CASE OF CAPITAL BANK AD v. BULGARIA
Government's request for strike-out rejected;Violations of Art. 6-1;Not necessary to examine Art. 13;Violation of P1-1;Pecuniary damage - claim dismissed;Costs and expenses partial award - domestic and Convention proceedings
Christos Rozakis
10. The applicant bank was set up and acquired a banking licence in 1993. On 20 November 1997 its licence was revoked by the BNB and on 6 January 1998 it was put into compulsory liquidation (see paragraphs 20 and 27 below). On 20 April 2005 the bank was wound up and it was struck off the register of companies (see paragraph 37 below). 11. On 27 March 1997 the BNB ruled that the applicant bank was insolvent. 12. On 5 May 1997 the BNB lodged a petition with the Sofia City Court to wind up the applicant bank. 13. In a decision of 15 May 1997 the BNB found that the overall amount of the applicant bank’s outstanding major loans was more than twenty times greater than the amount of its capital (including paidup capital and reserves), when the regulatory maximum was eight times. Considering that that situation put at risk the bank’s ability to operate and posed certain other problems with its financial standing, it decided to restrict the bank’s operations. In particular, it prohibited it from taking deposits, granting loans or other credit facilities, purchasing bills of exchange or promissory notes, entering into foreigncurrency or preciousmetals transactions, entering into deposit transactions, acting as a surety or guarantor or providing security to third parties, effecting noncash operations, clearing current accounts of third parties and conducting factoring transactions. The BNB also appointed a special administrator (see paragraph 49 below) to supervise the activities of the applicant bank and to verify whether it complied with the restrictions. 14. On 23 September 1997 the Sofia City Court, finding that the BNB had yet to revoke the applicant bank’s licence, which was a precondition to making a winding-up order under the new Banks Act of 1997, discontinued the proceedings. Its decision was upheld by the Supreme Court of Cassation on 12 November 1997. 15. In principle, it would have been possible to remedy the problems noted in the BNB’s decisions of 27 March and of 15 May 1997 (see paragraphs 11 and 13 above) by increasing the applicant bank’s capital. 16. This appears to have been the reason why on 23 March 1997 the applicant bank’s general meeting of shareholders resolved to issue new shares up to an amount of 12,000,000,000 old Bulgarian levs (BGL), to be subscribed by the shareholders. The resolution was registered by the Sofia City Court and took effect on 12 May 1997. 17. Two of the applicant bank’s shareholders, TOO Royal Flash and OOO Rontadent Trade, subscribed the shares and, accordingly, became liable to pay for them. However, they sought to discharge this liability by other means. On 30 June and 7 and 29 August 1997 the two shareholders purchased, at a discount, debts due by the applicant bank to the BNB and several other banks and companies. By virtue of these debt assignments the applicant bank’s shareholders also became its creditors. They advised the applicant bank that they wished to set off their obligations to pay for their newly subscribed shares against the debts that the applicant bank now owed them. Accordingly, the applicant bank made entries in its accounts to effect the required set-offs. 18. On 11 November 1997 the deputygovernor of the BNB responsible for banking supervision, in whom the Central Bank’s powers under section 65 of the Banks Act of 1997 (see paragraph 48 below) were vested, directed the applicant bank to cancel the abovementioned entries in its accounts. She reasoned that the set-offs represented noncash consideration for the shares and that they had been effected in breach of sections 72 and 73 of the Trade Act of 1991 and of section 19(2)(5) of the Banks Act of 1997 (see paragraphs 7072 below). The deputygovernor of the BNB also ordered the applicant bank to present to the BNB a rectified balance sheet showing the cancelling of the entries. The order was immediately enforceable and not subject to judicial review (see paragraph 56 below). 19. In a subsequent decision of 20 November 1997 (see paragraph 20 below) the BNB appears to have considered that the set-offs were in fact a conversion of assets which could not improve the applicant bank’s financial situation. 20. On 20 November 1997 the governor of the BNB, acting on a recommendation by the deputygovernor responsible for banking supervision, revoked the applicant bank’s licence and appointed two special administrators to act in place of the applicant bank’s board of directors. The reasons for his decision were as follows: “In its decision [of 27 March 1997] the BNB’s board of governors found that the [applicant bank] was insolvent and petitioned the court to put it in compulsory liquidation. With a view to allowing the [applicant bank’s] managing bodies to improve its financial situation by increasing its capital and accumulating additional funds and thus allowing it to restore itself to a state of solvency, [the BNB’s] banking supervision department decided not to recommend the revocation of the bank’s licence on grounds of insolvency. The analysis of the [applicant bank’s] financial situation as of 11 November 1997, carried out by [the BNB’s] banking supervision department, indicates that the bank’s capital has not been increased through the accumulation of additional funds, but mainly through the conversion of assets – a conversion which was, moreover, not carried out in the proper manner – which has not led to a substantial improvement in the bank’s financial situation. The overall capital adequacy of the bank is negative – minus 16.74% –, and the valuation of the bank’s assets and liabilities, carried out in accordance with the BNB’s supervisory requirements and rules, indicates that the value of the bank’s liabilities exceeds the value of its assets by BGL 1,072,977,000. Moreover, the bank has failed for more than seven working days to pay a due debt of 437,975.65 United States dollars (USD) to the Commercial and Savings Bank AD (in liquidation). Because of all these facts the BNB’s deputygovernor in charge of the banking supervision department has recommended that the bank’s licence be revoked by reason of insolvency.” 