CEE Legal Matters

Category: Slovenia

  • ODI, RMG, and Debernardi Advise on Fersped Acquisition of Slovenian Logistics Company

    ODI, RMG, and Debernardi Advise on Fersped Acquisition of Slovenian Logistics Company

    ODI has advised Fersped, a Slovenian transport company and a subsidiary of Slovenske Zeleznice (the Slovenian national railway company), in acquiring 100% control over logistics company VV-LOG.  Debernardi & Partners advised sellers Daniel Tomljanovic and Dean Persic on the sale agreement, which was signed with several conditions precedent, including approval by the Slovenian Competition Authority. RMG advised Slovenske Zeleznice.

    Fersped, seated in Ljubljana, is one of the subsidiaries of Slovenske Zeleznice, the largest transport company in Slovenia with a consolidated yearly turnover in 2015 of more than EUR 580 million and EBITDA of EUR 72 million. The core business of VV-LOG, which was founded in 2010, is freight forwarding and transport of goods.

    ODI, acting as an exclusive legal counsel on behalf of Fersped, provided legal due diligence of the target and initial competition analysis and drafted and negotiated the agreement on the sale, as well as advising on internal corporate approvals. The firm’s team was led by Partner Uros Ilic and Senior Associate Suzana Boncina Jamsek.

    The RMG team was led by Managing Partner Gorazd Podbevsek, assisted by Maja Jensterle.

    The Debernardi team was led by Managing Partner Igor Debernardi. 

  • Schoenherr Advises Telekom Slovenije on Settlement with IZI Mobil

    Schoenherr Advises Telekom Slovenije on Settlement with IZI Mobil

    Schoenherr has advised Telekom Slovenije d.d. on the settlement of its contractual ties with IZI mobil d.d. (“IZI mobil”).

    Schoenherr provided due diligence work, transaction support, and competition law advice. The agreement between Telekom Slovenije and IZI mobil was signed on June 30, 2017 in Ljubljana and settles all of their open contractual (and other) issues. Citing “various suspensive conditions,” to which the settlement is subject, the parties did not reveal any details of the signed agreement.

    Telekom Slovenije is one of the largest communications service providers in Southeast Europe. In addition to being the main national telecommunications operator in Slovenia, Telekom Slovenije also operates through its subsidiaries in other markets in the region. IZI mobil is a mobile virtual network operator offering pre-paid products to over 50,000 subscribers.

    Schoenherr’s transaction team was led by Partner Marko Prusnik, while Partner Eva Skufca was in charge of the competition law aspects of the transaction.

  • The Buzz in Slovenia: Interview with Uros Ilic of ODI Law

    The Buzz in Slovenia: Interview with Uros Ilic of ODI Law

    Things are stable in Slovenia at the moment, according to ODI Law Managing Partner Uros Ilic. “The last few year were extremely busy because of the previously-distressed situation in Slovenia,” he explains, “but now things are back to normal. On the M&A side you will not have as many large deals as in recent quarters, since the privatization work stream has completely dried up. A few deals in the pipeline, but nothing of a very big size. The sale of Cimos has finally been successfully concluded, the Gorenjska Banka sale and Cinkarna Celje are in process, and a few transactions are still in the pre-marketing stage  It seems that we are also no longer the hot spot for NPL buyers, hedge funds and the like, as normal growth activities/business activities are back.”

    Everybody is still looking towards the NLB deal, according to Ilic, referring to the long-awaited IPO of Slovenia’s largest bank, which was famously put on hold following the Brexit decision. “This is probably the last fundamental jewel from the nationalism perspective,” Ilic reports, describing the bank as “the heart of the financial system in Slovenia.” He continues: “If this flies, everything is available. If the government does not sell it, we are in tighter spot for foreign investors. So that’s why this has greater significance even than as a stand-alone transaction.” Unfortunately, says Ilic, “now we’re seeing last minute complications, as the supervisory board (of the Slovenian Sovereign Holding) has refused to grant its consent for the proposal of the offer price range for NLB share, and thus is trying to put the burden of the transaction directly on the government acting as a  shareholder.” As a result, he says, “there’s a fight among coalition parties- with each trying to avoid responsibility for an unpopular transaction. It is very likely we will see another hang sale since elections are coming up in less than a year and politicians are not immune to public perception. It might happen that the EU Commission takes over the sale process entirely or that NLB  subsidiaries will be quickly sold. “

