rights of a person more than it is necessary in order to attain the legitimate and universally significant objective;

– the Constitution imperatively requires that, by means of a law, such legal regulation be established according to which a person to whom damage has been caused as a result of unlawful actions could in all cases demand fair compensation for that damage and receive such compensation;

– by means of a law, the legislature may establish certain means of defending violated rights; however, the legislature may not establish any such legal regulation that would deny the possibility of defending the violated rights and freedoms of a person, or would deny the powers of a court to administer justice;

– the legal regulation under which courts, when considering cases, must follow the relevant norms of procedural law is not in itself in conflict with the constitutional principle of the independence of judges and courts, nor does it violate the rights of the persons who have applied to a court.

  1. In order to assess whether Paragraph 9 (wording of 17 November 2011) of Article 85 of the Law on Banks, insofar as it prescribes that, upon the opening of a bankruptcy case against a bank, the bank administrator has no right to inspect any transactions concluded during the time when the temporary bank administrator had conducted the transfer of the assets, rights, transactions, and liabilities of the said bank to another bank, nor to bring any actions before a court for the invalidation of such transactions, is not in conflict with Article 23 and Paragraph 1 of Article 30 of the Constitution and the constitutional principle of a state under the rule of law, it should be noted that, under the impugned legal regulation at issue in conjunction with the related legal regulation, as mentioned before:

– upon the opening of a bankruptcy case against a bank, the bank administrator has no right to inspect any transactions concluded during the time when, in keeping with the instructions and upon the approval from the supervisory institution—the Bank of Lithuania, the temporary bank administrator had conducted the transfer of the assets, rights, transactions, and liabilities of the said bank to another bank, nor to bring any actions before a court for the invalidation of such transactions;

– having examined the claims or complaints (petitions) concerning certain actions (acts) of the Bank of Lithuania, the temporary administrator, or other subjects taken (adopted) in connection with the organisation and conduct of the transfer (return) of the assets, rights, transactions, and liabilities of a certain bank, a court is not authorised to annul the contested action (act) or impose the obligation to perform any such actions as a result of which the validity of the contested action (act) would be suspended or annulled, or the situation that existed prior to the performance (adoption) of the impugned action (act) would be otherwise restored; in the cases at issue, provided that the conditions established by means of the law exist, the court has the right to award damages;

– having examined the claims or complaints (petitions) concerning certain actions (acts) of the Bank of Lithuania, the temporary administrator, or other subjects taken (adopted) in connection with the organisation and conduct of the transfer (return) of the assets, rights, transactions, and liabilities of a certain bank, a court, provided that the conditions established by means of the law exist, may award damages.

9.1. It should be noted that the limitation that is consolidated in Paragraph 9 (wording of 17 November 2011) of Article 85 of the Law on Banks and affects the right of the administrator of a bank in bankruptcy proceedings to inspect the transactions concluded in the course of the transfer of the assets, rights, transactions, and liabilities of the bank, conducted in accordance with the provisions of Article 761 of the said law, as well as the right of the said administrator to bring actions before a court for the invalidation of the said transactions, is linked to the application of measures to enhance financial stability with a view to protecting important public interests. The aforementioned measures to enhance financial stability may be applied with respect to a bank the financial position of which jeopardises the stability and reliability of the banking system and/or with respect to a bank that takes over the obligations of the former bank in the event of reorganisation or in other cases.

Thus, the legal regulation providing for the transactions concluded during the transfer of the assets, rights, transactions, and liabilities of a bank where such transfer is conducted in accordance with the provisions of Article 761 (wording of 17 November 2011) of the Law on Banks, as well as the legal regulation under which the administrator of a bank in bankruptcy proceedings has no right to inspect the said transactions, nor to bring any actions before a court for the invalidation of such transactions, is aimed at protecting the public interest—the stability of the financial system of this country.

