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On opening bankruptcy proceedings against a natural person and writing off claims at the end of the bankruptcy process

Case no 12/2016-13/2016

THE CONSTITUTIONAL COURT OF THE REPUBLIC OF LITHUANIA
IN THE NAME OF THE REPUBLIC OF LITHUANIA

RULING

ON THE COMPLIANCE OF THE PROVISIONS OF THE REPUBLIC OF LITHUANIA’S LAW ON PERSONAL BANKRUPTCY WITH THE CONSTITUTION OF THE REPUBLIC OF LITHUANIA

19 May 2017, no KT5-N4/2017
Vilnius

The Constitutional Court of the Republic of Lithuania, composed of the Justices of the Constitutional Court: Elvyra Baltutytė, Gintaras Goda, Vytautas Greičius, Danutė Jočienė, Gediminas Mesonis, Vytas Milius, Daiva Petrylaitė, Janina Stripeikienė, and Dainius Žalimas

The court reporter – Daiva Pitrėnaitė

The Constitutional Court of the Republic of Lithuania, pursuant to Articles 102 and 105 of the Constitution of the Republic of Lithuania and Articles 1 and 531 of the Law on the Constitutional Court of the Republic of Lithuania, at a hearing of the Court, on 18 May 2017, considered, under written procedure, constitutional justice case no 12/2016-13/2016 subsequent to:

1) the petition (no 1B-17/2016) of the Supreme Court of Lithuania (Lietuvos Aukščiausiasis Teismas), a petitioner, requesting an investigation into whether Item 4 of Paragraph 8 of Article 5 of the Republic of Lithuania’s Law on Personal Bankruptcy, insofar as, under this item, personal bankruptcy proceedings may be opened against a natural person convicted under Article 182 of the Criminal Code of the Republic of Lithuania when his/her conviction has not expired and where he/she became insolvent as a result of such conviction, is in conflict with Article 29 of the Constitution of the Republic of Lithuania and the constitutional principle of a state under the rule of law, as well as whether Paragraph 7 (wording of 22 December 2015) of Article 29 of the Republic of Lithuania’s Law on Personal Bankruptcy, insofar as, under this paragraph, claims for compensating damage inflicted by intentional criminal acts may be written off, is in conflict with Paragraph 1 of Article 23 and Paragraph 2 of Article 30 of the Constitution of the Republic of Lithuania, as well as the constitutional principle of a state under the rule of law;

2) the petition (no 1B-19/2016) of the Joniškis District Local Court (Joniškio rajono apylinkės teismas), a petitioner, requesting an investigation into whether Item 4 of Paragraph 8 of Article 5 of the Republic of Lithuania’s Law on Personal Bankruptcy, insofar as, under this item, personal bankruptcy proceedings may be opened against a natural person convicted under Articles 182, 183, 300 of the Criminal Code of the Republic of Lithuania when his/her conviction has not expired and where he/she became insolvent as a result of such conviction, is in conflict with Article 29 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 20 April 2017, the aforesaid petitions were joined into one case and it was given reference no 12/2016-13/2016.

The Constitutional Court

has established:

I

The arguments of the petitioners

1. The petitions of the Supreme Court of Lithuania and the Joniškis District Local Court, requesting an investigation into the compliance of Item 4 of Paragraph 8 of Article 5 of the Law on Personal Bankruptcy (Fizinių asmenų bankroto įstatymas (FABĮ); hereinafter referred to as the FABĮ), insofar as, under this item, personal bankruptcy proceedings may be opened against a natural person convicted under Articles 182, 183, 300 of the Criminal Code (Baudžiamasis kodeksas (BK); hereinafter referred to as the BK) when his/her conviction has not expired and where he/she became insolvent as a result of such conviction, with Article 29 of the Constitution and the constitutional principle of a state under the rule of law, are based on these arguments.

1.1. After Item 4 of Paragraph 8 of Article 5 of the FABĮ has listed the criminal acts where, if a person commits them, he/she may not initiate personal bankruptcy proceedings if he/she has become insolvent as a result of committing the said acts and his/her conviction has not expired, this list does not include crimes and criminal offences against property, property rights, and property interests (inter alia, fraud, which is punishable under Article 182 of the BK, misappropriation of property, which is punishable under Article 183 of the BK, forgery of a document and possession of a forged document, which is punishable under Article 300 of the BK).

The criminal acts envisaged, for example, in Article 207 of the BK (“Credit Fraud”) and in Article 182 (“Fraud”) thereof, are similar because a person who commits either credit fraud or fraud for the purpose of defrauding someone else of their property uses deception, damage may be inflicted on the injured persons, and the claim for compensating for the damage may equally lead to the insolvency of a person (as in the case of the commission of the other acts specified in Item 4 of Paragraph 8 of Article 5 of the FABĮ). However, bankruptcy proceedings may be opened against a person who is convicted under Article 182 of the BK and whose conviction has not expired, whereas bankruptcy proceedings may not be opened against a person who has committed the acts referred to in Item 4 of Paragraph 8 of Article 5 of the FABĮ when his/her conviction has not expired and where he/she became insolvent as a result of such conviction. Consequently, persons who are basically in the same situation – since they have committed similar crimes and, as a result of committing these crimes, have become insolvent – are treated differently, although there are no convincing arguments for justifying such a differentiated legal regulation.

1.2. The petitioners state that the criterion chosen by the legislature, according to which the acts are selected and specified in Item 4 of Paragraph 8 of Article 5 of the FABĮ, is not clear.

2. The petition of the Supreme Court of Lithuania, requesting an investigation into the compliance of Paragraph 7 (wording of 22 December 2015) of Article 29 of the FABĮ, insofar as, under this paragraph, claims for compensating damage inflicted by intentional criminal acts may be written off, with Paragraph 1 of Article 23 and Paragraph 2 of Article 30 of the Constitution and the constitutional principle of a state under the rule of law, is based on the following arguments.

2.1. When establishing the insolvency of a natural person who seeks bankruptcy proceedings against him/her (inter alia, when calculating the amount owed), no account is taken of the claims that cannot be written off after the expiry of the period of the implementation of the Plan for the Satisfaction of Creditors’ Claims and Restoration of the Solvency of the Natural Person (hereinafter referred to as the Plan). Paragraph 7 (wording of 22 December 2015) of Article 29 of the FABĮ establishes a complete list of claims not subject to a write-off and the said list may not be interpreted expansively. According to Paragraph 7 (wording of 22 December 2015) of Article 29 of the FABĮ, unsatisfied creditors’ claims that arise from the indemnification of damage caused by intentional criminal acts and that remain upon the completion of the bankruptcy process are written off.

2.2. Creditors’ claims are their ownership right. The writing off of claims means a restriction of creditors’ ownership right. Such a restriction by applying the FABĮ is a lawful measure that meets the objective set in the FABĮ to restore the solvency of a natural person. Such a restriction is also most often a proportionate measure, since, despite the nominal value of a creditor’s claim, it cannot be realised in practice because of the insolvency of a relevant natural person.

However, the requirement for compensation for damage caused by an intentional criminal act is different from other claims brought by creditors: such a claim arises due to the fact that the debtor, deliberately and knowingly, has committed a prohibited act; the creditor claiming damages is not a voluntary creditor who chose to enter into legal relations with the debtor (for example, by concluding a contract); thus, the ability of such a creditor to defend himself/herself against damage by legal means is extremely limited. Therefore, it is doubtful whether the permission to write off claims for damage caused by intentional criminal acts is a proportionate interference with the right of ownership of creditors, whether such a restriction on the right of ownership of persons (creditors) who have suffered from intentional criminal acts is necessary in a democratic society in order to protect the rights and freedoms of other persons (those who have caused harm by intentional criminal acts), and whether such a legal regulation is in compliance with Paragraph 1 of Article 23 of the Constitution.

2.3. A claim for compensation for damage caused by an intentional criminal act is socially valuable. Compensating for damage a person who has suffered as a result of an intentional criminal act means that at least part of the situation that existed before the commission of the criminal act will be restored.

