Ellex has successfully represented Avibaltika before the Court of Justice of the European Union, after Ukio Bankas demanded that Aviabaltika should pay, again, an amount already paid to it as financial collateral under the Law on Financial Collateral Arrangements.
According to Ellex, “Ukio Bankas ... argued that it may not realize (set off) the financial collateral already provided to it, as such financial collateral is part of the total insolvency assets of Ukio Bankas intended for satisfying the claims of all the creditors.”
According to Ellex, the request to the CJEU for clarification on the impact of the bank’s insolvency on the provided financial collateral was made by the Supreme Court of Lithuania in a claim brought by one of these insolvent banks – Ukio Bankas – against the aviation company Aviabaltika UAB. The CJEU, however, ruled that insolvent banks cannot abuse their insolvency status and require their clients to make a second payment of amounts already paid by the clients as financial collateral which is still at the bank’s disposal
Thus, according to Ellex, "the Republic of Lithuania, and accordingly its courts, must ensure that financial collateral could be realized regardless of whether the bank is insolvent or not. This can be done by excluding financial collateral from the insolvent bank’s assets or by other means. What is crucial in this context is that the financial collateral which is at the bank’s disposition should be available to be effectively realized even after insolvency proceedings have been commenced."
"The ruling brings a relief to all clients with financial collaterals in Lithuanian insolvent banks," Ellex explained. "These banks are not allowed to retain the financial collaterals they already have in their disposition, and to require their clients to make a second payment of the same amount. Notably, this decision may have crucial importance not only for those clients that an insolvent bank has requested to pay the same amount for the second time, but also generally for all clients of the insolvent banks who have provided financial collateral. The CJEU has clarified that a financial collateral arrangement can take effect in accordance with its terms notwithstanding the commencement of insolvency proceedings in respect of the bank. Thus, clients who have provided financial collateral have the right to require insolvent banks to comply with all contractual obligations, including the release of financial collateral.”