Slovenian Supreme Court Considers the Banking Act as Amended for the Slovenian Bank Bail-in Unconstitutional

Small Investors whose Hard Earned Savings Disappeared Given a Glimmer of Hope

Long suffering victims of the Slovenian bank bail-in were provided some hope, when on April 1, 2016, the Supreme Court of the Republic of Slovenia (the Supreme Court), the highest civil court in Slovenia, opined that the Slovenian Banking Act, as amended (the Banking Act) is unconstitutional.

The previous Slovenian government’s self-proclaimed “domestic troika,” the trio consisting of the then prime minister Alenka Bratušek, her finance minister Uroš Čufer, and the central bank governor Boštjan Jazbec, pushed the amendment to the Banking Act through the Slovenian Parliament in November 2013 and only weeks later, used it as a tool to expropriate approximately 2000 subordinated bondholders, including retail investors, some who lost their life savings when their bonds were rendered worthless.

The line of rebuttals to our authorities' lame excuses and claims that the total wipe-out was unavoidable keeps getting longer and longer, but they just keep looking the other way, and occasionally fabricating more lame excuses.

Kristjan Verbič , President

The passage of the amendment doubly hurt the subordinated bondholders.  Not only did it enable the government to expropriate the total value of their investments, but it also stripped them of their rights to legally challenge the expropriation.   The amended Banking Act explicitly prohibits lawsuits contesting an expropriation of subordinated bonds.   Because of this prohibition, expropriated investors must fall back on a provision that permits them to sue the central bank of Slovenia.  However, to win such a lawsuit, a showing of proof beyond doubt that the expropriation was unjustified and was a result of the central bank’s fundamentally flawed valuations is necessary.  While this requirement may sound fair, any fairness is illusory.   The central bank holds the trump card.  It may declare the valuations strictly classified and prevent inspection, which it did in all six Slovenian banks where the subordinated bonds were wiped out, and these valuations remain inaccessible to this day.  Therefore, producing proof of flawed valuations and winning the case is virtually impossible

The Supreme Court emphasized this violation of the right of legal challenge in its request to assess the constitutionality of the Banking Act filed with the Constitutional Court of the Republic of Slovenia,.  It was also concerned that such harsh expropriation deprived expropriated persons of the right of judicial protection, and called upon the Constitutional Court to rule on this issue.  The Supreme Court concluded that the expropriation also encroached upon the constitutionally protected right to private property through the expropriation decisions.

"We are pleased that the Supreme Court has joined the long list of those filing requests for assessment of constitutionality of the Slovenian Banking Act, following the Ombudsman, the National Council of the Republic of Slovenia, the District Court in Ljubljana, and the Higher Court in Ljubljana, and with 26 initiatives for assessment of constitutionality of which the first one, Kotnik e.a., was written and filed by VZMD's associates," said VZMD’s President, Mr. Kristjan Verbič.

The persistent claims of the Slovenian “domestic troika” that a wipe-out without compensation is mandatory in any bank in the EU which was granted state aid after August 2013, received another rebuttal on May 4 this year, when the Italian government published a legal decree in its Official Gazzette offering the small investors expropriated in November 2015 in Banca Etruria, Banca Marche, Cassa di Risparmio di Chieti, and Cassa di Risparmio di Ferrara, a choice between an 80-percent automatic compensation (limited to those with an annual income up to 35,000 euros, or with a movable property up to 100,000 euros) and an arbitration procedure that allows up to a full compensation for expropriated bondholders able to demonstrate that they were not informed about the risks related to their bonds’ subordinated nature prior to purchase. Further rubbing salt into the wounds of Slovenians who have received zero compensation, the EU Competition Commissioner Margrethe Vestager confirmed that such compensation is in line with the EU rules. "The line of rebuttals to our authorities’ lame excuses and claims that the total wipe-out was unavoidable keeps getting longer and longer, but they just keep looking the other way, and occasionally fabricating more lame excuses," says Mr. Verbič.         


As part of the Slovenian bail-in, subordinated debt-holders (including retail investors) in six banks, including all three systemic ones (NLB, Nova KBM, and Abanka), were totally wiped-out.  In stark contrast with most reported bail-ins in other European countries, debt-holders in Slovenia lost the entire amount of their investments and received zero compensation in return. 

VZMD, representing the rights of small, expropriated debt-holders, filed Kotnik e.a. on December 4, 2013, with the Constitutional Court of Slovenia (Constitutional Court).  This was the first initiative for a constitutional review of the amendment of the Banking Act (ZBan-1L), followed by 25 further initiatives and five requests by the authorized institutions (the Ombudsman, the National Council of the Republic of Slovenia, the District Court in Ljubljana, and the Higher Court in Ljubljana).

VZMD,, was founded to protect the rights of minority shareholders and retail investors and is led by its President Mr. Kristjan Verbič ( Mr. Verbič is on the Board of The European Federation of Investors and Financial Services Users,, a member of the Corporate Finance Standing Committee of the European Securities and Markets Authority and a member of World Federation of Investors. 

Source: Vseslovensko Združenje Malih Delničarjev (VZMD)