21. The decision, a copy of which was sent to the applicant bank by fax on 20 November 1997 and later by a letter of 1 December 1997, which was received by the bank on 2 December 1997, stated that it was immediately enforceable and not subject to judicial review (see also paragraph 56 below). On 25 November 1997 it was published in the State Gazette. 22. The applicant bank contended that the debt to which the BNB had referred in its decision had in fact been settled. In support of that assertion it presented a decision of 12 April 2001 of an enforcement judge at the Sofia District Court, which indicated that by 5 September 1997 the applicant bank had paid in full a debt to the Commercial and Savings Bank AD under a writ of execution. The applicant bank further claimed that the BNB had been informed of the payment of the debt through a report made by the applicant bank’s special administrator on 8 September 1997. The Government disputed the applicant bank’s contentions and said that the debt in fact remained unpaid, as the Sofia City Court had found in its judgment approving the list of agreed creditors’ claims in the liquidation proceedings (see paragraph 35 below). The parties also produced a number of other documents in corroboration of their assertions. 23. The applicant bank further contended that its assets exceeded its liabilities, contrary to what the BNB had found in its decision. In particular, it had money in two accounts in banks in the United States of America. The Government disputed that statement. Both parties presented various documents in corroboration of their assertions. 24. On 24 November 1997 the BNB filed with the Sofia City Court a petition to wind up the applicant bank. In the petition it repeated almost verbatim the findings it had made in its decision of 20 November 1997 (see paragraph 20 above). 25. A hearing was held on 17 December 1997, at which the applicant bank was represented by the special administrators previously appointed by the BNB (see paragraph 20 above). A prosecutor from the Sofia City Prosecutor’s Office also took part in the proceedings, as mandated by former section 81 of the Banks Act of 1997 (see paragraph 61 below). 26. Counsel instructed by the special administrators argued that there was no indication that the applicant bank’s liabilities exceeded its assets or that it had defaulted on a debt which had fallen due. This position was supported by the prosecutor, who also submitted that it was necessary to gather evidence on the applicant bank’s real financial situation. 27. In a judgment of 6 January 1998 the Sofia City Court granted the BNB’s petition, declared the applicant bank insolvent, made an order for it to be wound up, divested its decision-making bodies of their powers and the bank of the right to administer its property, ordered the sale of its assets, and appointed liquidators. It found that the conditions for making a winding-up order – namely, that an order revoking the bank’s licence had been made and a copy of that order produced to the court – were satisfied. The Banks Act of 1997 gave the court limited jurisdiction in proceedings to wind up an insolvent bank. The only fact the court had to verify in such proceedings was whether the above two conditions were met. The judgment continued: “...in view of the new procedure introduced by the Banks Act [of 1997], ... the objection ... that the BNB’s averment of [the applicant bank’s] insolvency is not supported by evidence is unfounded. Unlike the repealed Banks and Credit Business Act [of 1992], which provided that the BNB had to ... prove ... the bank’s insolvency, the new Banks Act [of 1997] does not contain such a requirement. Moreover, in section 79(1) and (3) of the Act the legislature has exhaustively specified the conditions for making a winding-up order [in respect of a bank] and the requirements that the BNB’s petition has to conform to. These boil down solely to indicating the grounds on which the bank’s licence has been revoked under section 21(2) of the Act. The logical and comparativelaw construction of the above provisions ... leads to the categorical conclusion that the changes in the statutory regime of bank insolvency are aimed, on the one hand, at a significant reduction in the court’s jurisdiction, [and even] at taking away its power to determine whether the bank is insolvent, and, on the other hand, at empowering [the BNB] to determine that issue without being required to substantiate or prove its finding before the court... An argument in favour of the above conclusion is section 21(5) of the Act, which expressly provides that the decision of [the BNB] to revoke a banking licence is not subject to judicial review. ... Gathering evidence relating to the ... insolvency of a bank would run counter to the abovecited prohibition against judicial review. In view of all this the court finds that all [the applicant bank’s] requests and objections ... contesting the BNB’s averments about its insolvency are inadmissible and cannot be examined. The same goes for the evidence presented by [the applicant bank]: even if it is admissible, it should not be taken into account, as it is absolutely irrelevant to the dispute at hand. The two abovecited prerequisites – the order ... revoking the banking licence of [the applicant bank] and the production of a copy of that order to the court... – are sufficient for the resolution of this dispute.” 