Referring to the official constitutional doctrine, the petitioner notes that the necessity to compensate for material and moral damage inflicted on a person is a constitutional principle, which is aimed to ensure that persons who have suffered material or moral damage will be compensated. However, the legal regulation consolidated in Paragraph 7 (wording of 22 December 2015) of Article 29 of the FABĮ means that damage caused as a result of an intentional criminal act, despite the fact that a court has awarded the damages, may remain totally or partially not compensated; therefore, it is doubtful whether such a legal regulation is in compliance with Paragraph 2 of Article 30 of the Constitution and the constitutional principle of a state under the rule of law.

II

The arguments of the representative of the party concerned

3. In the course of the preparation of the case for the hearing of the Constitutional Court, written explanations were received from Stasys Šedbaras, the member of the Seimas acting as the representative of the Seimas of the Republic of Lithuania, the party concerned, in which it is maintained that the impugned legal regulation is not in conflict with the Constitution. The position of the representative of the party concerned is based on the following arguments.

4. The decision of the legislature to specify in the impugned Item 4 of Paragraph 8 of Article 5 of the FABĮ the criminal acts upon committing which a natural person is precluded from initiating bankruptcy proceedings against himself/herself is clear: these acts are chosen according to their nature (crimes against the economy and business order and crimes against the financial system); all these acts inflict harm not only on individuals, but also on the entire state (the economy thereof).

4.1. The legislature also chose and specified in Item 4 of Paragraph 8 of Article 5 of the FABĮ only several criminal acts of a certain type in order to ensure that the application of the law regulating the bankruptcy relationships of natural persons would not be too restrictive and the law would not become ineffective for this reason. Extending too excessively this list of criminal acts (for example, including criminal acts against property, against property rights and property interests, against government order or state service, or against public interests), a natural person’s right of bankruptcy would be particularly restricted and the objectives of the law would not be fulfilled.

4.2. The entire structure of the special part of the BK is based on the classification of the bodies of criminal acts according to the object. The commission of a certain type of a criminal act may have legal consequences not exclusively under criminal law. The legal regulation established in the FABĮ is not exceptional in this respect. Item 4 of Paragraph 8 of Article 5 of the FABĮ points out the crimes that violate the economy and financial system of the state; such crimes have been chosen in a reasonable manner, taking into account the specifics of bankruptcy as a phenomenon. Legal liability for criminal bankruptcy, creditors’ favouritism, or other criminal acts that inflict damage on creditors, are regulated in Chapter XXXI of the BK, which lays down liability for crimes and criminal offences against the economy and business order. Thus, the legislature, having recognised criminal bankruptcy and other acts linked to the condition of a clear threat of bankruptcy as crimes against the economy and business order, has reasonably established that the commission of these acts is a condition in which a court refuses to open bankruptcy proceedings against a natural person.

4.3. The representative of the party concerned also draws attention to the fact that the criminal act provided for in Article 182 of the Criminal Code – fraud – is one of the most widespread crimes. In practice, there are many forms of fraud known: the acquisition of maternity (paternity) allowances by fraud; telephone fraud; defrauding another of money by pretending to be a person who can help the victim to solve his/her problem; selling or pledging another’s property as though one’s own; setting up fictitious companies and purchasing goods on a consignment basis without paying for them afterwards; unlawful recovery or avoidance of value-added tax; etc. Not in all cases of fraud would it be expedient to formally prohibit the opening of bankruptcy proceedings against a natural person.

5. The law governing the bankruptcy process of a natural person should establish such a legal regulation that would protect the debtor from impoverishment with the aim to strike a balance between the interests of the debtor and the creditors, by limiting the ownership rights of the creditors also in cases where damage on creditors is inflicted by an intentional criminal act. In the event that the law establishes a legal regulation according to which compensation for damage caused by an intentional criminal act would be recovered indefinitely from an insolvent person, i.e. a claim for compensation for this damage would not be written off, such a natural person would not be interested in having a legal source of income, or in acquiring property officially in his/her own name, because, after recovery of the debts, he/she would lose the said property. Thus, the person would be left in an uncertain position for an unlimited period of time.

When bankruptcy proceedings are opened against an insolvent natural person, he/she must carry out the duties established in the FABĮ, including the obligation to work or engage in other income-generating activities. If a natural person against whom bankruptcy proceedings have been opened hides funds or other assets received during the bankruptcy process, or does not comply with the other requirements established in the FABĮ, the bankruptcy proceedings against him/her are dismissed. Upon the completion of the bankruptcy process of a natural person, such a person is given the opportunity to integrate into society, his/her social exclusion is reduced, and the state expenditure allocated for social needs decreases accordingly. Thus, the legal regulation established in the impugned Paragraph 7 (wording of 22 December 2015) of Article 29 of the FABĮ is consistent with the interests of a natural person against whom bankruptcy proceedings have been opened, as well as with the interests of creditors and the public interest, and cannot be regarded as incompatible with the principle of proportionality.

Taking into account the principle of the equality of the rights of persons, which is enshrined in the Constitution, creditors who have suffered damage as a result of intentional criminal acts and creditors who have suffered damage as a result of negligent criminal acts should not be treated differently in the law simply because of the different forms of guilt as a result of the commission of these criminal acts.

In addition, damage can be inflicted on persons not only by intentional criminal acts, but also by other, either intentional or negligent illegal actions (for example, by administrative offences). Therefore, distinguishing claims for compensation for damage caused exclusively by intentional criminal acts could discriminate against other creditors who suffered damage as a result of other unlawful acts that are not considered criminal acts.

III

The material received in the case

7. In the course of the preparation of the case for the hearing of the Constitutional Court, written opinions were received from Audrius Linartas, Director of the Authority of Audit, Accounting, Property Valuation and Insolvency Management under the Ministry of Finance of the Republic of Lithuania, and Jurgita Paužaitė-Kulvinskienė, Director of the Law Institute of Lithuania.

The Constitutional Court

holds that:

I

The scope of investigation

8. The Supreme Court of Lithuania, a petitioner, requests an investigation, inter alia, into whether Item 4 of Paragraph 8 of Article 5 of the FABĮ, insofar as, under this item, personal bankruptcy proceedings may be opened against a natural person convicted under Article 182 of the BK when his/her conviction has not expired and where he/she became insolvent as a result of such conviction, is in conflict with Article 29 of the Constitution and the constitutional principle of a state under the rule of law.

The Joniškis District Local Court, a petitioner, requests an investigation, inter alia, into whether Item 4 of Paragraph 8 of Article 5 of the FABĮ, insofar as, under this item, personal bankruptcy proceedings may be opened against a natural person convicted under Articles 182, 183, and 300 of the BK when his/her conviction has not expired and where he/she became insolvent as a result of such conviction, is in conflict with Article 29 of the Constitution and the constitutional principle of a state under the rule of law.

9. The Supreme Court of Lithuania, a petitioner, also requests an investigation into whether Paragraph 7 (wording of 22 December 2015) of Article 29 the FABĮ, insofar as, under this paragraph, claims for compensating damage inflicted by intentional criminal acts may be written off, is in conflict with Paragraph 1 of Article 23 and Paragraph 2 of Article 30 of the Constitution and the constitutional principle of a state under the rule of law.

It should be noted that, according to the Republic of Lithuania’s Law Amending Article 13 of the Law (No XII-2235) Amending Articles 4, 5, 6, 7, 8, 9, 14, 17, 19, 25, 27, and 29 of the Law (No XI-2000) on Personal Bankruptcy, which was adopted by the Seimas on 25 March 2016, Paragraph 7 of Article 29 of the FABĮ set out in one of its wordings of 22 December 2015 was in force until 31 December 2016, while the same paragraph set out in its other wording of the same date, which was established in order to bring the notions used in it into line with the notions used in the Code of Administrative Offences of the Republic of Lithuania, which was adopted by the Seimas on 25 June 2015, came into force on 1 January 2017.

