In December 2013 and (for one bank) in 2014, the Bank of Slovenia – the Slovenian central bank –imposed various extraordinary measures on six Slovenian banks. These measures resulted in a comprehensive bail-in and the termination of not only all the shares in each bank but also all subordinated financial instruments issued by them.
The measures were purportedly imposed to maintain financial stability and to comply with the European Commission’s proposed state aid requirements. As a result, more than 100,000 aggrieved investors shared the burden of the banks’ bail-in, losing their investments without receiving any compensation in return.
Unsurprisingly, these disaffected investors initiated numerous lawsuits in the Slovenian Courts. The investors won an important battle in the Constitutional Court, which found that the investors’ constitutional rights to a fair trial and to property had been violated as they had lacked any legal remedy either to dispute the Bank of Slovenia’s decisions or to be fairly compensated for their lost investments.
While the Constitutional Court affirmed that the legal basis for terminating the six banks’ qualified liabilities had been constitutionally sound, it held that existing banking legislation had failed to offer effective judicial protection to affected investors. The Constitutional Court ordered the National Assembly – Slovenia’s legislature – to introduce new legislation to provide adequate judicial relief for expropriated investors, including improved access to information.
The Constitutional Court set a deadline of May 2017 for the legislature to comply. However, the National Assembly passed its revised law only in November 2019 – and, even then, only after the European Court of Human Rights had initiated its own legal action against Slovenia in late 2018.
The new act passed by the National Assembly introduces special procedural rules that offer protection to former investors. Although all former investor in a given bank will have to file individual actions, all actions brought by investors in a particular bank will be combined into one joint action before being served on the defendant – in each case the Bank of Slovenia. This means that there will be only six actions seen by the Court and that in each a joint decision for all the plaintiffs will be issued. The Bank of Slovenia will be obliged to prepare all relevant documentation relating to the bail-in, and to make it accessible to all affected investors via virtual data rooms. Moreover, the new act shifts the burden of proof onto the Bank of Slovenia to demonstrate that it has met the statutory conditions for the bail-in.
The new act has come under criticism from several parties and has still not yet been fully ratified. The Bank of Slovenia, supported by the European Central Bank, has raised loud objections to the law, most notably on the basis that it will make the Bank of Slovenia directly liable for any damages awarded. The Bank of Slovenia also stresses that the new act will not only severely interfere with its financial independence, but will also breach the prohibition on monetary financing. As such, the Bank of Slovenia has filed requests for a review of the new act’s constitutionality and for the temporary suspension of its implementation.
Meanwhile, the aggrieved investors also have issues with the new law. In particular, small investors believe that they will be forced into long and expensive court proceedings, in effect once more denying them practical judicial relief. The judiciary, too, has raised doubts as to whether the act has been sufficiently thought through, on the basis that the legislature did not consider the logistical impact of such massive litigation. There are even pitfalls at an administrative level: the current judicial information system limits the number of plaintiffs for any given case to 9,999, and would thus be unable to handle a case with the more-than-10,000 plaintiffs that are expected in each action.
To summarize, it is still unclear whether the new law will offer assistance along with the prospect of compensation to affected investors, or whether the new law and the various constitutional and civil lawsuits which may arise from it will simply make an already complex legal situation even worse.
By Helena Butolen, Partner, and Tamara Drobnic, Senior Associate, Selih & Partners