28. As the judgment was immediately enforceable (see paragraph 64 below), it was considered that from that moment onwards the persons entitled in law to act on the applicant bank’s behalf were the courtappointed liquidators. Accordingly, the liquidators represented the applicant bank in the ensuing stages of the proceedings. 29. The liquidators did not appeal against the judgment, but the Sofia City Prosecutor’s Office did. It argued that the Sofia City Court had erred in not examining whether the applicant bank was in fact insolvent. It had thus turned the proceedings into a mere rubber-stamping of the BNB’s petition for an order winding up the applicant bank. Had the court taken the trouble to look at the actual circumstances, it would have found that the applicant bank had more than USD 3,000,000 in cash, as evidenced by a report drawn up by the BNBappointed special administrators. That fact raised the question whether the BNB’s finding that the value of the applicant bank’s liabilities exceeded the value of its assets was indeed true. Also, the BNB had not specified the amount or the date of maturity of the overdue debt the applicant bank was alleged to have failed to pay for more than seven working days. It was thus impossible to carry out an independent assessment of the veracity of its allegation. The Prosecutor’s Office presented an expert report according to which the applicant bank’s assets adequately covered its liabilities. 30. In reply the BNB and the applicant bank’s liquidators argued that the appeal was unfounded. 31. On 10 March 1998 a threemember panel of the Supreme Court of Cassation upheld the Sofia City Court’s judgment. Although it held that it could independently establish the facts, without deferring to the BNB’s findings, it was of the view that the applicant bank was indeed insolvent. An analysis of the evidence showed that, according to the BNB’s deputygovernor, the value of the applicant bank’s assets was BGL 8,391,953,000, and the value of its liabilities BGL 9,464,930,000. The difference between those figures was exactly the amount mentioned in the BNB’s decision and its ensuing winding-up petition. Turning to the other factual evidence of insolvency – the nonpayment of a due debt for more than seven working days – the court held that the applicant bank did in fact owe another bank more than USD 2,500,000 under a debt rescheduling agreement of 18 September 1997. No payments had been made in satisfaction of that debt. The applicant bank’s objection that it had not been able to make any payments because of the prohibition on noncash operations imposed on it by the BNB’s decision of 15 May 1997 (see paragraph 13 above) was unfounded. In any event, the reasons for non-payment were irrelevant, since inability, however caused, to pay a debt for more than seven working days was of itself sufficient for the court to find insolvency. 32. The Chief Prosecutor’s Office filed a petition for review of the judgment of the threemember panel. 33. On 30 June 1998 a fivemember panel of the Supreme Court of Cassation dismissed that petition in the following terms: “The first-instance court’s construction of the law – the Banking Act [of 1997] – is correct. The regime of bank insolvency is a lex specialis in relation to general commercial insolvency law ... In this context it has to be considered that the ... prerequisites for ... an order winding up a bank are governed not by the general rules of the Trade Act [of 1991], but by the special rules of the Banks Act [of 1997]... This is necessary because of the specific character of the banking business ... [Banks operate] predominantly with other people’s money, which necessitates compliance with strict requirements for capital adequacy, formation of provisions and ... liquidity. [The BNB monitors compliance with these requirements] as part of its function of banking supervision, with a view to preserving the stability of the banking system and achieving effective and enhanced protection of depositors. Because of this specificity proceedings to wind up banks are expedited, with a view to protecting the interests of the creditors of the insolvent bank. ... The Sofia City Court correctly held that the soundness and the expediency of the BNB’s decision to revoke [the applicant bank’s] licence could not be reviewed by the court, because [the BNB has special powers] in discharging its banking supervisory duties. By virtue of section 82 of the Banking Act [of 1997] the court is bound by [the BNB’s] winding-up petition, if it meets the requirements of section 79(3) in conjunction with section 21(2). [T]he court does not carry out an additional examination of circumstances evidencing the insolvency of a bank. ... The BNB alone ... has the competence to determine extra-judicially whether the two grounds for [declaring a bank insolvent] exist. [This determination] is not subject to review by the court, which has no latitude in such proceedings. Once the BNB has established the insolvency of a bank before the winding-up procedure begins, the court may not reconsider the issue. It must only carry out a formal, ex facie verification of [the BNB]’s winding-up petition, without venturing into the substantive issues..., because it is the revocation of the licence itself that constitutes the ground for making a winding-up order. The court may only verify whether [the BNB]’s decision is void, but may not examine whether [the BNB’s] finding of insolvency is borne out by the facts...” 