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Civil case No [anonymised]

Judicial proceedings No [anonymised]

Procedural decision categories: 3.3.2.4.; 3.4.2.11.1.1

PANEVĖŽYS REGIONAL COURT

RULING

IN THE NAME OF THE REPUBLIC OF LITHUANIA

28 September 2020

Panevėžys

A judge of the Civil Cases Division of Panevėžys Regional Court examined in written proceedings the civil case on the separate appeal of the interested person (creditor) against the ruling of 16 July 2020 of the Rokiškis Chambers of Panevėžys District Court in civil case No [anonymised], on the application of the bankrupt persons and the bankruptcy administrator for the end of the bankruptcy proceedings of the individuals.

The court

found:

I. The essence of the dispute

1. By ruling of 6 February 2015 of Rokiškis District Court in civil case No [anonymised], bankruptcy proceedings were opened against the bankrupt persons and a bankruptcy administrator was appointed. By ruling of 30 March 2015 the court approved the list of creditors of the bankrupt persons and their undisputed creditor claims: - in the sum of €384,174.72; - in the sum of €6,351.13. The list of creditors of one of the bankrupt persons and their undisputed creditor claims was approved: - in the sum of €377,075.61.

2. By ruling of 30 June 2015 of Rokiškis District Court, the plan of 12 June 2015 for satisfying creditors’ claims and restoring the solvency of the bankrupt individuals (hereinafter also the Plan) was approved. By ruling of 22 June 2017, at the applicants’ request, the bankruptcy administrator was removed from office and another bankruptcy administrator was appointed.

3. On 14 July 2020 the Rokiškis Chambers of Panevėžys District Court received the bankruptcy administrator’s application for the end of the bankruptcy proceedings of the individuals. The application stated that on 2 July 2020 the plan implementation certificate had been sent to the individuals, and on 7 July 2020 to the chair of the creditors’ meeting. The administrator received the signed plan implementation certificate on 13 July 2020. Relying on Article 30 of the Law on Bankruptcy of Natural Persons of the Republic of Lithuania (hereinafter the FABĮ), the administrator submitted to the court the plan implementation certificate of the bankrupt individuals and asked the court to adopt a decision to conclude the individuals’ bankruptcy case, declaring the persons bankrupt. With the request the bankruptcy administrator submitted the Plan implementation certificate of 8 July 2020 with its annex and the creditors’ meeting materials.

II. The essence of the procedural decision of the court of first instance

4. By ruling of 16 July 2020 the Rokiškis Chambers of Panevėžys District Court granted the bankruptcy administrator’s request, concluded the individuals’ bankruptcy case after they had implemented the plan, approved in the case, for satisfying the bankrupt persons’ creditor claims and restoring their solvency; and wrote off the remaining unsatisfied creditor claims: - €750,130.82; - €6,241.94. It also stated that a copy of the ruling on the end of the bankruptcy case, once in force, is to be sent to the bankruptcy administrator no later than the next business day, and obliged the bankruptcy administrator to notify the creditors, within 5 business days of the ruling entering into force, of the court decision to conclude the individual’s bankruptcy case.

5. The court of first instance held that the bank account statement for the period from 1 December 2019 to 17 June 2020 and the data of the bankruptcy administrator’s activity report confirm that the administrator made the payments set out in the schedule of the plan for satisfying creditors’ claims and restoring solvency for the last period, Q2 2020: to a creditor - €910.42 and to a creditor - €7.58. The bankruptcy administrator also distributed additionally accumulated funds to the creditors: to a creditor - €2,015.31, to a creditor - €33.39.

6. Thus, having regard to the data in the bankruptcy case, the facts set out in the Plan implementation certificate drawn up by the bankruptcy administrator on 8 July 2020 and the calculations in the annex to the certificate on creditor claims satisfied and remaining unsatisfied, and the totality of the other data submitted, it must be held that the solvency plan was implemented in accordance with the requirements of the law, the creditors were paid to the maximum under the approved solvency plan and within the period set in it, and therefore there are grounds to find that the approved plan for satisfying creditors’ claims and restoring their solvency has been fully implemented, so the individuals’ bankruptcy case can be concluded.

III. Legal arguments of the separate appeal and of the responses to it

7. By the separate appeal the interested person asks the court to set aside the ruling of the court of first instance and to refer the matter back to the court of first instance for fresh examination.

7.1. She states that the court of first instance did not assess whether the duties of the bankrupt persons set out in Article 16(10) of the FABĮ were properly performed throughout the bankruptcy proceedings, or whether Part V of the Plan, on job search and obtaining additional income, was properly performed. Moreover, in adopting the contested ruling the court of first instance did not assess the creditor’s comments on the bankrupt persons’ real efforts to find a better paid job.