The petition of the Supreme Court of Lithuania makes it clear that it impugns Paragraph 7 (wording of 22 December 2015) of Article 29 the FABĮ that was in force until 31 December 2016.

10. Taking account of the petitions of the petitioners, in the constitutional justice case at issue, the Constitutional Court will investigate whether:

Item 4 of Paragraph 8 of Article 5 of the FABĮ, insofar as, under this item, personal bankruptcy proceedings may be opened against a natural person convicted under Articles 182, 183, and 300 of the BK when his/her conviction has not expired and where he/she became insolvent as a result of such conviction, is in conflict with Article 29 of the Constitution and the constitutional principle of a state under the rule of law;

Paragraph 7 (wording of 22 December 2015) of Article 29 of the FABĮ, which was in force until 31 December 2016 (hereinafter also referred to as Paragraph 7 of Article 29 of the FABĮ), insofar as, under this paragraph, claims for compensating damage inflicted by intentional criminal acts are written off, was in conflict with Paragraph 1 of Article 23 and Paragraph 2 of Article 30 of the Constitution and the constitutional principle of a state under the rule of law.

II

The impugned and related legal regulation

11. On 10 May 2012, the Seimas adopted the Law on Personal Bankruptcy, which established in the Lithuanian legal system a new institution of the bankruptcy of a natural person and regulated the bankruptcy process of a natural person.

11.1. Paragraph 1 of Article 1 of the FABĮ stipulates that the purpose of this law is to create conditions for the restoration of solvency of a natural person acting in good faith, in order to ensure that creditors’ claims are satisfied and to strike a fair balance between the interests of a debtor and his/her creditors.

11.2. In the explanatory memorandum to the FABĮ draft, it was noted that the adoption of this law sought to establish the principles of solvency recovery of natural persons, which would enable natural persons, upon substantial deterioration of their financial position, to meet the claims of creditors according to their ability within a reasonable time, and, upon the expiry of this term and under conditions established in the law, to be exempted from further payment of debts, i.e. to enable them to avoid poverty and restore their solvency, to become consumers again and/or engage in commercial economic activities, and to ensure the satisfaction of creditors’ claims in accordance with the established procedure. The explanatory memorandum also points out that such a possibility would be granted only to natural persons acting in good faith.

11.3. The Supreme Court of Lithuania, which develops the case law of courts of general jurisdiction, has also interpreted the purpose of the FABĮ (the Supreme Court of Lithuania, the ruling of 19 November 2014 in civil case no 3K-3-516/2014; the ruling of 19 December 2014 in civil case no 3K-3-561/2014; etc.). It noted, among other things, that the bankruptcy process of a natural person gives an opportunity to natural persons (who, due to their deteriorating financial situation, are no longer able to fulfil their obligations to creditors) to return to active economic activity and not to become a burden on the state social system, thereby protecting the dignity of a person and giving creditors a chance to recover at least part of their debts (inter alia, the Supreme Court of Lithuania, the ruling of 12 June 2015 in civil case no 3K-3-394-415/2015; the ruling of 19 December 2014 in civil case no 3K-3-561/2014).

In the case law of the Supreme Court of Lithuania, when interpreting Paragraph 1 of Article 1 of the FABĮ (which provides that the purpose of this law is to create conditions for the restoration of solvency of only those natural persons who act in good faith) in a systemic manner and in conjunction with other provisions of this law, it has been noted that a court refuses in two cases to open bankruptcy proceedings against a natural person because of his/her failure to act in good faith: if he/she became insolvent due to transactions that violate the rights of creditors where he/she did not have an obligation to enter into such transactions, or if his/her other actions that are considered fraudulent are established in the manner prescribed in the Civil Code of the Republic of Lithuania. A person is regarded as one acting in bad faith if the data regarding the basis of the appearance of debts and the debtor’s behaviour with his/her money lead to the conclusion that he/she knowingly (deliberately) allowed the debts to accumulate in the hope that unsatisfied claims of creditors would be written off, or behaved in other ways in a very careless manner, where his/her conduct is assessed in concrete circumstances according to the principles of reasonableness and justice (inter alia, the Supreme Court of Lithuania, the ruling of 19 November 2014 in civil case no 3K-3-516/2014; the ruling of 16 April 2015 in civil case no 3K-3-217-969/2015); it is the court considering the case that must, by taking into account the objectives of the FABĮ and the special legal regulation laid down therein, classify in each individual case a person’s actions as fraudulent on the basis of the provisions of the Civil Code and the practice of the application of the provisions of this law, as formed by the cassation court (inter alia, the Supreme Court of Lithuania, the ruling of 8 April 2016 in civil case no 3K-3-208-313/2016).

11.4. Thus, by means of the legal regulation governing the bankruptcy of a natural person, the legislature sought to create the preconditions for restoring a balance of interests between the interests of a debtor and his/her creditors, to protect the interests of creditors by creating an opportunity to recover at least part of the debts from an insolvent natural person and, at the same time, to alleviate the situation of an insolvent natural person who is acting in good faint, by giving him/her the opportunity to return to active economic activity and exempting him/her from further payment of outstanding debts after the completion of the bankruptcy process. It needs to be emphasised that the consolidation of the institution of the bankruptcy of a natural person in the legal system of Lithuania was not aimed at creating conditions for natural persons to escape liability for assumed obligations in general.

12. The petitioners – the Supreme Court of Lithuania and the Joniškis District Local Court – impugn the compliance of Item 4 of Paragraph 8 of Article 5 (as amended on 22 December 2015) of the FABĮ with the Constitution.

12.1. Paragraph 8 of Article 5 (as amended on 22 December 2015), titled “Hearing of a Personal Bankruptcy Petition in a Court”, of the FABĮ provides:

A court shall decline to open personal bankruptcy proceedings provided that at least one of the following conditions is met:

1) in the course of hearing a personal bankruptcy petition, the court establishes that the condition of the natural person is not adequate to that defined in Paragraph 2 of Article 2 of this Law. The determination of the condition of the natural person shall not take into account creditors’ claims that, according to Paragraph 7 of Article 29 of this Law, may not be written off;

2) it is established that, within three years preceding the filing of a bankruptcy petition, the natural person became insolvent as a result of entering into transactions defined in Article 6.67 of the Civil Code of the Republic of Lithuania […] and violating creditors’ rights, without having the obligation to enter into such transactions, or any other intentional actions of the natural person in providing incorrect information to the creditors on the financial condition when assuming debt obligations or entering into other transactions in order to avoid settlement with the creditors, or a deliberate omission of an act on the part of the natural person in order to avoid settlement with the creditors;

3) it is established that the natural person became insolvent by reason of his/her addictions (abuse of alcohol, narcotic and other psychotropic substances, gambling, etc.);

4) it is established that the natural person has been imposed a penalty for a crime or criminal offence defined in Articles 207, 208, 209, 216, 222, and 223 of the Criminal Code of the Republic of Lithuania […] when his/her conviction has not expired and where he/she became insolvent as a result of such conviction;

5) less than ten years have passed after the discontinuation or completion of personal bankruptcy proceedings, except for the cases indicated in Items 1, 2, and 7 of Paragraph 1 of Article 10 of this Law;

6) it is established that the natural person is involved in bankruptcy proceedings opened against a legal person with unlimited civil liability of which he/she is a member.”

Thus, Paragraph 8 of Article 5 (as amended on 22 December 2015) of the FABĮ stipulates the conditions under which bankruptcy proceedings against a natural person may not be opened; having determined that at least one of these conditions is met, a court declines to open bankruptcy proceedings against a natural person. It should be noted that, in principle, all these conditions relate to the position of a natural person seeking bankruptcy (such as his/her solvency) or certain actions performed by this person (such as the commission of certain criminal acts).