34. Thereafter winding-up proceedings unfolded in respect of the applicant bank. 35. In the course of those proceedings the applicant bank’s creditors, which included its three shareholders, submitted their proofs of debt to the bank’s liquidators. The liquidators examined the proofs and drew up a list of agreed claims. Two of the bank’s shareholders, TOO Royal Flash and OOO Rontadent Trade, and two other creditors made objections to the list, which the liquidators examined. The liquidators then transmitted the list to the Sofia City Court for approval. No objections to the list were made to the court, which approved it in a final judgment of 9 February 1999. On 7 December 2000 the liquidators tried to obtain a ruling that a debt to the Commercial and Savings Bank AD did not exist and that the underlying claim should accordingly be disallowed, but the Sofia City Court declared their request inadmissible in a decision of 23 January 2001, holding that no objections had been made to that claim at the appropriate time, and that the existence of the debt had therefore been conclusively established in its judgment of 9 February 1999, which was binding on the bank, its creditors and liquidators. 36. On 10 October 2003 the applicant bank’s liquidators applied to the Bank Deposits Guarantee Fund (see paragraph 67 below) for permission to start negotiations with potential buyers for the purchase of the applicant bank’s entire undertaking. Permission was granted on 14 October 2003 and on 31 January 2005 the liquidators entered into a contract for the sale of the undertaking to the Central Cooperative Bank AD, with the latter agreeing to pay a purchase price of BGN 1 and the applicant bank’s creditors BGN 3,254,000 in satisfaction of their claims. The contract was approved by the Sofia City Court in a final judgment of 8 April 2005. 37. In a final judgment of 20 April 2005 the same court, on an application by the applicant bank’s liquidators, brought the winding up to an end and ordered that the applicant bank be struck off the register of companies. 38. On an unspecified date in 2002 one of the applicant bank’s shareholders, First Financial AD, lodged with the Supreme Administrative Court an application for judicial review of the BNB’s decision to revoke the bank’s licence. It argued that the decision was null and void. Later the chairman and vicechairman of the applicant bank’s board of directors, purporting to act on the bank’s behalf, requested leave to intervene in the proceedings. 39. In a decision of 5 March 2002 a threemember panel of the Supreme Administrative Court held that the applicant bank’s request to be allowed to intervene in the proceedings was inadmissible because it had been lodged by persons who no longer represented it. Following the winding-up order and by virtue of section 84(3) of the Banks Act of 1997, read in conjunction with section 658(1) of the Trade Act of 1991, the only persons with power to act on its behalf were the liquidators. The court went on to hold that First Financial AD’s application for judicial review of the BNB’s decision was inadmissible. Section 21(5) of the Banks Act of 1997 excluded decisions by the BNB to revoke a bank’s licence from the scope of judicial review. That provision was to be construed according to its plain meaning and was applicable regardless of whether the request was to annul the decision or to declare it null and void. Furthermore, First Financial AD had no standing to lodge an application for judicial review, because the BNB’s decision was addressed to the applicant bank, not to its shareholders. 40. The chairman and the vicechairman of the applicant bank’s board of directors and First Financial AD appealed. 41. In a decision of 10 April 2002 a fivemember panel of the Supreme Administrative Court declared the appeal by the chairman and vicechairman of the applicant bank’s board of directors inadmissible and First Financial AD’s appeal illfounded. It held that no appeal lay against the refusal to allow the applicant bank to intervene in the proceedings. It also held that the decision not to examine First Financial AD’s application for judicial review on the merits was correct. The prohibition of section 21(5) of the Banks Act of 1997 applied regardless of whether the request was to annul the BNB’s decision or to declare it null and void. 42. In late 1997 the chairman and the vicechairman of the applicant bank’s board of directors complained to the prosecution authorities about the actions of the BNB’s deputygovernor in charge of banking supervision who had made the order of 11 November 1997 and the recommendation to the governor of the Central Bank to revoke the applicant bank’s licence (see paragraphs 18 and 20 above). They argued that she had acted in excess of her powers with a view to causing damage to the applicant bank. On 8 June 1998 the Chief Prosecutor’s Office ordered a criminal investigation into the deputygovernor’s actions. On 6 November 1998 she was charged with abuse of office. In the course of the investigation the prosecution authorities ordered expert reports on, inter alia, the issue of whether the applicant bank had been insolvent as of 20 November 1997. One of the experts answered that question in the affirmative, another answered it in the negative. 