7.2. She stresses that the court of first instance did not take into account that one of the bankrupt persons had management experience and that the Plan implementation period was 5 years, so the creditors expected that through the active efforts of the bankrupt persons a better paid job would be found and creditors’ claims would be satisfied to a large extent. However, the statements about searching for a better paid job were merely declaratory, as confirmed by the data on the small salary that the bankrupt person received and receives, which does not reach the average salary of company employees. In view of this, the conclusion of the court of first instance that the creditors were paid to the maximum is unfounded and was made without assessing all significant circumstances.

8. In their response to the separate appeal the applicants ask the court to dismiss the creditor’s separate appeal, leave the contested ruling of the court of first instance unchanged, award the applicants their litigation costs, oblige the creditor to submit documents proving payment of the stamp duty (or oblige her to pay it) or leave the separate appeal unexamined; and also to impose on the creditor the maximum fine of €5,000, 50 per cent of which is to be paid to the applicants in equal shares.

8.1. They state that the separate appeal has been filed against a ruling that has entered into force, that the creditor was not a party to the proceedings in the court of first instance on the submitted application, and that the appeal proceedings must therefore be terminated.

8.2. They stress that the arguments of the separate appeal are unfounded, because the FABĮ does not oblige the court, when adopting a procedural decision on the end of bankruptcy, to reassess the lawfulness of all actions carried out during the bankruptcy proceedings. In this case the creditor’s doubts are untimely and were raised without observing the procedure and order regulated by law for bankruptcy proceedings, all the more so as the creditor’s claim is only 0.08 per cent of the total sum of creditors’ claims approved by the court, and the Plan implementation certificate was signed by the chair of the creditors’ meeting, who holds 99.92 per cent of the approved creditor claims.

8.3. The response notes that the separate appeal states no arguments about the salary received by one of the applicants and makes no complaint against him, yet the operative part of the separate appeal asks for the contested ruling, adopted in respect of both applicants, to be set aside, which clearly violates the applicant’s rights and legitimate interests. Moreover, the appellant did not submit any data capable of substantiating her allegations of improper performance of the provisions of Part V of the Plan.

9. In her response the interested person (the creditor) asks that the dispute be decided at the court’s discretion.

10. In his response the bankruptcy administrator states that the separate appeal was filed without observing the requirements of Article 80(2) of the Code of Civil Procedure of the Republic of Lithuania (hereinafter the CPK); the appeal does not address the other bankrupt person; the attempt to terminate the bankruptcy case is untimely and unlawful, since the sum of the interested person’s approved creditor claims is only 0.08 per cent; and throughout the bankruptcy proceedings the creditor made unfounded demands.

The court

rules:

IV. Circumstances of the case established by the court of appeal instance, legal arguments and conclusions

11. The court of appeal instance examines the case within the limits set by the separate appeal, except where public interest requires otherwise and without going beyond those limits the rights and legitimate interests of a person, society or the State would be violated (Article 320(2) and Article 338 of the CPK). The limits of appeal proceedings are formed by the factual and legal basis of the separate appeal and by review of the absolute grounds for invalidity of the ruling. The court found neither absolute grounds for invalidity of the ruling nor grounds to go beyond the limits of the separate appeal.

12. In the present case the dispute arose over whether the court of first instance, by the contested ruling, rightly concluded the individuals’ bankruptcy case after they had implemented the Plan approved in the case. By the separate appeal the interested person (the creditor) asserts that one of the bankrupt persons was not active and made no efforts to obtain a higher income, so there were no grounds to conclude the individuals’ bankruptcy case. However, the court of appeal instance, having assessed the evidence in the case, the conclusions set out in the contested ruling and the provisions of the FABĮ, holds that the ruling of the court of first instance is well founded and lawful and was adopted after proper assessment of the evidence submitted.

13. First of all, it should be noted that, according to the practice shaped by the Supreme Court of Lithuania, the aim of bankruptcy proceedings of an individual is not to release the individual from repaying creditors in general, but, by applying rehabilitation and restoration measures, to resolve in a civilised manner the problems of recovery from the property of an insolvent person and to balance and protect the interests of all his creditors. The draft solvency restoration plan approved by the court becomes the solvency restoration plan, and this concludes that stage of the proceedings. The next stage is implementation of the solvency restoration plan, and when it ends, the individual’s bankruptcy proceedings are also concluded. The individual’s solvency restoration plan is drawn up and its approval procedures are carried out in order to achieve a fair balance between the interests of the creditors and of the debtor (the individual), because the plan must contain various information showing how the debtor intends to settle with the creditors during the bankruptcy procedure, what concessions the creditors make, what income and expenses of the bankrupt person are planned, the administration costs, the procedure for realising property, the expenses necessary for the bankrupt person to meet his needs, and so on. The success of implementing the bankruptcy plan, and with it the achievement of the aims of the individual’s bankruptcy, depends precisely on the honest efforts of the person against whom the bankruptcy case has been opened (rulings of the Panel of Judges of the Civil Cases Division of the Supreme Court of Lithuania in civil cases No 3K-3-***-***/2016; No 3K-3-***-***/2015).