9.2. It should also be mentioned that, under the regulation consolidated in Paragraph 9 (wording of 17 November 2011) of Article 85 of the Law on Banks, the administrator of a bank in bankruptcy proceedings has no right to bring any actions before a court for the invalidation of the transactions concluded during the time when the transfer of the assets, rights, transactions, and liabilities of the bank concerned was conducted under the provisions of Article 761 of the said law; however, the regulation in question does not prohibit the bank administrator from applying to court for the awarding of compensation for the damage caused as a result of the said transactions. Neither does the legal regulation at issue prohibit other persons from applying to court for compensation for the damage caused as a result of the said transactions where such persons believe that they have suffered damage as a result of the aforementioned transactions. Thus, the mere fact that, under the regulation established in Paragraph 9 (wording of 17 November 2011) of Article 85 of the Law on Banks, the administrator of a bank in bankruptcy proceedings has no right to bring any actions before a court for the invalidation of the transactions concluded during the time when the transfer of the assets, rights, transactions, and liabilities of the bank concerned was conducted under the provisions of Article 761 of the said law, does not mean that the regulation in question prohibits persons from applying to court for the defence of their violated rights. The legal regulation at issue, providing for the awarding of compensation for the damage caused as a result of the transactions concluded in the course of the transfer of the assets, rights, transactions, and liabilities of a certain bank, guarantees the right to apply to court for a person who believes that his rights and freedoms have been violated and creates preconditions for ensuring the judicial defence of the said violated rights.

9.3. It should be held that the regulation laid down in Paragraph 9 (wording of 17 November 2011) of Article 85 of the Law on Banks is aimed at meeting the public interest—the stability of the financial system of this country. The said legal regulation does not deny the right of a person to defend his rights in court where the person believes that his rights, inter alia, the rights of ownership, have been violated, nor does it violate the constitutional principle of a state under the rule of law.

9.4. In view of the foregoing arguments, the conclusion should be drawn that Paragraph 9 (wording of 17 November 2011) of Article 85 of the Law on Banks, insofar as it prescribes that, upon the opening of a bankruptcy case against a bank, the bank administrator has no right to inspect any transactions concluded during the time when the temporary bank administrator had conducted the transfer of the assets, rights, transactions, and liabilities of the said bank to another bank, nor to bring any actions before a court for the invalidation of such transactions, is not in conflict with Article 23 and Paragraph 1 of Article 30 of the Constitution and the constitutional principle of a state under the rule of law.

  1. In order to assess whether Paragraph 2 of Article 131 (wording of 17 November 2011) of the Law on Financial Sustainability, Paragraph 10 (wording of 17 November 2011) of Article 72 and Paragraph 14 of Article 761 (wording of 17 November 2011) of the Law on Banks, Article 881 (wording of 17 November 2011) of the Law on the Proceedings of Administrative Cases, and Article 2671 (wording of 17 November 2011) of the Code of Civil Procedure, insofar as, according to the petitioner, they establish the prohibition on bringing before a court any claims concerning the annulment of the actions (acts) of the Government or an institution authorised by it, of the Bank of Lithuania, or other institutions or subjects taken (adopted) in connection with the application of measures to enhance financial stability, also any claims concerning the imposition of the obligation to take actions as a result of which the validity of the contested action (act) would be suspended or annulled, or the situation that existed prior to the performance (adoption) of the impugned action (act) would be otherwise restored, as well as any claims concerning the actions of the Bank of Lithuania, the temporary administrator, and other subjects taken in connection with the conduct of the transfer (return) of the assets, rights, transactions, and liabilities of a certain bank, as well as insofar as in the cases where the said claims have been brought, a court, when satisfying such a claim or complaint (petition), is prohibited from annulling the contested action (act) or imposing the obligation to take any such actions as a result of which the validity of the contested action (act) would be suspended or annulled, or the situation that existed prior to the performance (adoption) of the impugned action (act) would be otherwise restored, are not in conflict with Article 23 and Paragraph 1 of Article 30 of the Constitution and the constitutional principle of a state under the rule of law, it should be noted that, under the impugned legal regulation at issue, as mentioned before:

– having examined a claim or complaint (petition) concerning certain actions (acts) of the Government or an institution authorised by it, of the Bank of Lithuania, or other institutions or subjects taken (adopted) in connection with the application of measures to enhance financial stability, inter alia, the taking over of the shares of a certain bank for public needs, a court is not authorised to annul the contested action (act) or impose the obligation to take any such actions as a result of which the validity of the contested action (act) would be suspended or annulled, or the situation that existed prior to the performance (adoption) of the impugned action (act) would be otherwise restored;

– having examined a complaint (petition) concerning the application of certain sanctions by the supervisory institution—the Bank of Lithuania, inter alia, concerning the announcement of the limitation (moratorium) on the activities of a certain bank or a certain branch of a foreign bank, or concerning the temporary limitation on the right to make use of the funds held in the respective accounts with the Bank of Lithuania and other credit establishments as well as of other respective assets, as well as concerning the revocation of the issued respective licence or the temporary suspension of the validity thereof, a court is not authorised to annul the contested decision or impose the obligation on the Bank of Lithuania to take any such actions as a result of which the validity of the contested decision would be suspended or annulled, or the situation that existed prior to the adoption of the said decision would be otherwise restored;