The condition stipulated in the impugned Item 4 of Paragraph 8 of Article 5 (as amended on 22 December 2015) of the FABĮ is related to the commission of the criminal acts referred to in Articles 207–209, 216, 222, and 223 of the BK: a court declines to open bankruptcy proceedings against a natural person if it turns out that this person became insolvent due to the fact that he/she has been punished for the criminal acts specified in these articles of the BK and his/her conviction has not expired. Thus, the limitation imposed in this provision on opening a bankruptcy case is temporary: it is applicable until the person’s conviction for the criminal acts specified in the above-mentioned articles of the BK has expired. A person who has become insolvent due to being punished for one or several of the above-mentioned criminal acts may, after the expiry of the conviction, apply to a court, requesting the opening of bankruptcy proceedings, and such proceedings may be opened against him/her.

It should be noted in the aspect relevant in this constitutional justice case that the impugned provision consolidates a final list of criminal acts whose commission by a natural person prevents the opening of bankruptcy proceedings against him/her. This means that a natural person who has been punished for any other criminal act (inter alia, for the acts specified in Articles 182, 183, 300 of the BK) and has become insolvent as a result of such punishment may apply to a court, requesting the opening of bankruptcy proceedings even where his/her conviction has not expired, and such proceedings may be opened against him/her.

13. Item 4 of Paragraph 8 of Article 5 (as amended on 22 December 2015) of the FABĮ consolidates a blanket norm, referring to Articles 206–209, 216, 222, and 223 of the BK. Thus, the provisions of Item 4 of Paragraph 8 of Article 5 (as amended on 22 December 2015) of the FABĮ should be interpreted in conjunction with the relevant provisions of the BK (with subsequent amendments and supplements).

13.1. Article 207, titled “Credit Fraud”, of the BK imposes a punishment on a person who, by deceit, obtains a credit, loan, subsidy, warranty or bank guarantee statement, or another credit obligation.

Article 208, titled “Dishonesty of a Debtor”, of the BK imposes a punishment on a person who, owing to his/her difficult economic situation or insolvency, when facing obvious bankruptcy and being unable to meet all creditors’ claims, meets claims of only one or several of them or secures claims of one or several creditors and thereby inflicts property damage on the remaining creditors; this article also imposes a punishment on a person who, owing to his/her difficult economic situation or insolvency, when facing obvious bankruptcy, conceals, squanders, conveys, transfers abroad, or sells his/her property at an unjustifiably low price, while it could have been utilised to repay debts, and thereby inflicts property damage on creditors.

Article 209, titled “Criminal Bankruptcy”, of the BK imposes a punishment on a person who brings an undertaking to bankruptcy by deliberate mismanagement and thereby inflicts major property damage on creditors.

Article 216, titled “Laundering of Property Acquired through Crime”, of the BK imposes a punishment on a person who, with a view to concealing or laundering his/her own or another person’s property, while being aware that it has been obtained as proceeds from crime, acquires, manages, uses, transfers the property to other persons, performs financial operations related to this property, enters into transactions, uses it in economic and commercial activities, otherwise transforms it or falsely indicates that it has been obtained from lawful activities, also a person who conceals the actual nature of his/her own or another person’s property, its source, location, disposal and movement or ownership thereof or other rights related to the property, while being aware that the property has been acquired through crime.

Article 222, titled “Fraudulent Management of Accounts”, of the BK imposes a punishment on a person who fraudulently manages the accounts required by legal acts or conceals, destroys, or damages accounting documents, where this disables, fully or in part, the determination of the person’s activities, the amount or structure of the assets, equity, or liabilities thereof.

Article 223, titled “Negligent Management of Accounts”, of the BK imposes a punishment on a person who is under the obligation, but fails to manage the accounts required by legal acts, or negligently manages the accounts required by legal acts, or fails to store the accounting documents for a period stipulated in laws, where this disables, fully or in part, the determination of the person’s activities, the amount or structure of the assets, equity, or liabilities thereof.

13.2. It needs to be noted that Articles 207–209 of the BK are enshrined in Chapter XXXI, titled “Crimes and Criminal Offences against the Economy and Business Order”, and Articles 216, 222, 223 are found in Chapter XXXII, titled “Crimes and Criminal Offences against the Financial System”.

13.3. The interpretation of the impugned legal regulation established in Item 4 of Paragraph 8 of Article 5 (as amended on 22 December 2015) of the FABĮ together with the specified articles of the BK makes it clear that bankruptcy proceedings may not be opened against a natural person who has been punished either for the specified crimes against the economy and business order (credit fraud, dishonesty of a debtor, criminal bankruptcy), or for the specified crimes against the financial system (laundering of property acquired through crime, fraudulent management of accounts, negligent management of accounts) if the person has become insolvent due to the commission of these listed criminal acts and his/her conviction has not expired. Consequently, bankruptcy proceedings are not opened against a natural person who has become insolvent because he/she has been punished for certain crimes against the state economy, business order, or financial system, and by which he/she, inter alia, sought to avoid fulfilling credit obligations or otherwise inflict material damage on creditors.

It should be noted that, as it is clear from the discussed legal regulation, according to Item 4 of Paragraph 8 of Article 5 (as amended on 22 December 2015) of the FABĮ, bankruptcy proceedings may not be opened against a natural person if not any of the criminal acts provided for in Chapters XXXI and XXXII of the BK have been committed, but only those specifically referred to in the provision in question.

14. As mentioned above, in the opinion of the petitioners, bankruptcy proceedings should also not be opened against a natural person who has been punished for the crimes specified in Articles 182, 183, 300 of the BK.

14.1. Article 182, titled “Fraud”, of the BK imposes a punishment on a person who acquires by deceit another’s property or property right for his/her own benefit or for the benefit of other persons, avoids a property obligation or annuls it.

Article 183, titled “Misappropriation of Property”, of the BK imposes a punishment on a person who misappropriates another’s property or property right entrusted to him/her or held at his/her disposal or the valuables of a considerable scientific, historical, or cultural significance.

Article 300, titled “Forgery of a Document or Possession of a Forged Document”, of the BK imposes a punishment on a person who produces a false document, forges a genuine document, or stores, transports, forwards, uses, or handles a document known to be false or a genuine document known to have been forged.

14.2. It should be noted that Articles 182 and 183 of the BK are enshrined in its Chapter XXVIII, titled “Crimes and Criminal Offences against Property, Property Rights, and Property Interests”, and Article 300 is found in its Chapter XLIII, titled “Crimes and Criminal Offences against Government Order Relating to Forgery of Documents or Measuring Devices”.

15. The Supreme Court of Lithuania, a petitioner, also impugns the compliance of Paragraph 7 of Article 29 of the FABĮ with the Constitution.

15.1. Paragraph 7 of Article 29, titled “Satisfaction of Creditors’ Claims”, of the FABĮ prescribed the following:

Unsatisfied creditors’ claims, including those backed by collateral and/or hypothec, remaining in the plan upon the completion of the personal bankruptcy process, except for the case defined in Item 2 of Paragraph 3 of Article 30 of this Law, shall be written off, except for the claims for damages in relation to mutilation or other bodily injury, death, or cash (alimony) for the maintenance of a child/adopted child, claims arising from the natural person’s obligation to pay penalties to the state imposed for administrative offences or criminal acts committed by the natural person, and collateral-backed and/or hypothec-backed claims of creditors if these creditors and natural person have agreed on the preservation of the pledged property during the bankruptcy proceedings of the natural person, unless otherwise agreed in the agreement referred to in Item 10 of Paragraph 4 of Article 4 of this Law.”

Thus, Paragraph 7 of Article 29 of the FABĮ regulates the relationships between the creditors and the debtor after the completion of the bankruptcy process of a natural person – the debtor is relieved of the obligation to fulfil the remaining unsatisfied creditor claims and they are written off. However, this general rule does not apply in all cases: even after the completion of the bankruptcy process of a natural person, the debtor must fully comply with the requirements set out in Paragraph 7 of Article 29 of the FABĮ: to compensate for damage in relation to mutilation or other bodily injury, or death; to maintain his/her own children/adoptive children; to pay penalties to the state imposed for administrative offences or criminal acts; and to satisfy collateral-backed and/or hypothec-backed claims of creditors if these creditors and natural person have agreed on the preservation of the pledged property during the bankruptcy proceedings of the natural person. This list of requirements that must be fulfilled even after the completion of the bankruptcy process of a natural person is exhaustive. Thus, claims arising from all other debt obligations owed by a natural person, inter alia, a claim to compensate damage inflicted by an intentional criminal act, are written off after the completion of the bankruptcy process, i.e. they no longer have to be met.

