Bulgaria high court challenges constitutionality of bank insolvency law amendments
Bulgaria’s Constitutional Court will rule on whether amendments to Bulgaria’s bank insolvency law, passed by Parliament earlier this year, breach constitutional provisions.
The controversial amendments, tabled by the opposition Movement for Rights and Freedoms (MRF) but backed by the government coalition, have been criticised by legal experts for introducing a retroactive effect.
The bill, authored by MRF MPs Yordan Tsonev, Delyan Peevski and Hamid Hamid, aims to suspend the cession contracts involving an insolvent bank’s receivers – deals in which depositors in the insolvent bank would sell their claims to the bank’s debtors, who would then cancel all or part of their debts using the newly-acquired deposit claim.
Because of the retroactive effect of the bill, the amendments would apply to the case of Corporate Commercial Bank, the only Bulgarian lender to be declared insolvent in recent years. Reports in Bulgarian media have claimed that CCB cession claims have resulted in the bank’s assets shrinking by as much as 850 million leva.
The amendments were vetoed by President Roumen Radev, only for Parliament to overturn the veto. Radev did not push the issue by referring the case to the Constitutional Court and neither did the opposition socialist party, which criticised the amendments and voted against them.
Instead the constitutional challenge came from the commercial law college of the Supreme Court of Cassation, one of Bulgaria’s two high courts. The judges’ petition to the Constitutional Court was approved at a meeting in April, with 14 votes in favour and six opposed.
Although the retroactive effect of the amendments would allow bank receivers to annul CCB cession claims, this was a breach of the rule of law principle enshrined in the constitution, the judges’ petition said.
CCB, Bulgaria’s fourth-largest lender by assets at the time, asked to be put under special supervision of the Bulgarian National Bank (BNB) on June 20 2014, following a bank run.
An audit several month later found that the bank held mainly impaired assets, requiring a write-down of 4.22 billion leva (about 2.16 billion euro), which led to CCB losing its banking licence in November 2014 and triggered the payout of 3.7 billion leva in depositor claims, which required a government loan of more than two billion leva for the state deposit guarantee fund to meet all claims.
The bank’s former majority shareholder and chief executive, Tsvetan Vassilev, who is fighting extradition from Serbia and has been charged with large-scale embezzlement that led to CCB’s collapse, has claimed repeatedly that the investigation against him was politically motivated and blamed the events that led to CCB’s insolvency on his former business associate Peevski.
(For full coverage of the CCB situation from The Sofia Globe, click here. Photo: Clive Leviev-Sawyer)
