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28.10.2020

Potential unconstitutionality of certain bank insolvency provisions

On 20.10.2020, the Bulgarian Constitutional Court ruled on Constitutional Case №9 of 2020, instituted at the request of the Supreme Bar Council. The case seeks to establish the unconstitutionality of certain provisions of the Bank Insolvency Act (BIA) and the Amending and Supplementing Act of the Bank Insolvency Act.

The Constitutional Court admitted on its merits the request of the Supreme Bar Council to establish unconstitutionality of:

§ 5, para 1-4, § 6, para. 1-2, § 7, § 8 of the Transitional and Final Provisions of the Amending and Supplementing Act of the BIA (promulgated SG, issue 22 of 2018, supplemented SG, issue 33 of 2019, in force from 19.04.2019), art. 60a, para 1 of the Bank Insolvency Act (promulgated SG, issue 22 of 2015, supplemented SG, issue 33 of 2019, in force from 19.04.2019);

Article 60a, para 1 of the BIA (promulgated SG, issue 22 of 2015, supplemented, SG issue 33 of 2019, in force from 19.04.2019);

Article 60b, para 1-3 of the BIA (promulgated SG, issue 22 of 2018, in force from 16.03.2018);

§ 16 of the Amending and Supplementing Act of the BIA (promulgated SG, issue 61 of 2015, in force from 11.08.2015).

The request of the Supreme Bar Council claims that the aforementioned provisions are unconstitutional because they contradict Article 4, para 1; Article 6, para 2 and Article 17, para 1 and para 3 of the Constitution of the Republic of Bulgaria.

The Constitutional Court will rule on whether the provisions contradict legality, legal certainty and predictability, as well as the principles of justice and proportionality and the general principles of the rule of law, equality before the law and the protection of private property.

In its upcoming decision the Constitutional Court will consider whether the so-called “substantial retroactive effect” (an action on legal relations that have arisen and have been extinguished, and are not pending, as in the case of “non-substantial retroactive effect”) before the entry into force of the BIA is justified to protect a significant public interest. If the answer to this question is negative, that would mean that the “substantial retroactive effect“ of the provisions infringes the requirement that legally acquired rights be protected and not affected by retroactive measures. The reason for this is that, the retroactive effect of civil law is possible exceptionally when it is in defence of a particularly essential public interest. Consequently, such legislative authorisations must be the result of a conflict of values, taking into account and comparing the rights and interests of the subjects in respect of whom the retroactive effect of the norm is favourable, with the subjects in respect of whom this effect of the norm is unfavourable. Such rules should take into account the overriding and justified public interest, and in case of interference in a certain legal field, such interference should be necessary as imposed by an imperative and exclusive need of great public importance and proportionate to the purpose pursued by law.

The Constitutional Court rejected the request of the Supreme Bar Council to establish the unconstitutionality of:

§1, item 7 of the Additional Provisions of the BIA (promulgated SG, issue 22 of 2015, in force from 24.03.2015);

§1, item 9 of the Additional Provisions of the BIA (promulgated SG, issue 22 of 2018).

The grounds, on which the Constitutional Court rejected as inadmissible the request of the Supreme Bar Council to establish the unconstitutionality of the aforementioned provisions, are that the latter have the character of defining ones and in themselves they do not affect any specific right of the citizens. It is also noted that by their nature, these provisions do not contain a specific rule of conduct, but only determine the content that the legislator uses when using the terms "origin from the bank" and "reasonable time" in other provisions of the Bank Insolvency Act, which have a regulatory character and whose constitutionality as a whole is a separate subject of examination in the case and on which the admission on merits is allowed.

With its ruling for the admission of the request of the Supreme Bar Council, the Constitutional Court sent an invitation to interested institutions, associations and representatives of the academic legal community in Bulgaria to submit written statements and opinions on the subject of the case within 30 days. The same deadline was given to the Supreme Bar Council, in its capacity as petitioner, to submit additional considerations.