15.2. In the context of the constitutional justice case at issue, it needs to be noted that, according to the legal regulation established in Paragraph 7 of Article 29 of the FABĮ, upon writing off the unpaid amount of damages caused to a person by an intentional criminal act (except for damage in relation to mutilation or other bodily injury, or death), the remaining part of not compensated damage caused by an intentional criminal act is not subject to compensation. Consequently, under this legal regulation, after the completion of the bankruptcy process and the write-off of the remaining unpaid part of compensation for damage caused by an intentional criminal act, the person who has caused such damage is no longer obliged to compensate all the damage caused (inter alia, the one awarded by a court decision), and a person who has suffered such damage and who has become in the bankruptcy process of the said natural person a creditor of the person who caused the said damage cannot receive compensation for the damage suffered.

15.3. The impugned provision of Paragraph 7 of Article 29 of the FABĮ also provides that unsatisfied creditors’ claims upon the completion of the bankruptcy process of a natural person are not written off in the case specified in Item 2 of Paragraph 3 of Article 30 of the FABĮ.

Item 2 of Paragraph 3 of Article 30 of the FABĮ provides that, if a bankruptcy administrator submits to a court documents evidencing that a natural person is able and will be able to fulfil his/her debt obligations in the future, the court takes a decision to dismiss the personal bankruptcy proceedings.

Thus, in cases where, during the bankruptcy process, it becomes evident that a natural person objectively can and will be able in the future to fulfil his/her existing debt obligations, which led to the opening of bankruptcy proceedings, the natural person must fulfil all owed debt obligations after the court adopts a decision to dismiss the bankruptcy proceedings.

15.4. As mentioned above, on 1 January 2017, Paragraph 7 of Article 29 of the FABĮ, as set out in its different wording of 22 December 2015, entered into force.

It needs to be noted that the legal regulation laid down in Paragraph 7 of Article 29 of the FABĮ, as set out in this wording, did not change in the aspect relevant in the case at issue.

16. The legal regulation established in Paragraph 7 of Article 29 of the FABĮ regarding the fulfilment of debt obligations after the completion of the bankruptcy process should be interpreted in the context of other provisions of this law.

16.1. According to Paragraph 1 of Article 6 (as amended on 22 December 2015) of the FABĮ, a court decides to open bankruptcy proceedings against a natural person if it determines that the natural person is insolvent and where there are no grounds specified in Paragraph 8 of Article 5 of the FABĮ that could preclude the opening of the said proceedings.

16.2. The notion of the insolvency of a natural person is defined in Paragraph 2 of Article 2 of the FABĮ, according to which an insolvent person is a natural person who is unable to fulfil the debt obligations, as they mature, exceeding 25 minimum monthly wages (MMWs), which are approved by the Government.

As mentioned above, according to Item 1 of Paragraph 8 of Article 5 (as amended on 22 December 2015) of the FABĮ, when determining whether a natural person is insolvent, claims of creditors that must not be written off in accordance with Paragraph 7 of Article 29 of this Law are not taken into account.

Consequently, in determining whether a natural person is insolvent, i.e., when calculating whether his/her matured debt obligations whose fulfilment is impossible exceed 25 MMWs, account is taken of only those debt obligations that give rise to the claims that will be written off after the completion of the bankruptcy process.

In this context, it should be mentioned that the Supreme Court of Lithuania, in interpreting the notion of insolvency of a person, has noted that, according to Paragraph 2 of Article 2 of the FABĮ, a court, in deciding whether a natural person can fulfil his/her obligations, must, among other things, assess the prospects of changes in the debt obligations by taking into account the property of the person and the income that he/she receives, i.e. the court must establish not only the fact that the amount of debts whose maturity has expired exceeds 25 MMWs, but also whether the person objectively has no possibility to cover these debts either now or within a reasonable time limit (the Supreme Court of Lithuania, the ruling of 11 June 2015 in civil case no 3K-3-379-701/2015).

16.3. Thus, according to Paragraph 2 of Article 2, Item 1 of Paragraph 8 of Article 5 (as amended on 22 December 2015), and Paragraph 7 of Article 29 of the FABĮ, when establishing whether a natural person is insolvent, the amount of his/her debt obligations that are objectively impossible to fulfil does not include debt obligations regarding compensation for damages in relation to mutilation or other bodily injury, death, or regarding the maintenance of children, the payment of fines to the state, and the satisfaction of collateral-backed and/or hypothec-backed claims of creditors if these creditors and natural person have agreed on the preservation of the pledged property during the bankruptcy process of the natural person. This means that a person is recognised as insolvent only if the amount of his/her debt obligations, except those listed in Paragraph 7 of Article 29 of the FABĮ, exceeds 25 MMWs. Therefore, if a person owes only such debt obligations that give rise to claims that, under Paragraph 7 of Article 29 of the FABĮ, are not written off after the completion of the bankruptcy proceedings, he/she may not be declared insolvent, in which case bankruptcy proceedings may not be opened against him/her.

17. Summing up the impugned and related legal regulation, it should be held that:

the legal regulation governing the bankruptcy institution of a natural person was aimed at creating the preconditions for restoring a balance between the interests of a debtor and his/her creditors, protecting the interests of creditors by creating an opportunity to recover at least part of the debts from an insolvent natural person and, at the same time, alleviating the situation of an insolvent natural person who was acting in good faith, by giving him/her the opportunity to return to active economic activity; however, when regulating the bankruptcy process of a natural person, the legislature did not seek to create conditions for natural persons to escape liability for owed debt obligations in general;

under the impugned Item 4 of Paragraph 8 of Article 5 (as amended on 22 December 2015) of the FABĮ, bankruptcy proceedings may not be opened against a natural person who has been punished either for the crimes specified in Articles 207–209 of the BK against the economy and business order or for the crimes specified in Articles 216, 222, and 223 of the BK against the financial system if the person has become insolvent due to the commission of these listed criminal acts and his/her conviction has not expired; however, such proceedings may be opened against a person who has been punished for any other crimes or criminal offences, inter alia, for the crimes specified in Articles 82 and 183 of the BK against property, property rights, or property interests, or for the crime specified in Article 300 of the BK against government order;

under Paragraph 2 of Article 2, Item 1 of Paragraph 8 of Article 5 (as amended on 22 December 2015), and Paragraph 7 of Article 29 of the FABĮ, a person is recognised as insolvent only if the amount of his/her debt obligations that are objectively impossible to fulfil, except those listed in Paragraph 7 of Article 29 of the FABĮ, exceeds 25 MMWs; if a person owes only such debt obligations that give rise to claims that are not written off after the completion of the bankruptcy process, bankruptcy proceedings may not be opened against him/her;

under the impugned Paragraph 7 of Article 29 of the FABĮ, upon the completion of the bankruptcy process of a natural person, the unsatisfied claims for compensation for damage caused to a person by an intentional criminal act (except for damage in relation to mutilation or other bodily injury, or death) are written off; thus, the part of not compensated damage (inter alia, the part for which compensation has been awarded by a court decision) is no longer subject to compensation.

III

The assessment of the compliance of Item 4 of Paragraph 8 of Article 5 of the Law on Personal Bankruptcy with the Constitution

18. In the constitutional justice case at issue, the Constitutional Court investigates the compliance of Item 4 of Paragraph 8 of Article 5 (as amended on 22 December 2015) of the FABĮ, insofar as, under this item, personal bankruptcy proceedings may be opened against a natural person convicted under Articles 182, 183, and 300 of the BK when his/her conviction has not expired and where he/she became insolvent as a result of such conviction, with Article 29 of the Constitution and the constitutional principle of a state under the rule of law.

