On 18 April 2019, the Constitutional Court of Georgia rendered a judgement on the case of “’Tiflisi LCC’ vs. the Parliament of Georgia” and declared unconstitutional the provision of the “Law on Insolvency Proceedings” that established the rule for the transferral of the property into state ownership that failed to sell at the third auction.
According to the disputed legal provision, if the property is not sold at the third auction and provided none of the creditors submit an application on the receipt of the property, the state shall acquire ownership over the property at hand. The complainant argued that there is no public interest, which would justify the transferral of property into state ownership and the restriction of the constitutional right to property.
The respondent argued that the prevention of fraud and corruption, as well as ensuring that agents who are unable to freely circulate in the market are driven out thereof, and the compensation of the services rendered by the state were legitimate aims pursued by the impugned law.
The Constitutional Court indicated that the prevention of corrupt and fraudulent schemes is a valuable legitimate objective, yet in the present case, the respondent failed to name any real threat, which would have been prevented by the transferral of an auctioned property into state ownership. The Court further emphasised that the transferral of a debtor’s property into state ownership does not result in cancelling the registration or in any way influence the closure of the debtor’s business activity. Consequently, the Court refused to accept the stated legitimate objectives, since no logical link existed between their pursued regulatory aims and the disputed law.
In respect of the compensation of the services rendered by the state during insolvency proceedings, the Constitutional Court noted that the property at hand was in fact transferred into state ownership and not to the proprietorship of the National Enforcement Bureau - a centralised state agency in charge of conducting public auctions, which incurs the expenses for such service. The Court thereby rejected this claim due to the same reason of lacking a logical explanation.
Consequently, the Constitutional Court declared that the disputed legal provision unjustifiably restricted the constitutional right to property and pronounced it unconstitutional.