Decision No. 6 of 14 June 2016 on Constitutional Case No. 1/2016
Referring Authority and Subject Matter of the Case
The case was initiated upon a request submitted by a three-member panel of the Supreme Court of Cassation, Commercial Division, First Panel, seeking a declaration that Article 11, paragraph 3 and Article 16, paragraph 1, third sentence of the Bank Insolvency Act (BIA) are unconstitutional and inconsistent with the Convention for the Protection of Human Rights and Fundamental Freedoms (the Convention). By a ruling of 4 February 2016, the Constitutional Court admitted for examination on the merits the request for establishing the unconstitutionality of Article 11, paragraph 3 and Article 16, paragraph 1, third sentence of the BIA, and dismissed the request for establishing the inconsistency of those provisions with Article 6 of the Convention.
Summary of the Court’s Reasoning
1. On Article 11, paragraph 3 of the Bank Insolvency Act (BIA)
From the moment a bank is threatened with insolvency, its management is assumed by persons other than its governing bodies. The contested provision of Article 11, paragraph 3 of the BIA merely confirms this rule, once again emphasizing that a bank for which insolvency is sought is represented, including before the insolvency court, by persons other than its management bodies. This legislative solution serves the interests of depositors and does not contravene any constitutional provision. Given that banks manage depositors’ funds, it is justified that, where there is a risk to those funds due to potential insolvency, management should be immediately assumed by other persons who also represent the endangered bank. The concern that representatives of the bank in the insolvency proceedings, who are dependent on the Bulgarian National Bank or the Fund, may not fully protect the bank’s rights in the proceedings prior to the ruling under Article 13 of the BIA, does not constitute sufficient grounds for declaring Article 11, paragraph 3 of the BIA unconstitutional. In all cases where there is doubt as to a conflict of interest between the bank represented in the specific proceedings and the persons representing it, the court may appoint a special representative pursuant to Article 29, paragraph 4 of the Civil Procedure Code (CPC).
2. On Article 16, paragraph 1, third sentence of the Bank Insolvency Act (BIA)
By virtue of the Transitional and Final Provisions (§ 15, item 5, letter “b”) of the Credit Institutions Act (promulgated in the State Gazette, No. 59 of 21 July 2006), a new paragraph 4 was introduced in Article 11 of the BIA, according to which shareholders holding more than 5 per cent of the capital of the bank whose insolvency is sought may join the proceedings.
The request contends that the exhaustive enumeration of the parties entitled to appeal the decision under Article 13 of the BIA deprives the intervening shareholders of the right to appeal, and accordingly of protection at all stages of the proceedings, which is alleged to constitute a violation of Article 122 of the Constitution.
Pursuant to Article 122, paragraph 1 of the Constitution, natural and legal persons have the right of defence at all stages of the proceedings. The right of defence is exercised in accordance with a procedure established by law (Article 122, paragraph 2).
The right of defence, in particular the right of access to a court, is linked to the infringement of subjective rights and legitimate interests. Where a restriction of the legal possibilities available to certain participants in judicial proceedings does not result in an interference with their rights and legitimate interests, the question of an unjustified limitation of their constitutional rights does not arise.
The insolvency court examines only the formal regularity of the request of the central bank (Article 9, paragraphs 2 and 3 of the BIA) and the existence of a final act of the Bulgarian National Bank revoking the bank’s licence (Article 11, paragraph 5 of the BIA), and, where these conditions are met, declares the bank insolvent by issuing the decision under Article 13 of the BIA. The only issue on which the court has discretion is the determination of the initial date of the bank’s insolvency.
Given these limited powers of the deciding court, the rights of the participants in the proceedings are correspondingly limited and differ from those of participants in ordinary adversarial proceedings. For that reason, Article 46, paragraph 3 and Article 47, paragraph 1 of the BIA provide for the subsidiary application of the Civil Procedure Code (CPC), insofar as the BIA does not establish other rules. Accordingly, in determining the rights of intervening shareholders holding more than 5 per cent of the bank’s capital, the provisions of the CPC concerning third parties to proceedings are not applicable; instead, the provisions of the special law must be applied, and on that basis it should be assessed whether there is inequality among the participants in insolvency proceedings.
Therefore, the exclusion of shareholders holding more than 5 per cent of the bank’s capital who participate in bank insolvency proceedings from the possibility to appeal the court’s decisions under Article 13, paragraph 1 and Article 14 of the BIA, pursuant to the contested provision of Article 16, paragraph 1, third sentence of the BIA, does not contravene the Constitution, since the judicial acts subject to appellate and cassation review do not affect their rights and legitimate interests.
Grounds for the Ruling and Disposition
Pursuant to Article 149, paragraph 1, item 2 of the Constitution (the competence to rule on requests for a declaration of unconstitutionality of laws), the Constitutional Court rejects the request submitted by a three-member panel of the Supreme Court of Cassation, Commercial Division, for a declaration of unconstitutionality of the provisions of Article 11, paragraph 3 and Article 16, paragraph 1, third sentence of the Bank Insolvency Act.
The decision was adopted with dissenting opinions by three judges.