– having examined the claims or complaints (petitions) concerning certain actions (acts) of the Bank of Lithuania, the temporary administrator, or other subjects taken (adopted) in connection with the organisation and conduct of the transfer (return) of the assets, rights, transactions, and liabilities of a certain bank, a court is not authorised to annul the contested action (act) or impose the obligation to perform any such actions as a result of which the validity of the contested action (act) would be suspended or annulled, or the situation that existed prior to the performance (adoption) of the impugned action (act) would be otherwise restored;

– having examined the claims or complaints (petitions) concerning certain actions (acts) of the Government or an institution authorised by it, of the Bank of Lithuania, or other institutions or subjects taken (adopted) in connection with the application of measures to enhance financial stability, as well as concerning certain actions of the Bank of Lithuania, the temporary administrator, or other subjects taken (adopted) in connection with the organisation and conduct of the transfer (return) of the assets, rights, transactions, and liabilities of a certain bank, a court may award damages provided that the conditions established by means of the law exist.

10.1. It should be noted that the regulation established in Paragraph 2 of Article 131 (wording of 17 November 2011) of the Law on Financial Sustainability and other provisions of this law, Paragraph 10 (wording of 17 November 2011) of Article 72 and Paragraph 14 of Article 761 (wording of 17 November 2011) of the Law on Banks, Article 881 (wording of 17 November 2011) of the Law on the Proceedings of Administrative Cases, and Article 2671 (wording of 17 November 2011) of the Code of Civil Procedure, to the extent impugned by the petitioner, is linked to the application of measures to enhance financial stability with a view to protecting the public interest—the stability of the financial system of this country.

10.2. It should also be noted that, by means of the legal regulation under which a court is not authorised to annul the aforementioned contested action (act) or impose the obligation to take any such actions as a result of which the validity of the said contested action (act) would be suspended or annulled, or the situation that existed prior to the performance (adoption) of the impugned action (act) would be otherwise restored, but is authorised to award damages where the conditions established by means of the law exist, the legislature has laid down a means of defending violated rights, which is determined by the public interest—the stability of the financial system of this country. The said legal regulation, differently from what is maintained by the group of members of the Seimas, a petitioner, does not deny the right of a person to apply to court where the person believes that his rights and freedoms have been violated. Under the impugned legal regulation, a person who believes that his rights and freedoms have been violated by the actions (acts) of the Government or an institution authorised by it, of the Bank of Lithuania, or other institutions or subjects taken (adopted) in connection with the application of measures to enhance financial stability, or by the actions of the Bank of Lithuania, the temporary administrator, or other subjects taken (adopted) in connection with the organisation and conduct of the transfer (return) of the assets, rights, transactions, and liabilities of a certain bank, may apply to court and claim damages. Neither does the said legal regulation deny the powers of a court to administer justice.

10.3. It should also be noted that the regulation established in Paragraph 2 of Article 131 (wording of 17 November 2011) of the Law on Financial Sustainability, Paragraph 10 (wording of 17 November 2011) of Article 72 and Paragraph 14 of Article 761 (wording of 17 November 2011) of the Law on Banks, Article 881 (wording of 17 November 2011) of the Law on the Proceedings of Administrative Cases, and Article 2671 (wording of 17 November 2011) of the Code of Civil Procedure does not deny the right of a person to demand that his property claims be satisfied; therefore, there is no ground to maintain that the regulation in question disregards the requirements stemming from Article 23 of the Constitution for the protection of the rights of ownership or that it violates the constitutional principle of a state under the rule of law.