    Otherwise, Ilic says, some sectors remain busy, as “a couple of real estate deals are coming towards closing, with Merkur being one of them. It seems that real estate is now the most viable industry.” There is also the potential for significant direct investment from Magna, Ilic reports, which is looking to expand on its existing unit in Graz and is considering building a greenfield operation in Slovenia. “The Government is offering them help and financial incentives to build an automotive unit here, but several local environmental groups are opposing the construction of what they believe will be a polluting site.” He says that those groups are seeking a referendum which may stop the construction.

    The building of a second railway track for the Koper harbor to facilitate the transport of products inland from the port remains the largest controversial infrastructure project in the country. Ilic reports there may be another referendum on this matter as well, “not this time over environmental issues, but over financing and costs.” He says that the strongest opposition political party is seeking to deny the government a victory by supporting those demands.

    Finally, on the subject of the fallout in Slovenia from the Agrokor/Mercator crisis in Croatia, Ilic reports that his country has created the so-called “Lex Mercator law — essentially copy/pasted from Lex Agrokor idea.” Still, he says, it’s less of an issue in Slovenia than in Croatia.  “Basically we do not see the same pressure and discussion as in Croatia. Everybody’s aware that at some point Mercator will most probably be sold to a new buyer, either in a package deal with Konzum, or as a single deal, but for the time being it seems to be self-sustainable, the debt is regulated by the Master Restructuring Agreement.” He smiles, saying, “for the time being everybody’s getting paid, the shelves are full — my wife is a regular shopper there and hasn’t seen any problems.”

  • Slovenian Data Protection

    Due to technological advances, it is becoming increasingly difficult for people to effectively manage the way their personal information is being collected and stored. It is thus quite surprising that the provisions of the Slovenian Personal Data Protection Act have managed to stay unchanged for almost ten years. But that does not mean that there have been no recent developments in the information privacy regulatory framework.

    The most comprehensive changes are those reflected in the European Union Data Protection Reform. We are expecting a smooth and timely transition of the Slovenian jurisdiction to the new rule set. Regarding the changes to the rights of data subjects, we will be especially aware of developments involving the right to be forgotten, now called the right to erasure. We find that with general awareness of this instrument spreading through the public, erasure requests are becoming more and more common, especially with high-net-worth individuals. The data controllers and processors that we work with are, on the other hand, most interested in the new obligation to designate a special data protection officer and the noticeably higher ceiling for fines that can be imposed for breaching data protection rules. Considering the fact that the current Slovenian Personal Data Protection Act sets the maximum fine at only EUR 12,510 while the new fines can potentially go into millions of euros, data protection compliance will gain additional attention.

    On the national level, the recent regulatory changes in personal data protection were mostly conducted through executive acts and the guidelines of the Slovenian Information Commissioner. The Government of the Republic of Slovenia has published a decree on unmanned aircraft systems that the Information Commissioner has been requesting for quite some time. The decree primarily regulates flight rules, permits, and supervision, but with regards to data protection the decree also (in Article 19) requires operators of unmanned aircraft weighing 5 kilos or more who are planning to operate in urban areas and operators of unmanned aircraft weighing 25 kilos or more who are planning to operate in other residential, business, or recreational areas to prepare a preliminary assessment of the effects of their activities with regards to personal data protection. This assessment must be prepared on a prescribed form and sent to the Information Commissioner. The assessment must contain information such as the type of data that will be captured, stored, or processed, the legal basis, the purpose of use, and the time period of data storage. This new source of information enables the Information Commissioner to more effectively supervise drone usage, and a fine of up to EUR 2,000 can be levied on operators for not providing the Information Commissioner with the necessary information.

