This article aims to examine the opportunity of a lessor to claim return of a leased-out machine, in case that insolvency proceedings have been initiated against the lessee and the lease agreement has been terminated due to a non-performance of leasing instalments.
Does the leased-out machine fall into the insolvency estate?
The CA envisages that into the insolvency estate fall only that property rights, owned by the debtor on the following two dates: “the date of the judgment on institution of insolvency proceedings” and “after the date of the decision on institution of insolvency proceedings.”
The main purpose of this rule is to separate the property of the debtor, from which his creditors can be satisfied during the universal enforcement procedure.
For the purpose of restitution of assets to the insolvency estate and the preservation of this estate, the CA envisages a number of measures to be taken by the insolvency administrator.
The answer to the question referred depends on whether the debtor has acquired the ownership of the leased-out machine or the latter is still property of the lessor.
In its practice, the Supreme Court of Cassation unanimously holds that the lease agreement is one for the use of a property and not a transfer transaction. Accordingly, the acquisition of the leased-out machine at its residual value (the pre-emption right) is only a possibility of the lessee, but not a basis of the agreement. The primary purpose of the lease agreement is the usage of the property by the lessee against its obligation to pay installments, representing the cost of that use.
Therefore, if the lessee has exercised his pre-emption right, the machine becomes his/her/its property, falls into the insolvency estate and cannot be return to the lessor.
On the contrary, if the debtor hasn`t acquired the machine, the latter should not be included in the insolvency estate, hence the lessor has the right to claim its return either due to the termination/cancellation of the lease agreement, or through the rei vindication – for repossession of the property used by the debtor, who is not entitled to this usage.
About the possibility of the lessor to bring a lawsuit against the insolvency lessee for the return of the leased-out machine due to the termination/cancellation of the lease agreement if the lessee hasn`t exercised his pre-emption right yet
According to Art. 637, par. 6 of the CA:
“After insolvency proceedings have been instituted, it shall be inadmissible to institute new court or arbitration proceedings on civil or commercial cases for ownership against the debtor, except for:
- protection of the rights of third parties owning any property included in the insolvency estate;
- labor disputes;
- monetary claims secured by property of third parties.”
This provision envisages that, a third party is entitled to bring new lawsuit against that debtor in order to protect his/her/its rights by legitimizing himself as the owner of the property, included in the insolvency estate, despite the commenced insolvency proceedings against the debtor, who possesses that property.
There are contradictory interpretations by the courts regarding the above-mentioned exception.
According to the first opinion, Art. 637, para. 6, p. 1 of the CA, contains a strict and exhaustive list of exceptions, due to which it is inadmissible to interpret that provision in an expansive manner.
Accordingly, it is accepted that the foreseen exception concerns only cases of protection of the property rights of a third party, thus it applies only to property claims (Art. 108-Art. 109a of the Ownership Act (OA) or Art. 124 of the Civil Procedure Code).
Pursuant to the other view, this provision should be interpreted in an expansive manner, wherefore the judges hold the following:
“It is admissible, on the grounds of Art. 637, par. 6, p.1 of the CA, the lessor to bring a new lawsuit against the insolvency debtor, in which the plaintiff can claim the return of that property not through property claims under Art. 108 or Art. 109a of the OA, but by action seeking to establish the existence of the lessor`s right to claim that return due to the fact that he/she/it is the owner of the leased-out property and the lease agreement has been terminated/cancelled. “
The Supreme Court of Cassation states that the debtor`s non-monetary obligation to return the leased-out property, due to the termination/cancellation of the lease agreement, does not fall within the scope of Art. 617, par. 2 of the CA, according to which:
“The non-monetary obligation shall be converted into a monetary obligation at the market value thereof at the date of the judgment on institution of insolvency proceedings.”
Consequently, the creditor – lessor, doesn`t participate in the distribution of the redeemed property.
In my view the second opinion should be upheld, since the purpose of the law is to protect the third party, who owns the property, that has fallen into the insolvency estate, and to prevent the addition of assets not owned by the debtor, in that estate.
As already stated, the purpose of the insolvency proceedings is to satisfy the creditors after redemption of the company`s assets. Therefore, the property, that is owned by the debtor and which falls into the insolvency estate, should be separated. It is inadmissible for a property that is not owned by the debtor to fall into the insolvency estate and become subject to enforcement. To avoid this result, the CA provides the above-mentioned exception, according to which a third party, owning any property included in the insolvency estate, is entitled to bring a new lawsuit against the insolvency company, in order to protect him/her/its rights.
Art. 637, par. 6, p. 1 of the CA does not determine the type of defense. The only condition is that the creditor owns the property (“protection of the rights of third parties owning any property included in the insolvency estate”). In the event of condictio[1] [1], the lessor – plaintiff, claims that he is the owner of the property, that the latter has been leased-out to the lessee and that due to the non-performance of the lessee`s obligation to pay the installments, the agreement has been terminated. Therefore, although the lessor claims to be the owner of the property, this does not substantiate the legal basis of the claim under Art. 108 of the OA.
The Supreme Court of Cassation also states that:
“In case of claim for the return of the property (condictio) – if the lease agreement was terminated due to the non-performance of the lessee, and arose dispute between the parties over the ownership of this property, the court can establish the ownership in order to exclude the property from the insolvency estate.”