10.4. In view of the foregoing arguments, the conclusion should be drawn that Paragraph 2 of Article 131 (wording of 17 November 2011) of the Law on Financial Sustainability, Paragraph 10 (wording of 17 November 2011) of Article 72 and Paragraph 14 of Article 761 (wording of 17 November 2011) of the Law on Banks, Article 881 (wording of 17 November 2011) of the Law on the Proceedings of Administrative Cases, and Article 2671 (wording of 17 November 2011) of the Code of Civil Procedure, insofar as, under the regulation established therein, after having examined the claims or complaints (petitions) concerning the actions (acts) of the Government or an institution authorised by it, of the Bank of Lithuania, or other institutions or subjects taken (adopted) in connection with the application of measures to enhance financial stability, as well as the claims concerning the actions (acts) of the Bank of Lithuania, the temporary administrator, and other subjects taken (adopted) in connection with the organisation and conduct of the transfer (return) of the assets, rights, transactions, and liabilities of a certain bank, a court is not authorised when satisfying the said claims to annul the contested action (act) or impose the obligation to take any such actions as a result of which the validity of the contested action (act) would be suspended or annulled, or the situation that existed prior to the performance (adoption) of the impugned action (act) would be otherwise restored, but, in the cases at issue, the court may award damages provided that the conditions established by means of the law exist, are not in conflict with Article 23 and Paragraph 1 of Article 30 of the Constitution and the constitutional principle of a state under the rule of law.

  1. In order to assess whether Paragraph 1 of Article 131 (wording of 17 November 2011) of the Law on Financial Sustainability, Paragraph 14 of Article 761 (wording of 17 November 2011) of the Law on Banks, Paragraph 2 (wording of 17 November 2011) of Article 71 of the Law on the Proceedings of Administrative Cases, and Paragraph 3 (wording of 17 November 2011) of Article 145 of the Code of Civil Procedure, insofar as, according to the petitioner, they prohibit courts from taking any temporary protective measures and measures to secure a claim that would limit the performance of actions related to the application of measures to enhance financial stability and the performance (execution) of the actions (acts) of the Bank of Lithuania, the temporary administrator, or other subjects taken (adopted) in connection with the organisation and conduct of the transfer (return) of the assets, rights, transactions, and liabilities of a certain bank, are not in conflict with Article 23 and Paragraph 1 of Article 30 of the Constitution and the constitutional principle of a state under the rule of law, it should be noted that, as mentioned before, under the impugned legal regulation, a court may not apply any such temporary protective measures and measures to secure a claim that would limit the performance of actions related to the application of measures to enhance financial stability and the performance (execution) of the actions (acts) of the Bank of Lithuania, the temporary administrator, or other subjects taken (adopted) in connection with the organisation and conduct of the transfer (return) of the assets, rights, transactions, and liabilities of a certain bank.

11.1. It should be noted that the regulation established in Paragraph 1 of Article 131 (wording of 17 November 2011) of the Law on Financial Sustainability and other provisions of this law, Paragraph 14 of Article 761 (wording of 17 November 2011) of the Law on Banks, Paragraph 2 (wording of 17 November 2011) of Article 71 of the Law on the Proceedings of Administrative Cases, and Paragraph 3 (wording of 17 November 2011) of Article 145 of the Code of Civil Procedure, to the extent impugned by the petitioner, is linked to the application of measures to enhance financial stability with a view to protecting the public interest—the stability of the financial system of this country.

11.2. It should also be pointed out that the impugned legal regulation does not establish any such prohibition that precludes a person from applying to court for the defence of his violated rights and freedoms, but rather that it prohibits courts from applying any temporary protective measures and measures to secure a claim that would limit the performance of actions related to the application of measures to enhance financial stability and the performance (execution) of the actions (acts) of the Bank of Lithuania, the temporary administrator, or other subjects taken (adopted) in connection with the organisation and conduct of the transfer (return) of the assets, rights, transactions, and liabilities of a certain bank. Thus, there is no legal ground to maintain that the said legal regulation denies the right of a person to apply to court where the person believes that his rights and freedoms have been violated.

11.3. It should also be noted that the regulation laid down in Paragraph 1 of Article 131 (wording of 17 November 2011) of the Law on Financial Sustainability, Paragraph 14 of Article 761 (wording of 17 November 2011) of the Law on Banks, Paragraph 2 (wording of 17 November 2011) of Article 71 of the Law on the Proceedings of Administrative Cases, and Paragraph 3 (wording of 17 November 2011) of Article 145 of the Code of Civil Procedure, insofar as, under this regulation, a court may not apply any temporary protective measures and measures to secure a claim that would limit the performance of actions related to the application of measures to enhance financial stability and the performance (execution) of the actions (acts) of the Bank of Lithuania, the temporary administrator, or other subjects taken (adopted) in connection with the organisation and conduct of the transfer (return) of the assets, rights, transactions, and liabilities of a certain bank, does not deny the right of a person to demand that his property claims be satisfied; therefore, there is no ground to maintain that the legal regulation in question disregards the requirements stemming from Article 23 of the Constitution for the protection of the rights of ownership and that it violates the constitutional principle of a state under the rule of law.

