By the enacted on 26.06.2015 Interpretative Decision № 2 on interpretative case № 2/2013, the General Assembly of the Civil and Commercial Division of the Supreme Court of Cassation (SCC) answered the controversial question concerning the scope of Art. 136, para.1 pt. 1 of the Obligations and Contracts Act (OCA), ruling which expenses incurred by the creditor “in securing and enforcement” are satisfied with first priority before all other enforceable claims. That question is part of the concept of the legislator on the creation of privileges to some creditors over others in satisfaction of their claims by the property of their common debtor and it is particularly relevant in the context of intra-company indebtedness and complicated bank and financial situation.
By the interpretative decision the SCC ruled that “not all the expenses of the initial creditor on an enforcement case are entitled to the preferential satisfaction of Аrt. 136, para. 1, p. 1 of Obligations and Contracts Act (OCA). The expenses of the initial creditor on the implementation of the enforcement methods that lead to incomes subject to distribution enjoy such right and are included in the first row of special privileges. The expenses of the initial creditor for the initiation of the enforcement proceedings and the remuneration of one attorney can be included in this line.” The basis of this authorization is the understanding that the special privilege should be awarded only in relation to those expenses of the initial creditor which appear as entirely necessary for the implementation of the specific enforcement method, incomes from which are subject to distribution. They enjoy the other creditors – this includes the fees paid by the creditor for the distrain on the property or the claim, for the imposition of a restrain on the real estate, for the conduct of an inventory and assessment of the property, for the remuneration of the safe keeper of the property, rent of the warehouse, etc.
Claims for expenses for other implemented enforcement methods requested by the creditor, beyond those which led to the collection of the amount subject to distribution, do not benefit of a right to preferential satisfaction.
The lack of explicit recognition of the first rank privilege of the claim on the expenses of the original creditor for the initiation of the enforcement proceedings, including those for attorney remuneration for the initiation and the representation on the case, is a surprising element. In their motives, the SCC stated that ‘if on the enforcement case the performance of other enforcement methods (except the method that led to the collection of the amount subject to distribution) has not been requested or if the incomings from the most expensive or the biggest claim of the debtor are distributed, the fees for the initiation of the enforcement proceedings, as well as the remuneration of an attorney, are included. If the performance of other enforcement methods has been requested on other possessions of significant value, the respective part of the fees for the initiation of the enforcement proceedings and the remuneration for one attorney are included in this line.”
The Interpretative decision excludes completely from the scope of Аrt. 136, para 1, p. 1 of COA the expenses of the initial creditor made during the proceedings which led to the issuance of a writ of execution – judicial and arbitral proceedings, court orders proceedings and others. In this matter, the SCC stands completely on the opposite opinion of the Supreme Bar Council on the question subject to interpretation and defends the position that the expenses of the initial creditor in the proceedings leading to the issuance of a writ of execution appear necessary and without them the initiation of enforcement proceedings could not been done – in this sense they enjoy all other creditors.
It is also an interesting point that according to the Interpretative decision no expenses of affiliated creditors except the expenses of the claims under Аrt. 134 and Аrt. 135 of OCA, when they are realized by them, are entitled to preferential satisfaction. The given interpretation puts at a disadvantage those affiliated creditors that have shown greater activity in the proceedings than the initial creditor, as they have realized expenses for the implementation of the method from which have been distributed incomings. That authorization does not seem fair based on art. 457, para. 1 of the Civil Procedure Code, which gives equal rights to the affiliated creditors to those of the initial creditor (the same right to preferential satisfaction for the expenses bore in the enforcement proceedings should fall here). The question that also remains open is this of cases where not only the initial but also the affiliated creditor have realized expenses for the implementation of the method that generated incomes subject to distribution. For example, a situation in which several creditors have imposed a foreclosure on the sold on public auction real estate or when the initial creditor has imposed a foreclosure but the affiliated one has paid the inventory and the remuneration for the safekeeping of the property, etc.
Comparing the statement given by the SCC with the prevailing until its enactement judicial practice and the practice of the bailiffs on the application of Art. 136, para. 1 pt. 1 of the OCA, it can be expected that the Interpretative decision will have “disciplinary effect” on creditors and will limit to some extent their activity in seeking and initiating various methods of enforcement of their claims. It is interesting to note that in order to resolve the issue related to the balancing between the interests of the creditors and the debtor, the judges of the General Assembly of the Civil and Commercial division of the SCC were completely unanimous in their position, as to the question given to interpretation there is not one divergent opinion of a judge of the panel.
Here is the complete answer of the SCC on the given question:
„Not all expenses of the initial creditor realized during enforcement proceedings enjoy a preferential right of satisfaction under art. 136, para 1, p. 1 of OCA. The expenses of the initial creditor on the implementation of the enforcement method which generates incomes subject to distribution enjoys such a right and is in the first row of the special privileges. The expenses of the initial creditor for the initiation of the enforcement proceedings and for the remuneration of an attorney can also be included in this line.
The expenses of the initial creditor for the security of the claim against the debtor by the distrainment or the imposition of a foreclosure on the collected claim or encashed property, which generated incomes subject to distribution, enjoy a privilege. When affiliated creditors with the special privilege of Art. 136, para 1, p. 2, 3 and 4 of OCA participate in the distribution, the expenses are included after them – in the order of the first row common privilege; and when creditors with the privilege of art.16, para 3 of Registestered Pledges Act participate in the distribution – before their order.
The expenses for other incurred at the request of the initial creditor enforcement methods or expenses incurred by him for methods which have not been implemented, do not enjoy the prior satisfaction of art. 136, para 1, p. 1 of OCA.
The expenses of the initial creditor including the remuneration of an attorney in the proceedings on the issuance of a writ do not enjoy the right to prior satisfaction under Аrt. 136, para 1, p. 1 of OCA.
No expenses of affiliated creditors, except the expenses of claims under Аrt. 134 and Аrt. 135 of OCA when they are realized by them, enjoy the right to prior satisfaction under Аrt. 136, para. 1, p. 1 of OCA.
These expenses enjoy prior satisfaction under Аrt. 136, para. 1, p. 1 of OCA when they are also realized by the initial creditor; but when bonded and mortgaged creditors participate in the distribution, to whom the contested by a claim transactions are not opposable because of the order of the pledge or the mortgage, and other affiliated creditors with special privilege under Аrt. 136, para. 1, p.3 and 4 of OCA, they are included after them – in the order before the first row common privilege; when the creditors with privilege under Аrt. 16, para 3 of the Registered Pledges Act participate in the distribution- before their turn.”
author: Desislava Haltakova, attorney-at-law
Member of “Velinov and partner” Consulting House
