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ECHR confirms DGKV position for violation of the rights of KTB’s shareholders to a fair trial and the protection of property in the procedures for withdrawal of KTB`s license for banking activity and follow-up insolvency proceedings

By September 29, 2022 No Comments
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On 30 August 2022 the European Court on Human Rights (ECHR) delivered a judgment (Judgment) under Case of Corporativna Targovska Banka AD v. Bulgaria.

The Judgment essentially recognizes and acknowledges the position held by Bulgarian Acquisition Company II Sarl, (BULAC II), a minority shareholder holding 30.35% of KTB`s equity owned by the Oman State General Reserve Fund before Bulgarian courts back in 2015. DGKV advised and represented BULAC II in both the proceedings organized on appeal by BULAC II against the BNB license revoking decision before Supreme Administrative Court (SAC) and the proceedings for initiation of bankruptcy proceedings of KTB developed before civil court instances up to the Supreme Cassation Court (SCC).

BULAC II, represented by DGKV, claimed it had valid legal standing to appeal the license revoking decision given that no such right was effectively ensured to KTB itself. The reason is that following the license withdrawal the bank was represented by special administrators appointed and accountable to the issuer of the act to be challenged, i.e. BNB, and given such subordination to BNB, the administrators did not move to challenge the license revocation, as it could be well expected. Further, BULAC II made a request for submission of a motion for preliminary reference to the European Court of Justice for interpretation of applicable Bulgarian legislation for compliance with EU law, so to answer the question whether BULAC II was entitled to bring proceedings for the judicial review of the BNBs act irrespective of restrictive nation legislation or its construction given by courts. Particularly, BULAC II sought response on whether in a hypothesis where the value of a bank`s own funds becomes negative and its license is revoked on these grounds, the license withdrawal falls among the measures subject to appeal under Article 72 of Directive 2013/36 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms and if to the affirmative, should the shareholders of the affected bank have legal standing to bring an appeal. Similarly, the right to a fair trial proclaimed under Article 47 of the Charter of the Fundamental Rights of the European Union was also referenced. On top, BULAC II asked whether the dismissal of legal standing of KTB`s shareholders to challenge the legality of bank`s withdrawal of license was compliant with the principle of effectiveness of EU law (as enshrined in the second sub-paragraph of Article 4.3 as well as the second sub-paragraph of Article 19.1 Treaty on the European Union) given that denying standing to everyone except the bank itself as represented by the special administrators, in practice turned the BNB`s decision into a non-reviewable act.

SAC rejected the above arguments and finally refused to admit the appeal by BULAC II to review on the merits holding that the shareholders (as well as depositors and clients) of the affected bank did not have proper legal standing to challenge the BNB withdrawal decision. The conclusion of the majority of the judge panel`s members was not supported by judge Ms. Sonya Yankulova (currently a judge in Bulgarian Constitutional Court) who expressed a dissenting opinion under the case, essentially in favor of BULAC II`s position.

Further, the above preliminary reference questions were supplemented before civil courts to rule on KTB`s insolvency so to answer whether the refusal of the administrative courts to admit the appeal of shareholders on the merit meant that, in compliance with EU legal rules and principles, the bankruptcy court was then entitled to exercise an incidental judicial review of the revocation of license serving as grounds for automatic proclamation of the bank`s insolvency. Civil courts, SCC inclusive, also rejected the legal standing of BULAC II in the insolvency related proceedings and dismissed the request for a motion of preliminary reference.

What is now confirmed by ECHR with the Judgment is that Bulgarian government violated the bank`s right to a fair trial (Art. 6 § 1 of the Convention) and the protection of property (Art. 1 of Protocol 1 to the Convention) in the procedures for withdrawal of KTB`s license for banking activity and follow-up insolvency proceedings – a conclusion essentially equivalent to the findings of ECHR in previously held judgments under the Capital Bank AD Case and International  Bank for Commerce and Development AD and Others Case”. Even though Bulgarian law formally introduced the right of appeal of BNB`s bank license withdrawal decision following the above mentioned cases, ECHR finds that such right was not made effectively available to KTB given that Bulgarian courts refused standing to all interested parties except for the KTB itself. The latter was at that time represented by special administrators who were “dependent on and accountable to the BNB, and had little if any incentive to challenge its decision”. Similarly, ECHR ruled that the interference in the possessions of KTB resulting from the BNB`s decision to withdraw its license, which then led to the judicial decision declaring it insolvent and ordering it to be wound up, was unlawful since it was not surrounded by any safeguards against arbitrariness.

Thus the relevant legislation and the way in which it was applied by the Bulgarian courts did not offer KTB itself, “by proper representation, a clear and practical possibility of seeking and obtaining proper judicial review of the withdrawal of its license.”

The case was led by DGKV’s partners Angel Ganev, Georgi Tzvetkov and included counsels Gergana Monovska, Valentin Bojilov and Senior Associate Vlada Tsenova.

You can read the ECHR‘s decision here:

https://hudoc.echr.coe.int/eng#{%22languageisocode%22:[%22ENG%22],%22documentcollectionid2%22:[%22JUDGMENTS%22],%22itemid%22:[%22001-218922%22]}

You can read the request for a preliminary reference in the following link belo