JUDGMENT OF THE COURT OF JUSTICE REGARDING THE ACT ON JUDICIAL PROTECTION OF FORMER HOLDERS OF ELIGIBLE LIABILITIES

With the adoption of the Act on Judicial Protection Procedure for Former Holders of Eligible Liabilities of Banks (Act on Judicial Protection Procedure for Former Holders of Eligible Liabilities of Banks (Official Gazette of the Republic of Slovenia, no. 72/19); hereinafter referred to as the “Act”) the Slovenian legislator legalized the procedure for judicial protection of former holders of eligible liabilities of banks. The Act was adopted following the decision of the Slovenian Constitutional Court, which in case no. U-I-295/13, inter alia, decided that the Banking Act in force at the time did not provide effective judicial protection of holders of cancelled eligible liabilities of banks.

The Act was challenged with two requests for review of constitutionality, filed by the Bank of Slovenia and the National Council respectively, and several petitions for the initiation of procedure for review of constitutionality.

Within the procedure for review of constitutionality initiated based on the request filed by the Bank of Slovenia, the Slovenian Constitutional Court temporarily suspended the implementation of the Act in March 2020. In January 2021, the Slovenian Constitutional Court suspended the procedure for review of constitutionality and submitted several questions to the Court of Justice of the European Union (hereinafter “Court of Justice”) for preliminary ruling.

A few days ago, the Court of Justice announced the adoption of a judgment, in which it ruled on the questions raised by the Slovenian Constitutional Court.

With its judgment in case no. C-45/21 dated 13 September 2022, the Court of Justice ruled that the Bank of Slovenia can only be held liable for damage incurred by the holders of cancelled financial instruments if it has been proven that the central bank in question seriously violated its duty to exercise due care and if the cancellation was not necessary to ensure the stability of the financial system, or, in case the former holders of financial instruments have suffered greater loss as a result of said cancellation than they would have suffered in the event of bankruptcy of the relevant financial institution.

Furthermore, it was decided that the Bank of Slovenia cannot be held liable to cover the damage incurred by the former holders of financial instruments simply because of their low income and waiver of other legal remedies, as currently stipulated by the Act. In relation to the funds allocated for compensation of damage, the Court of Justice ruled that the central bank cannot interfere with its profits and more than half of its reserves in order to pay compensations due to the cancellation of financial instruments.

While the decision of the Slovenian Constitutional Court regarding the constitutionality of the Act is awaited, the Bank of Slovenia welcomes the judgment of the Court of Justice by explaining that the judgment confirms their position, namely that the Act is controversial from the view of monetary financing and financial independence of the central bank. The Bank of Slovenia also concluded that it is necessary to prepare a legislative solution that will comprehensively regulate the area in question and will be consistent with the European legal order and constitutional regulation of the Republic of Slovenia.

The Ministry of Finance of the Republic of Slovenia also responded to the judgement by announcing that they are aware of the necessity to ensure a more efficient judicial protection procedure as soon as possible and that they have already begun to finalize procedural solutions with this objective in mind.

 

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