11.4. In view of the foregoing arguments, the conclusion should be drawn that Paragraph 1 of Article 131 (wording of 17 November 2011) of the Law on Financial Sustainability, Paragraph 14 of Article 761 (wording of 17 November 2011) of the Law on Banks, Paragraph 2 (wording of 17 November 2011) of Article 71 of the Law on the Proceedings of Administrative Cases, and Paragraph 3 (wording of 17 November 2011) of Article 145 of the Code of Civil Procedure, insofar as, under the regulation established therein, a court may not apply any temporary protective measures and measures to secure a claim that would limit the performance of actions related to the application of measures to enhance financial stability and the performance (execution) of the actions (acts) of the Bank of Lithuania, the temporary administrator, or other subjects taken (adopted) in connection with the organisation and conduct of the transfer (return) of the assets, rights, transactions, and liabilities of a certain bank, are not in conflict with Article 23 and Paragraph 1 of Article 30 of the Constitution and the constitutional principle of a state under the rule of law.

Conforming to Articles 102 and 105 of the Constitution of the Republic of Lithuania and Articles 1, 53, 54, 55, 56, and 69 of the Law on the Constitutional Court of the Republic of Lithuania, the Constitutional Court of the Republic of Lithuania gives the following

ruling:

  1. To recognise that Item 2 (wording of 30 March 2004; Official Gazette Valstybės žinios, 2004, No. 54-1832) of Paragraph 3 and Paragraph 4 (wording of 22 December 2011; Official Gazette Valstybės žinios, 2011, No. 163-7760) of Article 85 of the Republic of Lithuania’s Law on Banks, insofar as they prohibit the discharge of any financial obligation—including any set-off of counterclaims of the same kind—not discharged prior to the opening of a bankruptcy case, save in the cases provided for by laws, are not in conflict with the Constitution of the Republic of Lithuania.
  2. To recognise that Paragraph 9 (wording of 17 November 2011; Official Gazette Valstybės žinios, 2011, No. 139-6554) of Article 85 of the Republic of Lithuania’s Law on Banks, insofar as it prescribes that, upon the opening of a bankruptcy case against a bank, the bank administrator has no right to inspect any transactions concluded during the time when the temporary bank administrator had conducted the transfer of the assets, rights, transactions, and liabilities of the said bank to another bank, nor to bring any actions before a court for the invalidation of such transactions, is not in conflict with the Constitution of the Republic of Lithuania.
  3. To recognise that Paragraph 2 (wording of 30 March 2004; Official Gazette Valstybės žinios, 2004, No. 54-1832) of Article 87 of the Republic of Lithuania’s Law on Banks, is not in conflict with the Constitution of the Republic of Lithuania.
  4. To recognise that the provision “the claims concerning the payment of taxes and the making of other payments to the budget <...>, as well as the claims concerning the granted loans received on behalf of the state and with the guarantee of the state, shall be satisfied third in order of priority” of Paragraph 3 (wording of 4 November 2004; Official Gazette Valstybės žinios, 2004, No. 171-6297) of Article 87 of the Republic of Lithuania’s Law on Banks, is not in conflict with the Constitution of the Republic of Lithuania.
  5. To recognise that Item 3 (wording of 20 April 2006; Official Gazette Valstybės žinios, 2006, No. 50-1799) of Paragraph 7 of Article 10 of the Republic of Lithuania’s Law on Enterprise Bankruptcy, insofar as it prohibits the discharge of any financial obligation—including any set-off of counterclaims of the same kind—not discharged prior to the opening of a bankruptcy case, is not in conflict with the Constitution of the Republic of Lithuania.
  6. To recognise that the provision “the discharge of any financial obligations not discharged prior to the opening of the bankruptcy case against the enterprise, including the payment of interest, default interest, taxes, and the payment of other compulsory contributions, as well as the recovery of debts from the said enterprise through either judicial or extrajudicial means, shall be prohibited, save the set-off of counterclaims of the same kind where such a set-off is allowed under the provisions of tax laws providing for the set-off of tax overpayment (difference)” of Item 3 (wording of 22 December 2011; Official Gazette Valstybės žinios, 2011, No. 4-112) of Paragraph 7 of Article 10 of the Republic of Lithuania’s Law on Enterprise Bankruptcy is not in conflict with the Constitution of the Republic of Lithuania.