14. Article 30(1) of the FABĮ provides that when the last payment set out in the plan has been made, the bankruptcy administrator must, no later than within 10 business days of the date of that payment, prepare the plan implementation certificate, which is signed by the individual, the bankruptcy administrator and the chair of the creditors’ meeting. The bankruptcy administrator submits this certificate to the court no later than within 5 business days of the date of its signing, and a copy of the plan implementation certificate to the individual and the chair of the creditors’ meeting. If at least one of the persons referred to in this paragraph refuses to sign the plan implementation certificate, a record of non-signing is drawn up stating the reasons for non-signing and is submitted to the court together with the plan implementation certificate. Having received the certificate referred to in paragraph 1 of this Article, the court adopts a ruling to conclude the individual’s bankruptcy case or to terminate the individual’s bankruptcy case (Article 30(2) of the FABĮ).

15. It should additionally be noted that creditors whose claims have been approved by the court also have the right, in the manner set by the creditors’ meeting, to receive from the bankruptcy administrator information on the progress of the bankruptcy case and, in the manner laid down by legal acts, to claim compensation for losses incurred during the individual’s bankruptcy proceedings through the fault of the individual or the bankruptcy administrator (Article 24(3) and (5) of the FABĮ), and so on. However, neither the FABĮ nor other legal acts provide, and creditors whose claims have been approved by the court have no right, to demand from the bankrupt individual any payments other than those provided for in the solvency restoration plan.

16. In assessing the above provision of the FABĮ, it should be noted that once the bankruptcy administrator has applied to the court with the Plan implementation certificate and report, the court no longer assesses the circumstances set out in the Plan, but decides whether the tasks of the approved Plan have been carried out, whether the application to the court meets the conditions of Article 30(1) of the FABĮ, and whether there are no grounds under Article 10 of the FABĮ for terminating the bankruptcy case.

17. In the present case there is no evidence, and the appellant did not submit any, that the bankrupt persons dishonestly used the rights granted to them by the FABĮ or the insolvency restoration plan, or failed to perform the duties set out in them to the extent provided by the provisions of Article 10 of the FABĮ that allow a bankruptcy case to be terminated. As the court of first instance rightly stated, the data in the case establish that the period for implementing the plan for satisfying creditors’ claims and restoring the solvency of the bankrupt individuals, approved by the court in the bankruptcy case, was five years, and the data in the activity report submitted by the bankruptcy administrator for the period from 13 December 2019 to 17 June 2020 confirm that the administrator made the payments set out in the schedule of the plan for satisfying creditors’ claims and restoring solvency for the last period, Q2 2020: to a creditor - €910.42 and to a creditor - €7.58. Moreover, the data in the case confirm that the bankruptcy administrator also distributed additionally accumulated funds to the creditors: to a creditor - €2,015.31, to a creditor - €33.39.

18. The data in the case also show that on 7 July 2020 the minutes of the repeated creditors’ meeting, approved by the chair of the creditors’ meeting, together with the Plan implementation certificate and its annex, were submitted to the court of first instance. Having assessed the data submitted, the court of first instance held that the solvency plan had been implemented in accordance with the requirements of the law, that the creditors had been paid to the maximum under the approved solvency plan and within the period set in it, and that the approved plan for satisfying creditors’ claims and restoring their solvency had therefore been fully implemented.

19. The circumstances set out in the separate appeal, that the contested court ruling is unfounded because the court of first instance did not take into account that one of the bankrupt persons deliberately did not seek a better paid job, as the responses to the separate appeal rightly state, were essentially not raised in good time, because, as already mentioned above, once it has received the bankruptcy administrator’s Plan implementation report the court essentially no longer assesses the circumstances and conditions provided for in the Plan, but decides whether the objectives approved in the Plan have been achieved. In this case it is significant that the creditor had the opportunity to apply for termination of the individual’s bankruptcy case under the provisions of Article 10 of the FABĮ and to seek to prove the bankrupt persons’ dishonesty or receipt of additional funds. Moreover, under the provisions of Article 24 of the FABĮ the creditor also had the opportunity to make proposals to the individual and the bankruptcy administrator regarding the plan; to apply to the creditors’ meeting concerning the bankruptcy administrator’s activity or his replacement and (or) to propose another candidate as bankruptcy administrator; and to appeal to the court against decisions adopted by the creditors’ meeting within 14 days from the day on which she learned or should have learned of those decisions. Thus the provisions of the law establish the creditor’s rights in the individual’s bankruptcy proceedings, which a creditor who considers that the bankruptcy proceedings are being conducted improperly may use.

