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Content updated: 22-08-2017 09:58

The provision of the Law on Personal Bankruptcy allowing writing off claims for compensation for damage caused by criminal acts ruled unconstitutional

19-05-2017

By its ruling passed today, the Constitutional Court has recognised that Paragraph 7 of Article 29 of the Law on Personal Bankruptcy (LPB) insofar as, at the end of the personal bankruptcy process, claims for compensation for damage caused by intentional criminal acts are written off, is in conflict with Paragraph 2 of Article 30 of the Constitution and the constitutional principles of justice and a state under the rule of law.

Item 4 of Paragraph 8 of Article 5 of the LPB, under which bankruptcy proceedings may not be opened against a natural person punished for concrete crimes specified in the same item, where he/she has become insolvent as a result of committing the said crimes and his/her conviction has not expired, even though bankruptcy proceedings may be opened against a natural person if he/she has committed crimes not specified in the impugned provision, was ruled to be not in conflict with the Constitution.

In this ruling, the Constitutional Court noted that, in general, under the Constitution, the legislature is under no obligation to establish the bankruptcy institute of a natural person as one of the possible ways of deciding the insolvency problems of a natural person. Having chosen to establish this institute in the legal system of Lithuania, the legislature, among other things, when seeking to strike a balance between the interests of an insolvent natural person and his/her creditors, has wide discretion to regulate the bankruptcy relations of a natural person, to choose a model of the bankruptcy institute of a natural person, to define a circle of persons that may go bankrupt, to establish the grounds for opening bankruptcy proceedings and the situations when such proceedings may not be opened, to regulate personal bankruptcy procedures, to establish the conditions of relief from debt obligations, and to lay down other essential elements of the bankruptcy institute of a natural person. However, in doing so, the legislature must pay regard to the norms and principles of the Constitution.

The Constitutional Court emphasised that the duty of the legislature to pay regard to the norms and principles of the Constitution means, among other things, that, by means of the bankruptcy institute of a natural person established in the law, the legislature must not deny the requirement (which arises from the principle of compensation for damage laid down in Paragraph 2 of Article 30 of the Constitution, as well as from the constitutional principles of justice and a state under the rule of law) that a person who sustained material and moral damage must be compensated fairly. Consequently, when determining the conditions of releasing bankrupt natural persons from debt obligations, the legislature must not establish any such legal regulation whereby persons would be able to avoid the obligation to compensate for material and/or moral damage caused by them when committing a criminal act, and whereby a person who sustained the said damage would not be able to receive fair compensation for it.

When assessing the constitutionality of the legal regulation laid down in Paragraph 7 of Article 29 of the LPB, the Constitutional Court noted that, since the personal bankruptcy process is designed to attain a fair balance between the interests of the debtor and his/her creditors, it would be unfair to establish such a legal regulation under which the interests (such as the desire to return to an active economic activity) of a person who has caused damage by committing a criminal act would enjoy better protection than the rights of a person who has sustained the said damage, i.e. his/her right to receive fair compensation for sustained damage, which would restore, at least in part, the situation as it existed prior to the commission of the criminal act. Thus, not only the insolvency of a person who has committed an intentional criminal act, but also the insolvency of one who has committed a negligent criminal act are not constitutionally justified grounds for releasing such a person from the obligation to compensate for damage that he/she has caused. At the same time, the Constitutional Court noted that such a legal regulation where, at the end of the personal bankruptcy process, the remaining outstanding claims for compensation for damage caused by a criminal act are written off and damage caused by the criminal act is no longer subject to compensation creates, among other things, the preconditions for a person who has caused the said damage to benefit from the criminal act that he/she has committed. Therefore, Paragraph 7 of Article 29 of the LPB was also ruled to be incompatible with the obligation of the state, which arises from the Constitution, to take effective measures in order to restrict and reduce crime.

When assessing the constitutionality of Item 4 of Paragraph 8 of Article 5 of the LPB, under which bankruptcy proceedings must not be opened against a natural person provided that he/she has been imposed a penalty for any of the crimes specified in Articles 207–209 of the Criminal Code (CC) against the economy and business order, or for any of the crimes specified in Articles 216, 222, and 223 of the CC against the financial system if he/she has become insolvent for this reason and his/her conviction has not expired, the Constitutional Court noted that, under Article 29 of the Constitution and the constitutional principle of a state under the rule of law, the legislature, when regulating the bankruptcy relations of a natural person, must equally treat all persons who are in the same (similar) situation and establish the grounds and procedure for opening personal bankruptcy proceedings where such grounds and procedure would be equally applicable to all natural persons.

In this ruling, the Constitutional Court held that the persons who have committed the specified criminal acts and those who have committed any other criminal acts are not in the same (similar) situation from the viewpoint of the personal bankruptcy process; therefore, their unequal treatment is objectively justified. At the same time, the Constitutional Court also noted that the legislature, when exercising, under the Constitution, its discretion to establish the grounds for opening bankruptcy proceedings and cases where such proceedings must not be opened may decide, among other things, that personal bankruptcy proceedings are not opened if a natural person has been imposed a penalty for criminal acts other than those specified in the impugned provision. Thus, the fact that, under the impugned provision, personal bankruptcy proceedings are not opened if a natural person has been imposed a penalty in particular for such criminal acts that are specified in the articles of the CC chosen by the legislature does not give grounds for declaring the impugned provision to be in conflict with the Constitution.

In this ruling, the Constitutional Court also noted that, when exercising its discretion to choose and consolidate any particular model of the bankruptcy institute of a natural person, the legislature is (was) also allowed to establish such a model of the bankruptcy institute of a natural person according to which a court is granted broader powers in the personal bankruptcy process to decide on opening bankruptcy proceedings against a natural person and/or on release from the remaining outstanding debt obligations at the end of the bankruptcy process, taking into account the circumstances of a specific case and considering the situation of a natural person seeking bankruptcy.