43. One of the expert reports, drawn up on 7 April 1999, noted that a confidential agreement concluded in May 1997 between the International Monetary Fund (“the IMF”) and Bulgaria for the establishment of a currency board in the country stipulated that the right to appeal against the BNB’s decisions should be preserved, but should not hamper it in the performance of its banking supervisory functions. According to an opinion expressed by the IMF’s mission in Bulgaria, any successful appeal should only lead to an award of compensation, not to the invalidation of the BNB’s decision to close the bank. It appears to have been the view of the IMF’s mission in Bulgaria that the protracted process of judicial review of the BNB’s decisions and their possible invalidation would not be consistent with the effective process of banking supervision. 44. On 23 April 1999 a prosecutor from the Supreme Cassation Prosecutor’s Office discontinued the proceedings, considering that the BNB’s deputygovernor had acted lawfully and had not acted in abuse of office. On 11 March 2005 another prosecutor from the Supreme Cassation Prosecutor’s Office, acting on a complaint by the applicant bank’s shareholders, decided to reopen the investigation, which the Court understands is still pending. 45. In 199697 a serious financial crisis unfolded in Bulgaria, leading to economic instability, considerable inflation and the failure of a number of Stateowned and private banks. As a response to that and after negotiations with the IMF, the country adopted a currency board, whereby its national currency became pegged to the German mark, and also established a completely new legislative framework regulating the activity of banks, mainly consisting of the new Bulgarian National Bank Act of 1997 („Закон за Българската народна банка“), which entered into force on 10 June and 1 July 1997, and the Banks Act of 1997 („Закон за банките“), which entered into force on 1 July 1997 and superseded the Banks and Credit Business Act of 1992 („Закон за банките и кредитното дело“). 46. The BNB, established in 1879, is the Central Bank of Bulgaria. At present its mission, structure, mandate and powers are principally set out in the Bulgarian National Bank Act of 1997. Its duties comprise, inter alia, regulating and supervising the other banks in the country with a view to securing the stability of the banking system and protecting the interests of depositors (section 2(6) of the Act). It is accountable to the National Assembly (section 1(2) of the Act), which elects its governor (section 12(1) of the Act) and deputygovernors (section 12(2) of the Act). The three remaining members of its board are appointed by the President of the Republic (section 12(3) of the Act). Section 44 of the Act, as worded at the material time, provided that the BNB was independent of the instructions of the Council of Ministers or any other government agency in the exercise of its powers. 47. Under the Banks and Credit Business Act of 1992 the BNB could, under certain conditions, restrict the activities of a bank and the types of transactions it could enter into (section 56(1)(5) of the Banks and Credit Business Act of 1992; see also section 65(2)(6) of the Banks Act of 1997). 48. Section 65(1)(1) and (2)(3) of the Banks Act of 1997 allows in broad terms the BNB to direct a bank in writing to remedy breaches of the Act or of the BNB’s regulations or other Acts or directives. 49. Under section 58(2) in conjunction with section 56(1)(5) of the Banks and Credit Business Act of 1992, the BNB could appoint special administrators („квестори“) with the power to, inter alia, control the activities of the bank, verify whether it had complied with restrictions, gain access to its premises and check all its operations (see also section 58(1)(1) and (2) of that Act). 50. Sections 68 and 69 of the Banks Act of 1997 also allow the BNB to appoint special administrators to a bank. These special administrators act in lieu of the bank’s board of directors (section 71(1)), that is to say on behalf of the bank. They are appointed and dismissed by the BNB (section 69(1)), which may give them instructions (section 71(3)), and are accountable only to it (section 71(5)). All transactions made by a bank without the prior approval of the special administrators are null and void (section 71(6)). 51. The BNB is required to revoke a bank’s licence on the ground of insolvency if (a) the bank fails for more than seven working days to repay a debt which has fallen due or (b) the total of the bank’s liabilities exceeds the total of its assets (section 21(2) of the Banks Act of 1997). The value of the bank’s assets and liabilities is determined by the BNB in accordance with supervisory requirements and its own rules (section 21(3)). 52. When it revokes a bank’s licence, the BNB must appoint special administrators (see paragraphs 49 and 50 above) if none have yet been appointed (section 21(4) of the Banks Act of 1997). The administrators represent the bank until the court appoints liquidators (section 69(3) of the Banks Act of 1997). A decision by the BNB to revoke a bank’s licence is immediately enforceable (section 21(5) of the Banks Act of 1997). 53. As an exception to the general rules of administrative procedure (sections 7(2) and 11(1) of the Administrative Procedure Act of 1979 („Закон за административното производство“)), the BNB does not inform the bank of the commencement of the procedure for revoking its licence and does not have to examine or take into account the bank’s representations and objections, if any (section 21(5) of the Banks Act of 1997). Under previous legislation (section 56(4) of the now repealed Banks and Credit Business Act of 1992), when revoking a bank’s licence the only circumstance in which the BNB could dispense with informing the bank of the commencement of the procedure and with examining its representations and objections was if the case was exigent and urgent. 