Proposal of the new Act on judicial protection of expropriators of Slovenian banks has been published

19 October 2023

On 10.10.2023, the Slovene Ministry of Finance sent a new draft of the Act on judicial protection of expropriators of Slovenian banks (i.e. ZPSVIKOB 2023) for interdepartmental coordination. The draft law is available in its entirety on this website (only available in Slovene). The draft law regulates the legal basis for compensation for damages, the exclusive jurisdiction of the court in Maribor and special rules of procedure with which former shareholders or creditors of the bank, whose shares in the bank or liabilities of the bank have been partially or fully terminated based on a decision of the Bank of Slovenia. Let us remind you - at the end of 2013 and in 2014, the Bank of Slovenia issued decisions according to which 963.2 million euros of liabilities (shares and bonds or i.e. subordinated financial instruments) got erased from nationalized banks like NLB, Nova KBM, Abanka, Banka Celje, Probanka and Factor.

With the proposed law, after almost 10 years since the erasure, an attempt is again made by law to determine the procedure for judicial protection of expropriators, taking into account the last decision of the Constitutional Court of the Republic of Slovenia no. U-I-4/20, and at the same time, compared to the previous bill, some new legal institutions are defined (collective action, model procedure), which should make the judicial protection procedure more efficient. For this purpose, Banka Slovenije must establish a virtual data room in which documents and data related to deletion will be available to beneficiaries.

The general rule is that the law governing litigation, namely the rules applicable to commercial disputes, applies to the procedure. In order for the expropriators to be able to realistically assess the possibility of success in litigation, the proponents can propose to the court the appointment of a committee of experts, in which the interests of all participants will be equally represented. According to the opinion of experts, the draft law also foresees the possibility of establishing a settlement scheme. The draft law allows for the possibility of filing both individual and collective lawsuits. In addition to the collective action to speed up the process, the law also allows for the possibility of consolidating disputes and a model procedure.

The existence and amount of compensation will still depend on whether and if former holders were worse off than they would have been in the event of the bank's bankruptcy and by how much. The answer to the above depends on the financial position of the bank at the time of the issuance of the decision of the Bank of Slovenia and not on the nominal value of qualified liabilities that have ceased. Here, of course, it is necessary to emphasize that the banks did not go bankrupt at all, that is, only Factor bank and Probanka were liquidated. If the court finds that the former owners are entitled to compensation, this will be paid by the Republic of Slovenia, according to the latest decision of the Constitutional Court. The proposed law otherwise limits the amount of compensation to the value at which the former holder acquired the bank's individually qualified liability, or at most to the book value of the shares according to the last audited annual report before the issuance of the decision on extraordinary measures. The compensation bears interest at the interest rate used by the European Central Bank for main refinancing operations during the interest period. In its decision U-I-295/13 from 2016, the Constitutional Court emphasized that the former owners have the right to full compensation. The limitation of the amount of compensation and the determination of the interest rate, as regulated by the draft law, do not comply with this requirement. Data from the European Central Bank show that the subject interest rate for the critical period is practically equal to 0%. We can therefore expect new proceedings before the Constitutional Court.

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