19. The Constitutional Court has held on more than one occasion that the constitutional principle of the equality of persons before the law, which is enshrined in Article 29 of the Constitution, means the right of an individual to be treated equally, it imposes the obligation to assess homogeneous facts in the same manner and prohibits any arbitrary assessment of essentially the same facts in a different manner; the constitutional principle of the equality of the rights of persons would be violated if certain persons or groups of such persons were treated in a different manner, even though there are no differences of such a nature and to such an extent between the said groups of persons so that their uneven treatment could be objectively justified (inter alia, the Constitutional Court’s rulings of 22 February 2013, 20 June 2016, and 25 January 2017); in assessing whether a certain different legal regulation has been established reasonably, account must be taken of concrete legal circumstances; first of all, consideration must be given to differences in the legal situation of the subjects and objects to which a certain differentiated legal regulation is applied (inter alia, the Constitutional Court’s rulings of 22 September 2015 and 15 March 2016).

20. In the jurisprudence of the Constitutional Court, it has been held more than once that the constitutional principle of the equality of the rights of persons is inseparable from the constitutional principle of a state under the rule of law, which integrates various values consolidated, protected, and defended under the Constitution; a violation of the constitutional principle of the equality of the rights of persons is, at the same time, a violation of the constitutional principle of a state under the rule of law (inter alia, the Constitutional Court’s rulings of 6 February 2012, 22 February 2013, and 7 June 2016).

21. In assessing the constitutionality of the legal regulation of the relationships of bankruptcy of a natural person, it needs to be noted that, according to the Constitution, the legislature generally has no obligation to establish the institution of the bankruptcy of a natural person as one of the possible ways of solving the insolvency of natural persons. Having chosen to establish the institution of the bankruptcy of a natural person in the Lithuanian legal system, the legislature, in order to ensure, among other things, a balance of interests between an insolvent natural person and his/her creditors, has wide discretion to regulate the relationships of bankruptcy of natural persons, inter alia, to choose a model of the institution of the bankruptcy of a natural person, to define a circle of persons that could go bankrupt, to establish grounds for opening bankruptcy proceedings against a natural person, also cases where such proceedings must not be opened, to regulate bankruptcy procedures of natural persons, to determine conditions for the release of fulfilling debt obligations, as well as other essential elements of the institution of the bankruptcy of a natural person. However, in doing so, the legislature must respect the norms and principles of the Constitution.

In this context, it should also be noted that the models of the institution of the bankruptcy of a natural person are diverse; the choice of the legislature to consolidate one or another model of the institution of the bankruptcy of a natural person by means of laws may depend on the specific objectives of the legislature. In addition, laws may establish a judicial or extrajudicial bankruptcy process of natural person. The legislature, making use of its own wide discretion to choose one or another model of the institution of the bankruptcy of a natural person, may also establish such a model where, in the bankruptcy process of a natural person, a court would be granted wider powers to decide, inter alia, on opening bankruptcy proceedings against a natural person and/or exempting him/her from the fulfilment of remaining unsatisfied debt obligations after the completion of the bankruptcy process, when taking into account the circumstances of a particular case and assessing the situation of a natural person seeking bankruptcy.

In the context of this constitutional justice case, it also needs to be noted that, according to Article 29 of the Constitution and the constitutional principle of a state under the rule of law, when regulating the relationships of bankruptcy of a natural person, the legislature 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.

22. It has been mentioned that, under Item 4 of Paragraph 8 of Article 5 (as amended on 22 December 2015) of the FABĮ, a court refuses to open bankruptcy proceedings against a natural person if he/she has been punished either for the crimes specified in Articles 207–209 of the BK against the economy and business order or for the crimes specified in Articles 216, 222, and 223 of the BK against the financial system if the person has become insolvent due to the commission of these listed criminal acts and his/her conviction has not expired; however, such proceedings may be opened against a person who has been punished for any other crimes or criminal offences, inter alia, for the crimes specified in Articles 182 and 183 of the BK against property, property rights, or property interests, or for the crime specified in Article 300 of the BK against government order;

23. The petitioners in principle base their doubts as to the compliance of the impugned provision with Article 29 of the Constitution and the constitutional principle of a state under the rule of law on the similarity of the criminal acts provided for in Articles 182 and 207 of the BK and argue that the criterion opted for by the legislature based on which the criminal acts specified in Item 4 of Paragraph 8 of Article 5 (as amended on 22 December 2015) of the FABĮ were selected, whose commission precludes opening bankruptcy proceedings against a relevant natural person, is not clear, and that persons who have committed other criminal acts, which, in the opinion of the petitioners, are similar, are groundlessly treated more favourably.

23.1. In the context of the arguments put forward by the petitioners, it should be noted that, although criminal acts other than those referred to in Item 4 of Article 8 of Article 5 (as amended on 22 December 2015) of the FABĮ, inter alia, the criminal acts provided for in Articles 182, 183, and 300 of the BK, can also cause property damage, and a claim to compensate for it may also lead to the insolvency of a person who has inflicted damage, the criminal acts specified in the impugned provision for which criminal liability is provided for in Articles 207–209, 216, 222, and 223 of the BK differ from other criminal acts in their object, i.e. the said acts encroach upon specific legally protected values such as the state economy, business order, or the financial system; in addition, inter alia, the said criminal acts are aimed at avoiding the fulfilment of credit obligations or at otherwise inflicting damage on creditors. Therefore, persons who have committed these criminal acts and persons who have committed other crimes or criminal offences, inter alia, those that encroach upon property, property rights, and property interests, cannot be considered to be in the same (similar) position.

It needs to be emphasised that the provision of Item 4 of Article 8 of Article 5 (as amended on 22 December 2015) of the FABĮ, according to which personal bankruptcy proceedings may not be opened against a person who has been punished for any of the crimes referred to in Articles 206–209 of the BK against the economy or business order, or for any of the crimes referred to in Articles 216, 222, 223 of the BK against the financial system, applies equally to all those who committed these criminal acts.

23.2. In this context, it is also worth mentioning that the relationship between Article 182, titled “Fraud”, and Article 207, titled “Credit Fraud”, of the BK, which are specified in the petitions, has been considered by the Supreme Court of Lithuania; it, among other things, pointed out that, although the titles of the two articles use the word “fraud”, these articles are different in the characteristics of the bodies of crimes, the areas of the commission of crimes (the area of credit fraud is much narrower than that of fraud), the purposes (in the case of fraud, deception is used for the purpose of appropriating property, while in the case of credit fraud, deception is used not for appropriating property, but for taking it in order to use it in carrying out an economic, commercial, or financial activity so that it would be possible later to repay creditors), the objects (the object of fraud is cash, while the object of credit fraud is terms and conditions for granting loans), the finality (respectively, the material and formal bodies of crimes), the nature of the dangerousness of criminal acts, etc. (the Supreme Court of Lithuania, the ruling of 3 February 2009 in criminal case no 2K-35/2009, the ruling of 25 June 2013 in criminal case no 2K-339/201, and the ruling of 30 December 2016 in criminal case no 2K-7-304-976/2016).

As is apparent from the interpretation of Articles 182, 207 of the BK provided in the case law of the Supreme Court of Lithuania, the criminal acts referred to in these articles are different; therefore, persons who commit them may not, as such, be treated as persons who are in the same (similar) position.

23.3. Consequently, persons who commit the criminal acts listed in Item 4 of Paragraph 8 of Article 5 (as amended on of 22 December 2015) of the FABĮ, as well as other criminal acts, inter alia, those provided for in Articles 182, 183, and 300 of the BK, are not in the same (similar) position in terms of the personal bankruptcy process; therefore, their unequal treatment is objectively justified.

