This is an unofficial translation of the Lithuanian court judgment, provided for information only. The Lithuanian original is authoritative. Read the original (Lithuanian)

Civil case No [anonymised]

Judicial proceedings No [anonymised]

Procedural decision category 3.4.2.10.6.

VILNIUS REGION DISTRICT COURT

RULING

17 September 2024

Trakai

Judge [anonymised] of the Trakai Chambers of Vilnius Region District Court,

with [anonymised] as court secretary,

with the applicant [anonymised] and his representative, assistant advocate [anonymised], attending, in open court examined the application of the creditor, the State Tax Inspectorate, of bankrupt person [anonymised] for termination of the bankruptcy case [anonymised]. The interested persons are the insolvency administrator MB, bailiff [anonymised]. The court

found:

By ruling of 10 May 2022 the court opened bankruptcy proceedings against [anonymised]. MB was appointed bankruptcy administrator. The ruling entered into force on 18 May 2022.

By ruling of 5 August 2022 the court approved the list of creditors of the bankrupt individual and their financial claims. VMI is the sole creditor of [anonymised], with a claim of €437,380.81.

By ruling of 30 September 2022 the plan for satisfying creditors’ claims and restoring the solvency of bankrupt individuals, approved at the creditors’ meeting of 21 September 2022 (hereinafter the solvency restoration plan), was approved.

The creditor asks for the bankruptcy case of [anonymised] to be terminated under Article 10(1)(6) of the Law on Bankruptcy of Natural Persons on the ground that the individual concealed funds received, having failed since December 2023 to submit an amended solvency restoration plan in respect of the sum of €216,000 awarded by the court.

It stated that by decision No [anonymised] of 31 May 2023 Vilnius Regional Court upheld VMI’s claim and declared invalid, from the time it was concluded, the contract between [anonymised] and [anonymised] under which [anonymised] Š. had donated real estate. The court applied restitution in monetary form and awarded €216,000 from [anonymised] Š. By ruling of 30 November 2023 the Court of Appeal of Lithuania dismissed the defendants’ appeals, and the court decision entered into force. In view of this, [anonymised] should have submitted an amended solvency restoration plan under Articles 8 and 16(2) of the Law on Bankruptcy of Natural Persons but failed to do so, so there are grounds to assess the conduct of [anonymised] as dishonest and violating the creditor’s rights.

The bankrupt person [anonymised] did not agree with the request. He stated that he is of retirement age. His income consists of a pension of €323 and a salary of about €440. He has always honestly transferred the scheduled amounts to satisfy the creditor’s claims. In implementing the solvency restoration plan his property was sold and the funds received for it were transferred to the creditor. In total €22,142.78 has been transferred to the creditor. The solvency restoration plan has been honestly implemented for two years already, and no questions about its honesty had arisen. The bankruptcy administrator was informed of the case brought by the creditor. VMI, as the initiator of that case, also knew of the proceedings and their outcome. After the proceedings ended, the solvency restoration plan was not amended because he had received no funds. After the court decision entered into force, [anonymised] applied to Vilnius Regional Court asking for the interim protective measures to be lifted, because, in order to obtain money to enforce the court decision, he wanted to pledge property, but VMI did not agree to this request, which shows that the creditor was not interested in the bankrupt person recovering the sum awarded to him as soon as possible. The court did not grant the request of [anonymised]. He then applied to the court for a writ of execution, but had no funds to pay the enforcement costs, which delayed recovery of the money awarded to him. After these steps [anonymised] sold his homestead and transferred the funds received, €176,000, to the deposit account of [anonymised]. Because the sum awarded is very large and [anonymised] cannot obtain financing as he cannot pledge the attached property, [anonymised] Š. and his bankruptcy administrator proposed concluding a settlement agreement, asking for the sum to be reduced having regard to his family’s financial position and the obligations he had assumed. A creditors’ meeting was convened for this, at which the creditor did not approve the settlement agreement. 2024

The person authorised by the interested person MB, [anonymised], did not agree with the application and stated that [anonymised] is honestly implementing the solvency restoration plan and making all scheduled payments to the account opened for the bankruptcy proceedings. [anonymised] has already transferred €176,000, which, once the solvency restoration plan is amended, will be used to satisfy creditors’ claims. During the remaining term of the solvency restoration plan a further €40,000 will be transferred, which will also be used to satisfy the creditor’s claims. [anonymised] took no actions that could harm the creditor’s interests and would be grounds to terminate the bankruptcy case.

