Do the courts apply double standards in protecting the interests of the state and private business?

In court practice, it is not uncommon for a court to decide, before the judgment in a civil case has become final or even without notifying the defendant, to impose interim measures - to seize the defendant's assets (movable, immovable, monetary funds or property rights).

Such attachment applies where there is a risk that the defendant may conceal or embezzle his assets. The purpose of the attachment is to preserve the assets from which the claimant could recover the debt if the court were to award the debt.

It seems a necessary and justifiable measure to prevent unscrupulous debtors from actually paying their creditors. However, it can be particularly damaging for businesses. The seizure of cash essentially means that the company cannot pay its employees,Sodra, the State Tax Inspectorate, business partners with whom there are no legal disputes (e.g. suppliers of raw materials or of utilities or other services vital to the operation of the business, etc.), which leads to stagnation of the company's activity and solvency problems, and ultimately to bankruptcy of the business. Such frightening consequences may even become a means of pressure exerted by the claimant on the defendant's business, since, due to the negative effects of the attachments in question, the defendants pay their debts without any attempt to contest them, even though they may be doubtful.

The courts of general jurisdiction must therefore strike a balance between the creditor's interest in the debtor's maintenance of assets from which the debt can be recovered and the debtor's interest in avoiding the imposition of excessive attachment measures and the destruction of a business which is only enriching the assets from which the creditor can recover the debt, essentially applies the following formula: it is necessary to establish that the defendant has acted in bad faith, either by deliberately seeking to worsen its financial situation (for example, by selling its assets below market prices) or by taking other steps which would specifically make it more difficult to enforce a judgment which might be favourable to the applicant. (Order of the Court of Appeal of Lithuania of 25 July 2019 in civil case No e2-611-464/2019; Order of the Court of Appeal of Lithuania of 18 July 2019 in civil case No e2-614-450/2019).

However, there are cases in which public authorities are claiming the debt from the same entrepreneur. For example, when the National Paying Agency (NPA) decides that an entrepreneur has not properly implemented a project, it decides to recover the aid paid. However, the fact that the State considers that the project has not been implemented or has not been implemented properly and that the aid should be recovered does not mean that this is the case, because in a legal dispute the court may conclude that the project has been implemented properly and that the State is not justified in claiming the recovery of the aid paid. Although such cases are reserved to the administrative courts, the Supreme Administrative Court has takenthe position that the nature of the claims is pecuniary in nature, since the issue is precisely the recovery of a debt.

Thus, in essence, the cases concerning debts owed to a private person (e.g. a company) and to the NMA are the same debt recovery cases. The only difference is that debt recovery proceedings in favour of the NMA are dealt with by administrative courts rather than courts of general jurisdiction. The question arises whether the fact that the proceedings for the recovery of a debt owed to the State are brought before an administrative court rather than a court of general jurisdiction should allow the issue of seizure to be dealt with in a different way from that of the courts of general jurisdiction. Elementary logic suggests that such cases should be decided by applying the same principles as in the case-law of the courts of general jurisdiction.

However, if we look at the case law of the administrative courts, we note that the interests of the State as a creditor are generally better protected in the case of attachment of the defendant's assets. In cases of debt in favour of a public authority, the administrative courts do not determine whether the debtor is dishonest and deliberately seeks to conceal or embezzle assets, but it is sufficient to establish that, for example, the amount of the debt sought is substantial, so that the failure to seize the debtor's assets (e.g. the assets of a company), including its accounts, will not lead to the recovery of the debt.

Thus, unlike courts of general jurisdiction, administrative courts do not, in principle, examine whether the defendant is potentially dishonest or whether he is hiding assets when they seize assets in proceedings for the repayment of a debt in favour of a public authority. Administrative courts, when they find that a debt, the validity of which is still being disputed, is substantial, simply seize the defendant's assets, thus effectively paralysing the defendant's (company's) activities.

The courts do have a difficult task in striking a balance between protecting the interests of business and the state in such cases, but it is to be hoped that eventually the case law of both administrative and general courts will become uniform and predictable in interpreting the standards of attachment and in respecting the principle of equal treatment.

Dainius Antanaitis, Attorney at Law of the Law Firm AVOCAD