23.4. At the same time, it should be noted that the legislature, when exercising, under the Constitution, its wide discretion to regulate the bankruptcy relations of a natural person, inter alia, to establish the grounds and situations where bankruptcy proceedings are opened against natural persons, and situations where such proceedings must not be opened, may also establish in a law other cases where personal bankruptcy proceedings must not be opened and, among other things, may decide 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 of Item 4 of Paragraph 8 of Article 5 (as amended on of 22 December 2015) of the FABĮ, personal bankruptcy proceedings must not be opened if a natural person has been imposed a penalty in particular for such criminal acts that are specified in the articles of the BK chosen by the legislature does not give grounds for declaring this impugned provision to be in conflict with the Constitution.

24. Taking into account the arguments set forth, the conclusion should be drawn that Item 4 of Paragraph 8 of Article 5 (as amended on of 22 December 2015) of the FABĮ is not in conflict with Article 29 of the Constitution and the constitutional principle of a state under the rule of law.

IV

The assessment of the compliance of Paragraph 7 of Article 29 of the Law on Personal Bankruptcy with the Constitution

25. In the constitutional justice case at issue, the Constitutional Court also investigates the compliance of Paragraph 7 of Article 29 of the FABĮ, insofar as, under this paragraph, claims for compensating damage inflicted by intentional criminal acts are written off, with Paragraph 1 of Article 23 and Paragraph 2 of Article 30 of the Constitution and the constitutional principle of a state under the rule of law.

26. Paragraph 2 of Article 30 of the Constitution provides that compensation for material and moral damage inflicted on a person is established by law.

As held by the Constitutional Court, in protecting and defending human rights and freedoms, inter alia, human dignity, a particular importance falls on the institution of compensation for damage (the Constitutional Court’s ruling of 19 August 2006); compensation for damage inflicted as a result of unlawful actions is one of the main ways of protecting violated rights and freedoms (the Constitutional Court’s ruling of 30 June 2000).

In its acts (inter alia, the rulings of 19 August 2006, 3 February 2010, and 16 April 2015), the Constitutional Court has formulated a wide constitutional doctrine of compensation for damage, which is based on the essential provision that the necessity to compensate for the material and moral damage inflicted on a person is a constitutional principle, whose consolidation is aimed to ensure that persons who have suffered material or moral damage will be compensated.

26.1. The Constitutional Court has held that compensation for damage inflicted upon a person must be real and fair (the Constitutional Court’s rulings of 3 February 2010, 29 November 2010, and 6 December 2013); the Constitution imperatively requires that a legal regulation be established by means of a law to the effect that a person who was inflicted damage by unlawful actions would be able in all cases to claim for just compensation for that damage and to receive that compensation (inter alia, the Constitutional Court’s rulings of 19 August 2006, 3 February 2010, and 6 December 2013).

26.2. The Constitution guarantees the right of a person to compensation for the material or moral damage suffered as a result of unlawful actions, including the recovery of damages through court (inter alia, the Constitutional Court’s ruling of 30 June 2000). The classification of damage (subject to compensation) inflicted upon a person into material damage and moral damage determines the particularities of a legal regulation governing the relations linked to compensation for damage of a particular type; while compensating for material damage, in all cases it is possible to follow the principle of full (adequate) compensation for damage (restitutio in integrum); thus, material losses are compensated with material assets; meanwhile, moral damage is a moral injury that can only be assessed and compensated materially on certain conditions (the Constitutional Court’s rulings of 19 August 2006 and 3 February 2010).

26.3. Paragraph 2 of Article 30 of the Constitution consolidates a duty of the legislature to pass a law or laws providing for compensation for damage for a person who suffered material and moral damage (inter alia, the Constitutional Court’s rulings of 3 February 2010 and 18 April 2012), and to establish sufficient measures for implementing the right to receive compensation for inflicted damage (the Constitutional Court’s ruling of 3 February 2010). The law may also provide for cases when inflicted damage must be compensated not in full, or a person who inflicted damage is exempted from damage compensation (e.g. a person who suffered injury is guilty himself/herself or in case of indispensable defence) (the Constitutional Court’s ruling of 20 January 1997).

The legislature, while regulating by means of a law or several laws the relations linked to compensation for material and/or moral damage inflicted on a person, has a certain degree of discretion inasmuch as this is not restricted by the Constitution (the Constitutional Court’s rulings of 19 August 2006 and 3 February 2010). For instance, a legal regulation established in laws may be differentiated according to whether damage inflicted as a result of unlawful actions is compensated under an extrajudicial or judicial procedure; however, in any case, it is not allowed to establish any such legal regulation that would deny the right of a person to apply to a court and to claim for just compensation for damage inflicted as a result of unlawful actions (the Constitutional Court’s ruling of 19 August 2006). It does not follow from the Constitution that it is possible to establish by law some exceptions under which moral and/or material damage inflicted on a person is not compensated (the Constitutional Court’s rulings of 19 August 2006 and 13 May 2010).

27. The general grounds for compensation for damage sustained by a victim stem, inter alia, from the constitutional principles of justice and a state under the rule of law (inter alia, the Constitutional Court’s rulings of 3 February 2010, 29 November 2010, and 6 December 2013).

27.1. The constitutional principle of compensation for damage is inseparable from the principle of justice, which is consolidated in the Constitution (the Constitutional Court’s rulings of 19 August 2006 and 3 February 2010). Justice may be implemented by ensuring a certain balance of interests and by avoiding contingencies and arbitrariness, the instability of social life, and clashes of interests (inter alia, the Constitutional Court’s rulings of 24 December 2008, 14 May 2015, and 27 October 2016). Laws must create all necessary preconditions for fair compensation for inflicted damage; the legislature may not establish any such legal regulation that would create the preconditions for a situation where a person who suffered damage would not be able to get fair compensation for damage (the Constitutional Court’s ruling of 3 February 2010).

27.2. The constitutional imperative that damage must be compensated for in a fair manner is also related to the constitutional principles of proportionality and adequacy of compensation for damage, which require that the measures that are established in laws and are applicable be proportionate to the objective sought and not limit the rights of persons more than necessary for achieving the legitimate and universally significant, constitutionally well-founded objective, and not create the preconditions for abusing law (the Constitutional Court’s rulings of 27 March 2009 and 3 February 2010).

28. The provision of Paragraph 2 of Article 30 of the Constitution that compensation for material and moral damage inflicted upon a person is established by law is also related to the provisions of Article 23 of the Constitution, which ensure the inviolability and protection of property. The Constitutional Court has noted on more than one occasion that the constitutional protection of the rights of ownership, which arise from the Constitution and the laws that are not in conflict with the Constitution, means the protection of the right to demand the fulfilment of obligations of property nature for a person (the Constitutional Court’s rulings of 4 July 2003 and 24 December 2008).

In the context of the constitutional justice case at issue, it should be noted that the right of a person to claim compensation for damage caused by unlawful acts arises from Paragraph 2 of Article 30 of the Constitution, and, under Article 23 of the Constitution, the property aspects of this right are defended.

29. In the context of the constitutional justice case at issue, it also needs to be mentioned that the striving for an open, just, and harmonious civil society and a state under the rule of law, as established in the Preamble to the Constitution, implies that it is obligatory to seek to ensure the security of each person and all society against criminal attempts (inter alia, the Constitutional Court’s rulings of 8 May 2000, 28 May 2010, and 15 November 2013).

29.1. As held by the Constitutional Court, under the Constitution, only those acts that are in fact dangerous and seriously harmful to the interests of a person, society, and the state are named in the law as criminal acts (the Constitutional Court’s ruling of 10 June 2003). Crimes are violations of law that especially grossly violate constitutional rights and freedoms of individuals, as well as other values protected and defended by the Constitution (inter alia, the Constitutional Court’s rulings of 4 July 2003 and 29 December 2004), make negative impact on the living conditions and subsistence level of people, and encroach upon the fundamentals of the life of the state and society (inter alia, the Constitutional Court’s rulings of 29 December 2004 and 16 January 2006).

29.2. While exercising its functions and acting in the interests of all society, the state has the obligation to ensure the effective protection of human rights and freedoms, of other values protected and defended by the Constitution, of every individual and all society against, inter alia, criminal attempts (inter alia, the Constitutional Court’s rulings of 29 December 2004 and 16 January 2006). According to the Constitution, the state has not only the right, but also the duty to take various lawful measures preventing crimes, as well as restricting and reducing crime; these measures must be effective (the Constitutional Court’s rulings of 8 May 2000 and 16 January 2006).

