Last Updated on August 30, 2022 by LawEuro
Information Note on the Court’s case-law 265
August-September 2022
Korporativna Targovska Banka AD v. Bulgaria – 46564/15 and 68140/16
Judgment 30.8.2022 [Section IV]
Article 6
Administrative proceedings
Article 6-1
Access to court
Fair hearing
Adversarial trial
Bank unable to properly seek judicial review of licence withdrawal, or to state its case and protect its interests in insolvency and winding-up proceedings: violations
Article 46
Article 46-2
Execution of judgment
Individual measures
General measures
Reopening of judicial review proceedings required, but not necessarily leading to reversal of reviewed decision’s effects, rather than damages; need for general measures
Article 1 of Protocol No. 1
No safeguards against arbitrariness surrounding decision to withdraw a bank’s licence: violation
Facts – The applicants are former executive directors of KTB, which was a bank in Bulgaria. The Bulgarian National Bank (BNB) placed KTB under special administration, removed all members of its management and supervisory boards from office, and appointed special administrators to run the bank. The applicants unsuccessfully sought a judicial declaration that that decision was null and void.
Several months later, the BNB withdrew KTB’s banking licence and extended the special administrators’ mandate, until the appointment of liquidators by the Sofia City Court. A number of persons and/or bodies, including KTB’s shareholders and the former executive directors, unsuccessfully attempted to seek judicial review of the licence withdrawal decision before the Supreme Administrative Court.
Finally, the Sofia City Court allowed an application by BNB, declaring KTB insolvent and ordering that it be wound up. During those proceedings, KTB was represented by the special administrators. KTB’s shareholders unsuccessfully sought permission to intervene in the proceedings and, along with the former executive directors, appealed unsuccessfully against the Sofia City Court’s rulings.
Law – (a) Standing – KTB’s former executive directors had been exceptionally entitled to apply to the Court on behalf of KTB, even though they had done so when they had already been removed from office, and KTB had had to be represented, under Bulgarian law, by liquidators. That was because those liquidators had had a disincentive to apply to the Court on behalf of KTB in relation to the matters under consideration in the case, as well as a potential conflict of interest in that regard.
(b) Article 6 § 1:
(i) Alleged impossibility for KTB to obtain judicial review of the withdrawal of its licence – Since 2007, Bulgarian law had provided for the possibility of seeking judicial review of a decision by the BNB to withdraw a bank’s licence, but the relevant provision did not specify who could seek a review, or lay down a procedure for doing so. That gave rise to a difficulty because, from the very moment of the licence withdrawal, the power to act on KTB’s behalf, including to bring proceedings on its behalf, had been conferred on its special administrators. Accordingly, even if KTB had obtained judicial decisions quashing the BNB’s earlier decisions to appoint special administrators and extend their mandate, it would have still been placed under the stewardship of special administrators when it had its licence withdrawn.
Before KTB’s case, the Supreme Administrative Court had not had occasion to interpret the relevant domestic legal provision. It had thus been unclear whether, the immediate appointment of special administrators notwithstanding, the management could retain a residual power to seek judicial review of the decision to withdraw the bank’s licence. Nor had it been clear whether such a review could be sought by others, such as the bank’s shareholders. Faced with that uncertainty, a number of shareholders had attempted to seek judicial review, as well as a member of KTB’s supervisory board, its depositors, other clients and bondholders, all of which, the Supreme Administrative Court had held, had had no standing to do so.
KTB’s former executive directors had likewise attempted to seek judicial review of the decision, but since they had been removed from office, they had sought to justify their standing to do so with reference to the effects of that decision on them personally. Although the Government had argued that they should have tried to convince the Supreme Administrative Court that they should be permitted to act on KTB’s behalf, the Court was not persuaded that that argument was readily apparently at the relevant time.
It was clear that the special administrators could apply on KTB’s behalf for judicial review of the decision. However, the special administrators had been dependent on and accountable to the BNB, and had had little if any incentive to challenge its decision. Moreover, the right of access to a court entailed that the person whose civil rights and obligations were at stake be able to bring proceedings before the courts directly and independently. Indeed, it appeared highly unlikely that the Supreme Administrative Court would have acceded to a residual-power argument when examining the former executive directors’ claim for judicial review of the licence withdrawal decision.
KTB had thus been left in a situation where there had been no one with both standing and an interest in seeking judicial review of its licence withdrawal. The civil courts dealing with the BNB’s ensuing application for KTB to be declared insolvent and wound up had also refused to examine the BNB’s decision to withdraw KTB’s licence.
The relevant legislation and the way in which it had been applied by the Bulgarian courts therefore had not offered KTB itself, by proper representation, a clear and practical possibility of seeking and obtaining proper judicial review of the withdrawal of its licence. KTB’s situation had thus been effectively the same as those of the applicant banks in the cases of Capital Bank AD v. Bulgaria and International Bank for Commerce and Development AD and Others v. Bulgaria, even though the statutory bar on judicial review of decisions by the BNB to withdraw a bank’s licence had been lifted in 2007.