54. After revoking a bank’s licence on the ground of insolvency, the BNB is required to file with the competent insolvency court a petition for an order winding-up the bank (former section 79(1) of the Banks Act of 1997; see also sections 8 and 9 of the Bank Insolvency Act of 2002 („Закон за банковата несъстоятелност“), which in December 2002 superseded the provisions of the Banks Act of 1997 relating to the winding up of insolvent banks). 55. Article 120 of the Constitution of 1991 provides: “1. The courts shall review the lawfulness of the administration’s acts and decisions. 2. Natural and juristic persons shall have the right to seek judicial review of any administrative act or decision which affects them, save as expressly specified by statute.” 56. Whereas the BNB’s decisions under the Banks and Credit Business Act of 1992 were, without limitation, subject to review by the Supreme Administrative Court (section 88(2) and (3) of the Banks and Credit Business Act of 1992), the Banks Act of 1997 prohibits judicial review of a number of the BNB’s decisions. Thus, supervisory and enforcement measures ordered by the BNB under section 65 of the Act are not subject to judicial review (section 65(4) of the Banks Act of 1997); neither are its decisions to revoke a bank’s licence (section 21(5) of the Banks Act of 1997), or to appoint or replace special administrators at a bank (sections 65(4) and 69(4) of the Banks Act of 1997). 57. The Administrative Procedure Act of 1979 governs the procedure for issuing administrative decisions and for judicial review of such decisions. An application for judicial review must be lodged within a specified timelimit, which varies depending on whether the administrative decision was express or implied and on whether there has been an appeal to a higher administrative authority (section 37(1), read in conjunction with sections 22, 29 and 31 of the Act). The only circumstance in which no timelimit will apply is if it is alleged that the administrative decision is null and void (section 37(2) of the Act). 58. On 14 November 1997 the Constitutional Court delivered judgment (реш. № 18 от 14 ноември 1997 г. по конституционно дело № 12 от 1997 г., обн., ДВ брой 110 от 25 ноември 1997 г.) in proceedings that had been brought by fiftyone members of Parliament who considered, inter alia, that sections 21(5) and 65(4) of the Banks Act of 1997 should be declared contrary to Article 120 § 2 of the Constitution. 59. The Constitutional Court dismissed the complaint in the following terms: “[This] court has already clearly and categorically expressed the view that ‘judicial review of administrative decisions is a constitutive element of the rule of law’... The court is of the view that the question of the judicial review of administrative decisions may be resolved only in accordance with the express wording of Article 120 § 2 of the Constitution. According to that provision, judicial review of administrative decisions may be limited only by statute. In the case at hand this means the Banks Act [of 1997]. In view of the wording of Article 120 § 2 in fine of the Constitution, the court may not come up with an interpretation providing exceptions to the exception. Only the legislature has the power, by statute, to exclude certain administrative decisions from judicial review. [Article 120 § 2] does not lay down any criteria limiting the legislature’s powers in this respect. This is a question falling within the legislature’s competence... At the same time the court deems it necessary to point out that the legislature’s right to exclude certain categories of administrative decisions from judicial review is not absolute. In exercising that right the National Assembly must have regard to the main constitutional principles relating to the rule of law and the protection of the fundamental human rights. The power granted to the National Assembly by Article 120 § 2 in fine is an exception and has to be construed and applied restrictively. The character of this exception requires the National Assembly to use its powers in this respect only when it has good and compelling reasons to do so. To hold otherwise would render the principle of judicial review meaningless. For this reason [this court] has jurisdiction to assess in each specific case whether the legislature’s discretion has been exercised within the limits laid down in the Constitution... An analysis of the decisions excluded from judicial review by the Banks Act [of 1997] indicates that the legislature has remained within the bounds of its constitutional discretion in protecting the public interest and the interests of depositors. These are mainly acts of banking supervision, an area in which the competence of the supervisory body cannot be supplanted by judicial decision. ... In all cases where the administrative decisions that are not subject to review affect the rights and legal interests of individual citizens, there are no obstacles to their seeking redress in a civil action and claiming compensation for the alleged damage. In addition, the Court considers it necessary to emphasise that the rule set out in Article 120 § 2 in fine of the Constitution does not preclude the courts from ruling incidentally on the nullity of administrative decisions. To hold otherwise would mean that vitiated administrative decisions, such as decisions issued ultra vires, would be less easy to challenge than a statute, whose unconstitutionality can be established in proceedings before the Constitutional Court. In this sense the restriction on reviewing administrative decisions is not absolute.” 