29.3. The Constitutional Court has also held that, in a state under the rule of law, it is not allowed to disregard the general principle of law under which no one may enjoy any profit from a violation of law committed by him/her (the Constitutional Court’s rulings of 14 March 2006 and 15 March 2008).

30. It has been mentioned that, under Paragraph 7 of Article 29 of the FABĮ, upon the completion of the bankruptcy process, the remaining unsatisfied creditors’ claims are written off, except for claims for damages in relation to mutilation or other bodily injury, death, or cash (alimony) for the maintenance of a child/adopted child, claims arising from the natural person’s obligation to pay penalties to the state imposed for administrative offences or criminal acts committed by the natural person, and collateral-backed and/or hypothec-backed claims of creditors if these creditors and natural person have agreed on the preservation of the pledged property during the bankruptcy process of the natural person.

It has also been mentioned that, under this legal regulation, after the completion of the bankruptcy process and the write-off of the remaining unpaid part of compensation for damage caused by an intentional criminal act, the person who has caused such damage is no longer obliged to compensate all the damage caused (inter alia, the one awarded by a court decision), and a person who has suffered such damage and who has become in the bankruptcy process of the said natural person a creditor of the person who caused the said damage cannot receive compensation for the damage suffered.

31. The doubts of the petitioner regarding the compliance of the impugned provision with Paragraph 2 of Article 30 of the Constitution and the constitutional principle of a state under the rule of law are based on the fact that a creditor demanding compensation for damage caused by an intentional criminal act is not a voluntary creditor, who himself/herself has decided to enter into legal relations with the debtor and thereby assumed the appropriate risk, and his/her claim for such damages is different from that of other creditors. According to the impugned legal regulation, should damage caused by an intentional criminal act be written off, it may remain completely or partially not compensated despite the fact that compensation for the said damage has been awarded by a court.

32. In assessing the compliance of Paragraph 7 of Article 29 of the FABĮ with Paragraph 2 of Article 30 of the Constitution and the constitutional principle of a state under the rule of law, it needs to be noted that, as mentioned above, according to the Constitution, the legislature generally has no obligation to establish the institution of the bankruptcy of a natural person; however, having decided to consolidate it in the legal system of Lithuania, it must adhere to the norms and principles of the Constitution when regulating the legal relations of bankruptcy of natural persons. This means, among other things, that, in order to strike a balance between the interests of an insolvent natural person and his/her creditors by means of the bankruptcy institution of a natural person established in the law, the legislature must not deny the requirement, which arises from the Constitution (inter alia, from the principle of compensation for damage laid down in Paragraph 2 of Article 30 thereof, 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 according to which 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 according to which a person who sustained the said damage would not be able to receive fair compensation for it.

32.1. It needs to be noted that the claim to compensate for damage caused by a criminal act, which, according to the impugned Item 7 of Article 29 of the FABĮ, is written off with other unsatisfied creditors’ claims upon the completion of the bankruptcy process of a natural person, is fundamentally different from creditors’ other claims arising from contractual civil legal relations, inter alia, different in that a creditor entitled to claim compensation for damage is not voluntarily involved in the relations with the debtor. In view of the fact that, as mentioned above, 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 (inter alia, 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, at least in part, would restore 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 is not a constitutionally justified ground for releasing such a person from the obligation to compensate for damage that he/she has caused.

32.2. It should also be noted that a legal regulation under which, after the completion of the personal bankruptcy process, the remaining unsatisfied claims for compensation for damage caused by a criminal act are written off 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.

32.3. Consequently, the legal regulation established by the legislature in Paragraph 7 of Article 29 of the FABĮ, according to which a person who has caused damage by means of a criminal act can in principle avoid the duty to fully compensate for it (inter alia, for the damage or part thereof compensation for which has been awarded by a court decision), is also incompatible with the state obligation, which stems from the Constitution, to take effective measures to limit and reduce crime.

32.4. Thus, it should be held that the legal regulation laid down in Paragraph 7 of Article 29 of the FABĮ, according to which claims for compensation for damage caused by criminal acts after the completion of the bankruptcy process of a natural person are written off, creates the preconditions for a person who caused such damage to avoid the obligation to fully compensate for the damage caused, and the preconditions preventing a person who suffered such damage and who, as a result of the damage inflicted on him/her, became a creditor in the bankruptcy process of a natural person from receiving fair compensation for the damage suffered. Consequently, this legal regulation has disregarded the principle of compensation for damage, which is enshrined in Paragraph 2 of Article 30 of the Constitution, as well as the constitutional principles of justice and a state under the rule of law.

32.5. At the same time, it should be noted that, as mentioned above, the legislature, depending on the specific goals pursued by it, may choose to establish in a law one or another model of the institution of the bankruptcy of a natural person; making use of its own wide discretion, the legislature could/can also establish such a model of the institution of the bankruptcy of a natural person where, in the bankruptcy process of a natural person, a court would be granted wider powers to decide, inter alia, on opening bankruptcy proceedings against a natural person and/or exempting him/her from the fulfilment of remaining unsatisfied debt obligations after the completion of the bankruptcy process, when taking into account the circumstances of a particular case and assessing the situation of a natural person seeking bankruptcy.

33. In view of the arguments set forth, the conclusion should be drawn that Paragraph 7 of Article 29 of the FABĮ, insofar as, under this paragraph, claims for compensating damage inflicted by criminal acts are written off, was in conflict with Paragraph 2 of Article 30 of the Constitution and the constitutional principle a state under the rule of law.

34. Having held this, the Constitutional Court will not further investigate whether Paragraph 7 of Article 29 of the FABĮ, to the extent stated by the petitioner, was in conflict with Paragraph 1 of Article 23 of the Constitution.

35. As mentioned above, after the entry into force of Paragraph 7 (as set out in its wording of 22 December 2015) of Article 29 of the FABĮ on 1 January 2017, the legal regulation laid down in the said paragraph did not change in the aspect relevant in the case at issue.

After it has been held in this ruling that Paragraph 7 of Article 29 of the FABĮ, insofar as, under this paragraph, claims for compensating damage inflicted by criminal acts are written off, was in conflict with Paragraph 2 of Article 30 of the Constitution and the constitutional principle a state under the rule of law, it should also be held on the grounds of the same arguments that Paragraph 7 (wording of 22 December 2015) of Article 29 of the FABĮ, which came into force on 1 January 2017, insofar as, under this paragraph, claims for compensating damage inflicted by criminal acts are written off, is also in conflict with the aforesaid provisions of the Constitution.

Conforming to Articles 102 and 105 of the Constitution of the Republic of Lithuania and Articles 1, 53, 531, 54, 55, and 56 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 4 of Paragraph 8 of Article 5 (as amended on 22 December 2015; Register of Legal Acts, 30-12-2015, No 21017) of the Republic of Lithuania’s Law on Personal Bankruptcy is not in conflict with the Constitution of the Republic of Lithuania.

2. To recognise that Paragraph 7 (wording of 22 December 2015, which was in force until 31 December 2015; Register of Legal Acts, 30-12-2015, No 21017; wording of 22 December 2015, which came into force on 1 January 2017; Register of Legal Acts, 30-12-2015, No 21017) of Article 29 of the Republic of Lithuania’s Law on Personal Bankruptcy, insofar as, under this paragraph, claims for compensating damage inflicted by criminal acts are written off, was/is in conflict with Paragraph 2 of Article 30 of the Constitution and the constitutional principle 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: Elvyra Baltutytė
                                                                      Gintaras Goda
                                                                      Vytautas Greičius
                                                                      Danutė Jočienė
                                                                      Gediminas Mesonis
                                                                      Vytas Milius
                                                                      Daiva Petrylaitė
                                                                      Janina Stripeikienė
                                                                      Dainius Žalimas