The interested persons were duly notified of the place and time of the court hearing in the manner laid down by the Code of Civil Procedure of the Republic of Lithuania. Before the hearing the court received requests from the applicant, the State Tax Inspectorate, and from the bankruptcy administrator MB to examine the case in their absence. No requests were received from other interested persons, and the case is examined without the interested persons attending.

The request is not granted.

Under Article 10(1)(6) of the Law on Bankruptcy of Natural Persons of the Republic of Lithuania, the court adopts a ruling to terminate the individual’s bankruptcy case if, during the bankruptcy proceedings, the individual conceals from the bankruptcy administrator funds or other property received whose value exceeds one basic social benefit per month, and this may harm the creditors’ interests or affect the restoration of the individual’s solvency. Thus, for this ground for terminating the bankruptcy case to be established, it must be found that the person received funds exceeding one basic social benefit per month; that he concealed those funds; and that the concealment may harm the creditors’ interests.

The creditor’s application shows that the bankrupt person is accused of concealing the sum of €216,000 awarded by the court. For a person to conceal funds or property, he must first have them. Although by decision No [anonymised] of 31 May 2023 Vilnius Regional Court awarded €216,000 from [anonymised] Š., the adoption of the court decision alone did not change the financial position of [anonymised]. For his financial position to be found to have improved, the court decision must be enforced at least in part.

Concealment of funds or other property is an act of the person in which, intentionally, by active conduct or omission, he seeks to ensure that the bankruptcy administrator does not learn of the improvement in his financial position. The law speaks of funds and property received, not of property rights acquired (in this case, the right of claim on the basis of a court decision).

In this context it should be noted that, regarding payment of the sum awarded by the court, the debtor of the bankrupt [anonymised], [anonymised], on 10 June 2024 initiated settlement negotiations with [anonymised] and his bankruptcy administrator on payment of the debt, offering to pay €108,000 and to treat this as proper performance of the debt obligations. At the creditors’ meeting on 25 June 2024 the creditor did not approve the proposed terms as unfavourable to the creditor and voted against. After [anonymised] submitted another proposal on 4 August 2024, under which the debtor pays the entire sum awarded by the court within the periods set out in the agreement, on 7 August 2024 the bankrupt person [anonymised], represented by the bankruptcy administrator, and [anonymised] concluded an agreement on payment of the debt.

As the MB bank account statement shows, on 9 August 2024 [anonymised] transferred €176,000 to the bankruptcy administrator’s account on the basis of the court decision and the agreement of 7 August 2024. The remainder of the debt is to be covered by two payments of €20,000 each by 31 December 2024 and by 31 May 2025. Neither [anonymised] nor his bankruptcy administrator submitted evidence that the creditor had approved this agreement.

[anonymised] did not actually receive any money and therefore could not have concealed it from the bankruptcy administrator. Moreover, the bankruptcy administrator was a party to the negotiations when the agreement initiated by [anonymised] on payment of the debt of [anonymised] was concluded. Accordingly, there is no basis to speak of any actions by the bankrupt person aimed at concealing from the bankruptcy administrator funds received or the possibility of receiving such funds.

Article 16 of the Law on Bankruptcy of Natural Persons regulates the individual’s duties during the bankruptcy proceedings. Once his financial position changed, with the appearance of a debtor of the bankrupt person owing a court-awarded debt of €216,000, [anonymised] should have submitted an amended solvency restoration plan but did not do so, and admits this. He states that until the settlement agreement was concluded, while attempts were being made to agree with the debtor, the debtor was looking for ways to repay the debt, and it was unclear in respect of what sum and on what terms the solvency restoration plan should be amended.

When assessing this breach of the bankrupt person’s duties as a ground for terminating the bankruptcy case, it is assessed in the context of all circumstances and of possible violation of the creditor’s rights.

As the solvency restoration plan implementation reports show, the bankrupt person is properly implementing the solvency restoration plan and making all scheduled payments. The fact that funds received were concealed has not been proven. Therefore, failure to submit an amended solvency restoration plan alone is to be regarded as a formal breach and is not a sufficient ground to find a material violation of the bankrupt person’s duties and of the creditor’s interests.

The court, guided by Article 10 of the Law on Bankruptcy of Natural Persons of the Republic of Lithuania and Articles 290–291 of the Code of Civil Procedure of the Republic of Lithuania,

rules:

to reject the request.

The ruling may be appealed within 7 days of its adoption to Vilnius Regional Court by submitting a separate appeal through the Trakai Chambers of Vilnius Region District Court.

Judge [anonymised]