  7. To recognise that Paragraph 2 of Article 131 (wording of 17 November 2011; Official Gazette Valstybės žinios, 2011, No. 139-6553) of the Republic of Lithuania’s Law on Financial Sustainability, Paragraph 10 (wording of 17 November 2011; Official Gazette Valstybės žinios, 2011, No. 139-6554) of Article 72 and Paragraph 14 of Article 761 (wording of 17 November 2011; Official Gazette Valstybės žinios, 2011, No. 139-6554) of the Republic of Lithuania’s Law on Banks, Article 881 (wording of 17 November 2011; Official Gazette Valstybės žinios, 2011, No. 139-6549) of the Republic of Lithuania’s Law on the Proceedings of Administrative Cases, and Article 2671 (wording of 17 November 2011; Official Gazette Valstybės žinios, 2011, No. 139-6551) of the Code of Civil Procedure of the Republic of Lithuania, insofar as, under the regulation established therein, after having examined the claims or complaints (petitions) concerning the actions (acts) of the Government or an institution authorised by it, of the Bank of Lithuania, or other institutions or subjects taken (adopted) in connection with the application of measures to enhance financial stability, or concerning the actions (acts) of the Bank of Lithuania, the temporary administrator, or other subjects taken (adopted) in connection with the organisation and conduct of the transfer (return) of the assets, rights, transactions, and liabilities of a certain bank, a court is not authorised when satisfying the said claims to annul the contested action (act) or impose the obligation to take any such actions as a result of which the validity of the contested action (act) would be suspended or annulled, or the situation that existed prior to the performance (adoption) of the impugned action (act) would be otherwise restored, but, in the cases at issue, the court may award damages provided that the conditions established by means of the law exist, are not in conflict with the Constitution of the Republic of Lithuania.
  8. To recognise that Paragraph 1 of Article 131 (wording of 17 November 2011; Official Gazette Valstybės žinios, 2011, No. 139-6553) of the Republic of Lithuania’s Law on Financial Sustainability, Paragraph 14 of Article 761 (wording of 17 November 2011; Official Gazette Valstybės žinios, 2011, No. 139-6554) of the Republic of Lithuania’s Law on Banks, Paragraph 2 (wording of 17 November 2011; Official Gazette Valstybės žinios, 2011, No. 139-6549) of Article 71 of the Republic of Lithuania’s Law on the Proceedings of Administrative Cases, and Paragraph 3 (wording of 17 November 2011; Official Gazette Valstybės žinios, 2011, No. 139-6551) of Article 145 of the Code of Civil Procedure of the Republic of Lithuania, insofar as, under the regulation established therein, a court may not apply any temporary protective measures and measures to secure a claim that would limit the performance of actions related to the application of measures to enhance financial stability and the performance (execution) of the actions (acts) of the Bank of Lithuania, the temporary administrator, or other subjects taken (adopted) in connection with the organisation and conduct of the transfer (return) of the assets, rights, transactions, and liabilities of a certain bank, are not in conflict with the Constitution of the Republic of Lithuania.
  9. To dismiss the part of the case subsequent to the petition (No. 1B-22/2012) of the Vilnius Regional Court, a petitioner, requesting an investigation into whether the provision “the claims concerning the payment of taxes and the making of other payments to the budget <...>, as well as the claims concerning the loans granted from the funds borrowed on behalf of the state and the loans granted with the guarantee of the state or a guarantee institution the discharge of whose obligations is guaranteed by the state, shall be satisfied second in order of priority” of Paragraph 3 (wording of 22 May 2008; Official Gazette Valstybės žinios, 2008, No. 65-2456) of Article 35 of the Republic of Lithuania’s Law on Enterprise Bankruptcy is not in conflict with Article 23, Paragraph 1 of Article 29, and Paragraph 3 of Article 46 of the Constitution of the Republic of Lithuania and the constitutional principle of a state under the rule of law.

This ruling of the Constitutional Court is final and not subject to appeal.

Justices of the Constitutional Court:                                   Egidijus Bieliūnas

                                                                                                        Pranas Kuconis

                                                                                                        Gediminas Mesonis

                                                                                                        Ramutė Ruškytė

                                                                                                        Egidijus Šileikis

                                                                                                        Algirdas Taminskas

                                                                                                        Romualdas Kęstutis Urbaitis