60. Before 1 July 1997 bank insolvency was regulated by the Banks and Credit Business Act of 1992. From that date onward the newly adopted Banks Act of 1997 became applicable to such proceedings (until December 2002, when its provisions relating to bank insolvency were superseded by the Bank Insolvency Act of 2002 – see paragraph 54 above). 61. The regime of bank insolvency set forth in the Banks Act of 1997 (and largely followed by the Bank Insolvency Act of 2002) contained a number of special features. Only the BNB, not creditors or the bank itself, could petition for a winding-up order against a bank (former section 79(2) of the Banks Act of 1997). The BNB had a statutory obligation to lodge such a petition after revoking a bank’s licence on the ground of insolvency (former section 79(1) of the Banks Act of 1997). The petition needed only specify the grounds on which the bank’s licence had been revoked under section 21(2) of the Banks Act of 1997 (former section 79(3) of the Banks Act of 1997). A certified copy of the BNB’s decision to revoke the licence had to be enclosed with the petition (ibid.). The petition was examined by the competent court at a hearing in the presence of a prosecutor from which the public was excluded (former section 81 of the Banks Act of 1997). The court had no power to make an order for the restructuring of the bank (former section 91 of the Banks Act of 1997). The bank was divested of the right to administer and dispose of its assets (former section 82(6) of the Banks Act of 1997), and, when granting the petition, the court was also required to immediately order the sale of the bank’s assets and the distribution of the proceeds to its creditors (former section 82(7) of the Banks Act of 1997). The court divested the bank’s decision-making bodies (such as the general meeting of shareholders and the board of directors) of their powers (former section 82(4) of the Banks Act of 1997) and appointed liquidators („синдици“ – former section 82(8) of the Banks Act of 1997) in whom most of these powers, including the right to represent the bank in court, were vested (former section 84(3) of the Banks Act of 1997, in conjunction with section 658(1) of the Trade Act of 1991 („Търговски закон“)). 62. The decision-making bodies of a company in liquidation continue, however, to exist and may act on its behalf in certain limited circumstances; for instance, when there is a conflict of interest between the company and the liquidators. Thus, in a decision of 19 July 1999 (опред. № 234 от 19 юли 1999 г. по гр.д. № 52/1999 г. на ВКС, петчленен състав) the Supreme Court of Cassation held that the insolvent company, not the liquidator, had standing to appeal against the winding-up order. The rationale adopted by the court was that the liquidator might have a conflict of interest with the company. However, section 16(1) of the Bank Insolvency Act of 2002 now provides that it is the BNBappointed special administrators (see paragraph 50 above) who may appeal against a court order putting a bank into compulsory liquidation. 63. The court could appoint liquidators only from a panel of qualified persons named on a list drawn up by the BNB (former section 84(1) of the Banks Act of 1997). If a liquidator was subsequently struck off that list by the BNB, the court was bound to discharge him or her (former section 84(2) of the Banks Act of 1997). In a decision of 29 October 1997 the Supreme Court of Cassation held that the insolvency court could not review a decision by the BNB to remove a person from that list, because the court had no discretion in this respect (опред. № 1712 от 29 октомври 1997 г. по гр.д. № 1631/1997 г., на ВКС, V г.о.). 64. The Trade Act of 1991 was applicable mutatis mutandis and insofar as the Banks Act of 1997 did not contain special rules (former section 97 of the Banks Act of 1997). Section 634 of the Trade Act of 1991, which thus appears to have been applicable, provides that a court order declaring a debtor insolvent and requiring it to be wound up is immediately enforceable (see also section 13(2) of the Bank Insolvency Act of 2002). 65. A winding-up order has the effect of automatically staying all pending enforcement proceedings against property forming part of the insolvent entity’s estate (section 638(1) of the Trade Act of 1991, as applicable until superseded in December 2002 in respect of banks by section 21(1) of the Bank (Insolvency) Act of 2002, which provides for such proceedings to be stayed even earlier, namely when the BNB’s decision revoking the bank’s licence is published in the State Gazette). 66. Creditors of the bank were required to submit their proofs of debt to the liquidators within one month after the publication of the winding-up order (former section 86(1) of the Banks Act of 1997). The liquidators then examined the claims, drew up a list of agreed claims, and informed the creditors thereof by a notice published in, inter alia, the State Gazette (former section 87(1) of the Banks Act of 1997). The creditors and shareholders of the bank owning at least 25% of the voting shares were entitled to lodge objections to the list with the liquidators (former section 87(2) of the Banks Act of 1997). The liquidators were required to examine the objections within fourteen days in the presence of the debtor, the creditor whose claim was challenged, and the person who had made the objection (section 690(2) of the Trade Act of 1991, as in force at the material time). The liquidators then submitted the original or the amended list, as appropriate, to the insolvency court for approval. Any of the above persons could then repeat its objection before the court, which had a duty to examine it at a public hearing (section 692(1), (2) and (3) of the Trade Act of 1991, as in force at the material time). An appeal lay against the court’s judgment to the Supreme Court of Cassation (former section 90(1) of the Banks Act of 1997, as in force at the material time). If no objections were made before the court, it examined the list in private and approved it in a final judgment (section 692(5) of the Trade Act of 1991, as in force at the material time). The court’s judgment was binding on the insolvent bank, the liquidator, and all the creditors (former section 90(6) of the Banks Act of 1997, as in force at the material time). 