Slovenian Parliament finally adopts the Act on judicial protection procedure former holders of eligible liabilities of banks
Slovenian banks underwent an extensive recapitalization in 2013 and 2014, which continues to leave the public dissatisfied and has yet to be resolved by the courts. The key focus for the public was the controversial valuation of bank assets and alleged misuse of stress test assumptions. The state invested around EUR 5 billion in then state-owned banks (NLB, NKBM, Abanka and Banka Celje), resulting in a loss for holders of shares and subordinated bonds of around EUR 900 million. Private Factor banka and Probanka were also liquidated. In October 2016, the Slovenian Constitutional Court ordered the Parliament to adopt legislation to undo within six months those actions, which it had established to be unconstitutional. However, such law was adopted only on 22 October 2019.
That said, while the government has passed the bill through the Parliament, the law received numerous criticisms during its passage and its eventual fate remains uncertain. The Bank of Slovenia considers the law to be unconstitutional due to its allegedly providing for unlawful monetary financing and has already prepared a constitutional complaint against it. Also, small shareholders are critical of the bill and urge the National Council to veto its entry into force.
The law otherwise provides robust solutions, such as the establishment of a virtual data room (VDR) in which former holders of eligible liabilities and their representatives will be given remote access to all the documents on which the Bank of Slovenia’s debt-cancellation decisions were based. In our opinion, however, the draft law does not provide cost-effective judicial protection. The procedures to be brought before the Maribor District Court are likely to be time-consuming and expensive, as they will be subject to the rules applicable to regular commercial litigation.
In determining whether the former holders of the qualifying liabilities of the banks are eligible for compensation, an independent court will have to decide whether the former holders were put in a worse position by the Bank of Slovenia’s decisions than if bankruptcy proceedings had been initiated against each bank. It will also have to determine whether the individual banks were, indeed, in such a capital position that they would have entered bankruptcy. The opinion of a panel of experts who will be appointed by the court will be crucial for this case.
Under the new law, at least 30 individual former holders may, for the purpose of paying a lower court fee, submit a joint claim. The court will then issue one judgment for all the actions brought together as a joint claim relating to a bank to which an extraordinary measure has been imposed.
Once the law enters into force, individual former holders, whether former shareholders or subordinated bond holders, will have to file claims for damages within a specified timeframe in order to secure their claim against the Bank of Slovenia in a timely manner. The former holders of liabilities will require the professional assistance of attorneys to navigate these complex disputes.