The contested and already declared as unconstitutional provisions foresaw:
- Declaring as null and void of all, performed by the quaestors, temporary and permanent liquidity receivers of Corporate Commercial Bank AD /i/ in the period from its placement under special supervision until the date of initiating the procedure for liquidation of the bank’s property, deletions of collaterals established in favor of the bank given that the same remain valid and retaining their order, except in cases when the bank’s receivable is repaid in full by cash payment;
- Suspension of the legal terms for the validity of the collaterals established in favor of the said bank for the period from its placement under special supervision until expiration of the 6-month period from the entry into force of the Amendments to the Bank Insolvency Act, providing that there is an option for the bank to renew within the same term any given security for a new term; contestation of these collaterals against any third party regardless of the manner in which the property subject to collateral was acquired;
- Relative invalidity with respect to the bank and the insolvency creditors, of any transfer or series of transfers of shares and/or units of commercial properties, made by a debtor of the bank after the date of placement of Corporate Commercial Bank AD under special supervision;
- Retroactive application, аs of 20.06.2014, of the provisioned in Art. 59, para. 5, 6 and 7 grounds for relative invalidity with respect to the creditors of the insolvency, of set-offs made by the bank or by its creditors, as the insolvency receiver, in his own motion, enters them in the list of the accepted receivables;
- An opportunity for the liquidity receiver, the temporary liquidity receiver or the Bank Deposit Guarantee Fund to bring claims for return to the insolvency estate of property, originating from the bank, against any third party, when the latter has not performed consideration or the same is of significantly lower value than the received, as well as when the received by the third party is in the form of monetary and/or non-monetary contribution to its capital;
- Application of the provisions of the Amendments to the Bank Insolvency Act (promulgated SG, issue 61 of 2015) and the Amendments to the Bank Insolvency Act (promulgated SG, issue 22 of 2018) to the insolvency proceedings opened before the entry into force of the respective amending acts;
- Relative invalidity with respect to the bank and the creditors of the insolvency, of any transaction in which a receivable originating from the bank has been transferred to a third party, regardless of the number of transfers, if no proportionate property has been received in the patrimony of the disposer within a reasonable time, other than a transaction price claim.
From the moment of their adoption until they were declared unconstitutional, the cited provisions created conditions for gross violation of the rule of law, the principle of equality before the law and the principle of inviolability of private property, as a number of valid transfer transactions and set-offs were annulled as invalid with regards to the creditors to the insolvency estate, persons with repaid debts to Corporate Commercial Bank AD /i/ found themselves yet again in the position of debtors, and third parties who acquired rights to properties subject to already cancelled collateral were deprived of the opportunity to oppose their rights against the bank.
Тhe Constitutional Court’s Judgement
The Constitutional Court condemns the impugned provisions as unconstitutional namely as violating the principles of the rule of law (Art. 4, para. 1 of the Constitution), equality before the law (Art. 6, para. 2 of the Constitution), guaranteeing and inviolability of private property (Art. 17, para. 1 and para. 3 of the Constitution).
In their motives, the constitutional judges assess the disputed provisions as tendentious in regards to the insolvency proceedings for a specific bank, namely Corporate Commercial Bank AD /i/ and in regards to their legal consequences. The retroactive effect of the Bank Insolvency Act granted by the adoption of the provisions is determined as substantial by the court as it rearranges the legal consequences from past legal facts. The legal relations rearranged in this way affect already acquired rights by private legal entities – both debtors of Corporate Commercial Bank AD /i/, who have been released from their obligations by set-offs with their counterclaim to the same, and third parties with acquired rights over collateral-free property, subsequently by law retroactively encumbered with collateral in favor of the bank. The Constitutional Court also emphasized that the provisions of § 8 (promulgated SG, issue 22 of 2018) that give retroactive effect to the norms that allow invalidity of set-offs against the creditors of Corporate Commercial Bank AD /i/ from the date of its placement under special supervision – 20.06.2014, instead of the date of insolvency – 06.11.2014, were adopted more than three years after these provisions came into force and took effect. All those set-offs, validly made during the period 20.06.2014 – 06.11.2014, which three years later were declared invalid with regards to the creditors of Corporate Commercial Bank AD /i/, are affected, and the persons who set off a debt with a receivable from the bank, again find themselves in the position of debtors precisely due to the retroactive effect of the already declared unconstitutional provisions.
The Constitutional Court’s judgement is also grounded on the principle established in modern legal systems that legal norms have forward-acting effect as an important guarantee for predictability of the legal order and as an element of legal certainty. A retroactive effect of the law is not completely incompatible with the principle of the rule of law, but not when it violates the legal certainty and predictability of the legal framework as core characteristic of the rule of law, when it infringes or takes away already legally acquired rights, respectively when it creates obligations and, in general, when it leads to adverse consequences for the existing cases. If the rule of law means equal subordination of all legal entities to the law, then the law must be able to govern the behavior of everyone (Decision № 12 of 13.10.2016 for c.c. № 13 of 2015).
What is next following the Constitutional Court’s ruling?
After Constitutional Court’s key ruling on the case of Corporate Commercial Bank AD /i/ and its declaration for the provisions’ unconstitutional nature, stands the question of “which wording of Art. 59, para. 5 of the Bank Insolvency Act is applicable to set-offs made before the entry into force of the amendments to Art. 59, para. 5 of the Bank Insolvency Act in 2014?”. In other words, what happens to pending court proceedings on claims based on the provisions declared as unconstitutional and aimed at the relative invalidity of set-offs and disposition transactions in respect to insolvency creditors. In this regard, with Order № 60370 of 16.06.2021, comm. case № 1512/2020, Chamber of Commerce, 1st Commercial Division, Supreme Court of Cassation allowed a cassation appeal for a part of Decision № 890 / 22.04.2020 of the Sofia Appeal Court, by which the appellate court annulled the rejection decision on comm. case № 1485/2017 of the Sofia City Court and upheld the claim filed against the company on the legal ground of Art. 59, para. 5 of the Bank Insolvency Act, for declaring a set-off made in the period 20.06.2014 – 06.11.2014, as invalid in respect to the bank’s creditors. In light of the Constitutional Court’s decision to declare as unconstitutional the retroactive effect of the legal provisions in question, the judges of the Supreme Court of Cassation should give a clear answer which is the applicable wording of the Bank Insolvency Act in respect to such set-offs. Until now, the current regulations prescribed invalidity of the set-offs made in the period 20.06.2014 to 06.11.2014. Upon ruling of the Supreme Cassation Court in favor of the old version, prior to the retroactive effect, the set-offs should be treated as valid.