20. On the other hand, the mere fact that one of the bankrupt persons has management experience and receives a very small salary at one of his workplaces does not allow the conclusion that the Plan was implemented improperly or was not implemented, all the more so as the separate appeal states no arguments relating to the other bankrupt person, and the creditor did not identify in the separate appeal a single specific ground, set out in Article 10(1) and (2) of the FABĮ or elsewhere, for terminating the individual’s bankruptcy case. It should additionally be noted that the evidence in the case, the explanations of one of the bankrupt persons, shows that the question of finding a better paid job was raised during the individuals’ bankruptcy proceedings and the bankrupt person gave explanations as to why he could not find a better paid job.

21. The other arguments of the separate appeal have no bearing on the soundness of the contested ruling, so the court of appeal instance does not address them.

22. In the circumstances established, it must be held that the court of first instance properly assessed the circumstances of the case and drew well-founded and reasoned conclusions, so there is no ground, on the basis of the arguments of the separate appeal, to set aside or amend the contested court ruling. In view of this, the separate appeal is dismissed and the ruling of the court of first instance is left unchanged (Article 337(1)(1) of the CPK).

23. Some of the responses to the separate appeal state that the creditor filed the separate appeal against a ruling that had entered into force and did not pay stamp duty, but such arguments in the responses, having regard to the actual situation and the provisions of legal acts, are unfounded. From the procedural steps taken by the court of first instance - the resolution to accept the separate appeal and send it to Panevėžys Regional Court, the notices on the submission of responses, the fact that the entry into force of the ruling was not marked in the “Liteko” system, and the sending of the separate appeal with the responses to the court of appeal instance - it should be concluded that the court of first instance decided that there were grounds to accept and examine the separate appeal, and that the court’s actions thus confirm that the time limit for filing the separate appeal was restored by the court’s actual conduct, all the more so as the creditor did not take part in the proceedings in the court of first instance on the conclusion of the individuals’ bankruptcy case. It should additionally be noted that the creditor is a State institution that has put forward property claims in the bankruptcy case, so it has no duty to pay stamp duty on the separate appeal submitted (Article 83(1)(5), (9) and (10) of the CPK).

24. The bankrupt persons ask that a fine be imposed on the appellant for abuse of procedural rights. They justify the request by arguing that the creditor is obstructing and delaying the bankruptcy proceedings.

25. Not every failure to comply with the duty to use procedural rights in good faith in itself amounts to a violation of law capable of giving rise to the legal liability measures provided for in Article 95 of the CPK; that is, not every disregard of the duty to use procedural rights in good faith is to be regarded as a violation of law. In certain cases it may be assessed only as improper exercise of a subjective right. Abuse of a procedural right consists in violation of the conditions for exercising a specific subjective right. A lawful and well-founded use of procedural rights by a person, if no intentional dishonest conduct is established, cannot be recognised as abuse of procedural rights (rulings of the Supreme Court of Lithuania of 4 April 2005 in civil case No 3K-3-***/2005; of 2 March 2010 in civil case No 3K-3-**/2010; of 14 March 2013 in civil case No 3K-3-***/2013).

26. In this case the fact that the appellant filed a separate appeal against the contested ruling does not mean that she filed it for a purpose other than defending interests that, in her conviction, are being violated. This does not in itself confirm dishonesty or deliberate action against a fair and swift examination of the case, so there is no basis to apply a procedural sanction to the appellant for abuse of a party’s procedural rights.

27. Under Article 314 of the CPK, the court of appeal instance refuses to accept new evidence that could have been submitted to the court of first instance, except where the court of first instance unreasonably refused to accept it or where the need to submit that evidence arose later. In interpreting Article 314 of the CPK, the cassation court has held that the court of appeal instance, when deciding on each new item of evidence submitted, must establish whether that specific evidence could have been submitted to the court of first instance, whether later submission of the evidence would delay the examination of the case, and take into account the effect of the new evidence requested to be accepted on the resolution of the parties’ dispute (ruling of 12 April 2016 of the Panel of Judges of the Civil Cases Division of the Supreme Court of Lithuania in civil case No e3K-3-***-***/2016).

28. In the assessment of the court of appeal instance, the newly submitted written evidence of both the appellant and the applicants, having regard to the public interest existing in bankruptcy cases, to the fact that these documents may be significant in deciding on the soundness and lawfulness of the contested ruling, and having assessed that the persons participating in the case had the opportunity to familiarise themselves with them and that these documents are essentially known to all participants in the proceedings, is accepted and assessed by the court of appeal instance in the general context of the evidence, because this will not violate the principles of procedural economy, equality of the parties and justice.

The court, guided by Article 337(1)(1) of the Code of Civil Procedure of the Republic of Lithuania,

rules:

to leave unchanged the ruling of 16 July 2020 of the Rokiškis Chambers of Panevėžys District Court.

Judge