Conclusion: violation (unanimously).
(ii) KTC’s representation in the proceedings relating to the BNB’s application for KTB to be wound up – In the above-mentioned cases concerning Bulgaria, the Court had found that if a bank facing an application by the BNB to be declared insolvent and wound up was represented in those proceedings by its special administrators and liquidators, who were all dependent to varying degrees on the BNB, the bank could not properly state its case and protect its interests, in breach of the rights of access to a court and of adversarial proceedings enshrined by Article 6 § 1.
Despite some differences in the way in which the proceedings relating to KTB had unfolded, the present case did not present any material difference. KTB had likewise been unable to properly state its case and protect its interests, as it had seen them. At the outset, it had been represented by the special administrators who had been dependent on the opposing party, the BNB: it had appointed them and fixed their remuneration, and could dismiss them without any external scrutiny. Later, the Sofia City Court had appointed provisional liquidators (who were then appointed as permanent ones after the court declared KTB insolvent and ordered that it be wound up), who took on the role of representing KTB in the proceedings. Although to a lesser degree, they had been likewise dependent on the BNB, since it could strike them off its lists of persons qualified to act as bank liquidators and thus bring about their automatic discharge.
Conclusion : violation (unanimously).
(c) Article 1 of Protocol No. 1: The withdrawal of KTB’s licence, which had been almost automatically followed by the Sofia City Court decision to declare KTB insolvent and order that it be wound up, had amounted to an interference with its possessions.
There had been no opportunity for KTB to challenge the grounds for BNB’s decision to withdraw its licence. It had already been established that KTB could not clearly and practically obtain judicial review of the BNB’s decision by proper representation. Further, no other procedural safeguards had surrounded the BNB’s decision. KTB had not been informed that the BNB would adopt the decision or given it an opportunity to object to it, either before or after the decision had been made – those procedural safeguards had been expressly excluded in domestic law. Nor had there been any possibility of contesting the BNB’s decision before a non-judicial authority.
KTB’s situation had thus been effectively the same as those of the applicants in the aforementioned cases against Bulgaria, in that the withdrawal of its licence had not been surrounded by any safeguards against arbitrariness. The interference had therefore not been lawful within the meaning of Article 1 of Protocol No. 1.
Conclusion: violation (unanimously).
Article 41: Claim in respect of pecuniary damage dismissed.
Article 46: Concerning individual measures, the only way to put right the breach of Article 6 § 1, relating to KTB’s inability to seek and obtain proper judicial review of the licence withdrawal, was to give it such a possibility. It did not necessarily follow that the form of redress, following a possible finding that the licence withdrawal decision had been unlawful or unjustified, should consist in the annulment of that decision and a reversal of its effects, rather than an award of compensation. The decision to withdraw the KTB’s licence and the ensuing judicial declaration of insolvency and winding-up order, made more than seven years ago, had affected many other persons, such as the KTB’s clients and creditors, as well as Bulgaria’s financial system as a whole. Nonetheless, any such review proceedings, had to be organised in a way that gave KTB an effective opportunity to contest the findings which had prompted the BNB to withdraw its licence by proper representation. In particular, KTB had to be able to access any reports or other material which had had a bearing on those findings.
Concerning general measures, since this was the third case against Bulgaria in which issues had arisen regarding the way in which the withdrawal of a bank’s licence on grounds of insolvency and the ensuing winding-up proceedings were regulated under domestic law, it was appropriate for the Court to give some indications on how the breaches found here were to be avoided in the future:
– Regarding the breach of Article 6 § 1 concerning the possibility for KTB itself to seek and obtain judicial review of the licence withdrawal: it was not for the Court to say whether the legislation or its interpretation and application had to change to avoid future such breaches. However, Bulgaria had to take steps to ensure that a bank whose licence was subject to withdrawal could directly and independently seek and obtain effective judicial review of that measure.
– Regarding the breach of Article 6 § 1, concerning the manner in which KTB had been represented in proceedings relating to BNB’s application for it to be declared insolvent and wound up: Bulgaria had to amend the relevant domestic law provisions in a way which permitted a bank facing such an application to be represented in those proceedings, both at first instance and on appeal, in a way which enabled it to properly state its case and protect its interests.
– Regarding the breach of Article 1 of Protocol No. 1: As the statutory provision removing all procedural safeguards from the BNB’s decision-making process in relation to a bank’s licence withdrawal had been recently repealed, it was superfluous to indicate any measures, in addition to the above indications relating to the possibility to properly obtain judicial review.
(See also Capital Bank AD v. Bulgaria, 49429/99, 24 November 2005, Legal Summary; International Bank for Commerce and Development AD and Others v. Bulgaria, 7031/05, 2 June 2016)
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