67. The insolvent bank’s assets may be sold off individually at auction and the proceeds then distributed among the creditors whose claims have been allowed (former sections 92, 94a and 95 of the Banks Act of 1997, in conjunction with sections 71632 of the Trade Act of 1991, superseded in December 2002 by sections 7290 and 93104 of the Bank Insolvency Act of 2002). Alternatively, the liquidators may try to sell the bank’s entire undertaking to another licensed bank, with the permission of the body responsible for overseeing the winding up of banks, the Bank Deposits Guarantee Fund (sections 91 and 92 of the Bank Insolvency Act of 2002; see also former sections 93 and 94 of the Banks Act of 1997). 68. A bank’s paidup capital on incorporation must not be less than BGL 10,000,000,000 (BGN 10,000,000 after the currency revalorization of 5 July 1999) (section 23(2) of the Banks Act of 1997). All payments made by the shareholders for subscribed shares must be in cash, until this minimum capital is attained (section 23(3) of the Banks Act of 1997). The bank’s capital must at all times surpass this amount (section 2(2) of the BNB’s Regulation no. 8 of 5 August 1997 on the capital adequacy of banks, superseded on 1 July 2005 by section 2(2) of the BNB’s Regulation no. 8 of 23 December 2004 on the capital adequacy of banks). 69. Also, a bank’s capital adequacy: the ratio between its capital base – defined as its primary, or tierone, capital (including paidup shares plus premiums and statutory and other reserves minus intangible assets, losses, and treasury shares – section 9 of Regulation no. 8 of 5 August 1997), plus supplementary capital elements, or tiertwo, capital (including retained earnings, special reserves, hybrid capital instruments, subordinated debt – section 10 of Regulation no. 8 of 5 August 1997) – and its riskweighted assets and offbalancesheet items may not be less than 12% (section 23(3) of Regulation no. 8 of 5 August 1997; see also section 8(6) of the BNB’s Regulation no. 8 of 23 December 2004 on the capital adequacy of banks). 70. Under Bulgarian law banks are jointstock companies („акционерно дружество“ – section 1(1) of the Banks Act of 1997). The capital of jointstock companies may be increased by, inter alia, issuing new shares (section 192(1) of the Trade Act of 1991). Once these shares have been subscribed, the subscriber is under an obligation to pay cash or to provide noncash consideration for the shares (section 188(1) of the Trade Act of 1991). The manner and conditions for providing noncash consideration are laid down in sections 72 and 73 of the Trade Act of 1991 (see also new sections 73b and 73c of the Trade Act of 1991). 71. If a bank decides to increase its capital by issuing shares for noncash consideration, it has to obtain the prior written approval of the BNB (section 19(2)(5), now section 19(4)(5), of the Banks Act of 1997). Any increase made without such approval is null and void (section 19(6), now section 19(9), of the Banks Act of 1997). 72. At the relevant time section 120(2) of the Trade Act of 1991 prohibited any set-off between the obligation of a member of a limited liability company („дружество с ограничена отговорност“) to pay up his or her shares against debt due by that company to the member. At the time it was unclear whether this prohibition also applied to jointstock companies in the absence of any express provision. Although expressed obiter, the Supreme Court of Cassation’s view appears to have been that it did (опред. № 51 от 26 февруари 1999 г. по гр.д. № 41/1999 г. на ВКС, V г.о.). In 2000 the legislature clarified the issue by introducing a new section 73a of the Trade Act of 1991, whereby the proscription was explicitly expanded to both limited liability companies and jointstock companies. 73. Section 1(1) of the State Responsibility for Damage Act of 1988 („Закон за отговорността на държавата за вреди, причинени на граждани“) provides that the State is liable for damage suffered by private persons as a result of unlawful decisions, actions or omissions by civil servants, committed in the course of or in connection with the performance of their duties. Section 1(2) provides that compensation for damage flowing from unlawful decisions may be claimed after the decisions concerned have annulled in prior proceedings. The court examining the claim for compensation cannot inquire into the validity of a voidable decision; it may merely examine whether a decision is null and void. Only natural persons, not juristic persons, may claim compensation under the Act (реш. № 1307 от 21 октомври 2003 г. по гр.д. № 2136/2002 г., на ВКС, V г.о.). Persons seeking redress for damage occasioned in circumstances falling within the scope of the Act have no claim under the general law of tort, as the Act is a lex specialis and excludes the application of the general regime (section 8(1); реш. № 1370/1992 г. от 16 декември 1992 г. по гр.д. № 1181/1992 г. на ВС, ІV г.о.; реш. от 29 юли 2002 г. по гр.д. № 169/2002 г. на СГС, ГК, ІVб отд.).