The abstract of the judgment (The judgment is available only in Georgian). Abstracts published by the Constitutional Court of Georgia summarise the facts of the case and key legal considerations of the judgment.

Abstract

On 18 April 2019, the First Board of the Constitutional Court of Georgia rendered its judgment on the Case of "LTD “Tiplisi 777” v. The Parliament of Georgia” (constitutional complaint №1250). A disputed provision was related to a rule for realization of trusted property in insolvency cases. Namely, according to the disputed norm, in cases where property or its part could not have been realized as a result of three auctions, creditors would have been offered to hold the said property under common ownership, and in case such an offer was rejected, the property would have been transmitted to the state ownership.

The claimant pointed out that the disputed rule unjustifiably limited the right to property, since there was no objective necessity to transmit property into government ownership. At the same time, limitation of the right was aggravated by vagueness regarding whether or not the creditor’s claim would have been deemed satisfied in cases where property was being transmitted to the state in accordance with the disputed provision.

According to the respondent, the disputed provision was serving a legitimate aim of preventing cases of corruption and fraud, as well as that of eliminating non-marketable subjects from the market and compensation of the service provided by the State. In addition, the representative of the respondent noted that the State was obtaining ownership over such a property the market price of which was insignificant, which indicated the lack of interest. At the same time, a debtor had the possibility to purchase the said property for a symbolic price, which indicated its less restrictive nature.

With respect to preventing cases of corruption and fraud through transmitting unsold property to the state ownership, the Court noted that the respondent has not referred to a tangible and specific link between the measures prescribed by the disputed provision and stated public good. From this point of view, the Court could not see a threat that might have been caused by leaving the property in the debtor’s ownership.

With respect to using the disputed measures for the purposes of eliminating non-marketable subjects from the market, the Court noted, in the light of the analysis of legal norms, that transmission of debtor’s property into state ownership is not linked to insolvency of the debtor and annulment of registration neither procedurally, nor formally. Transmission of the debtor’s property into state ownership did not result in annulment of registration and did in no way impact the termination of this process. Thus, the Constitutional Court deemed that there was no logical link between the restrictions imposed by the disputed provision and the said legitimate aim.

With respect to compensating for services provided by the government, the Court noted that the National Bureau of Enforcement does indeed provide services during insolvency proceedings such as acting as a trustee in insolvency case proceedings and, on separate occasions, acting as a bankruptcy manager, as well as holding an auction with the intent to sell the debtor’s property. Moreover, the analysis of legislation showed that for these services, the National Bureau of Enforcement was compensated from the debtor’s property and at the same time, its claim is the first to be satisfied as the Bureau is the creditor ranking before other creditors.

Besides, the Constitutional Court emphasized the fact that as a creditor, the National Bureau of Enforcement, could have expressed its interest to have the property transmitted into the ownership as soon as the property was not realized after three auctions. At the same time, according to the disputed provision, costs of the service and value of the property as well as the issue of proportions thereof were not being taken into account, and the property was being transmitted into state ownership entirely. The Court emphasized the fact that it might have been potentially impossible to realize only part of the trusted property at the auction, and that the National Bureau of Enforcement could have entirely have its claim satisfied. Nevertheless, the part of the property that had been realized was being transmitted into state ownership. According to the Court, transmitting a non-realized part of the property into state ownership did not have an impact on the claim of the National Bureau of Enforcement which once again indicated that the measure prescribed by the disputed provision by its nature and purpose was not linked to the issue of compensating services provided by the National Bureau of Enforcement.

Considering all the above-mentioned, the Constitutional Court deemed that there was no logical link between the limitation of the right and stated legitimate interests and declared the disputed regulation unconstitutional.