    The Information Commissioner has been regularly issuing practical guidelines for database operators about the particular database safety measures required in certain situations and on how invasive data-gathering may be without breaching the minimum statutory level of personal data protection. The changes most relevant to the everyday needs of our corporate clients are those contained in the new Guidelines on personal data protection within employment relationships. These guidelines were necessary, as only biometric measures and video surveillance are specifically regulated in the Personal Data Protection Act, while monitoring Internet, email, and telephone use, gathering specific personal data, and conducting GPS and other types of surveillance on the workplace are not.

    As a notable share of the Slovenian economy is still owned (either directly or indirectly) by the Government, the provisions of the regularly amended Public Information Access Act are also an important aspect of the country’s Data Protection practice. As a lot of the amendments involve widening the scope of public disclosure, numerous provisions were considered controversial and were contested in and partially repealed by the Constitutional court. 

    In January, the Constitutional court delivered another landmark decision preserving the public disclosure requirement for business information in consulting and similar contracts that companies in majority public ownership have entered into with third-party providers. The court has stated that in these cases the needs of the public interest do justify lowering the necessary level of private data protection. Due to the general applicability of this decision, we anticipate that future amendments of the Act will continue to be steered in the direction of increased public disclosure.

    By Branko Ilic, Partner, and Miha Babic, Associate, ODI Law

    This Article was originally published in Issue 4.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

  • ODI’s Inside Perspective on the SEE Markets

    Despite a still-shaky business environment in the Adriatic region we have again experienced another very exciting year, which once made our transaction teams busier than they were the year before.

    In general, the South-East Europe (SEE) region is interesting for foreign investors mostly due to ongoing ultra-low interest rates, undervalued attractive targets, and unconsolidated markets. The biggest sell-side drivers of M&A activity in SEE continue to be distressed companies and non-core assets sales. The current trend of private-to-private business transactions and NPL transactions – both portfolio and single deals – will definitely continue in 2017, whereas privatization of companies of any significant size, unless they are distressed, is unlikely. Looking into the future, economic relations between Croatia and Slovenia could worsen slightly as a result of a significant arbitration between the two that is expected to conclude in 2017.  

    Slovenia: While two significant privatizations (those of car part supplier CIMOS and hygienic paper product manufacturer Paloma) succeeded, what was scheduled to be the biggest and most important sale process – that of Slovenia’s largest bank, NLB – is still in process. The major challenge for the Slovenian government in 2017 thus remains the privatization of state-controlled banks, the 100% state-owned NLB, and merged entity Abanka / Banka Celje. According to the commitments made by Slovenia to the European Commission, the state’s stake in NLB has to be reduced to 25%, while the merged bank has to be sold entirely. These plans would bring significant change to the Slovenian banking landscape, which is already undergoing consolidation. The sale of Unior, currently the largest Slovenian privatization being planned, will most probably be triggered in the first half of 2017, as will Slovenia’s biggest-ever railroad investment project (the so-called “Second Track,” with an estimated value of over EUR 1.4 billion).

    Banks’ de-leveraging, primarily with respect to corporate sector and tightening capital requirements, resulted in numerous NPL transactions, the largest of which was the sale of NLB’s EUR 900 million portfolio, while the sale of NKBM’s EUR 250 million portfolio has been stopped. 

    Looking back, the highlight of 2016 was the numerous successful and high valued NPL transactions, while the biggest setback would be the low realization of the privatization strategic plan that was accepted in the beginning of the year. Overall, Slovenian economic growth and the country’s sovereign rating are consistently improving and seem likely to continue to do so.

    Croatia: Notwithstanding a period of continued political instability in 2016, a gradual albeit slow recovery has appeared in the Croatian economy, moderately boosted by increased exports, intense tourism activity, and expected improvement in the country’s absorption of EU funds. The banking sector was positively affected by a recent decrease in the average NPL ratio, which peaked at 15% in June but also suffered a negative impact of the Swiss franc loan conversion. 

    The new Croatian government installed after the mid-September elections has adopted a hands-on approach and has already proposed a wide-scope tax reform, anticipated to take effect as of January 1, 2017. This reform entails, inter alia, a reduction of the corporate income tax to 18% for large enterprises and 12% for SMEs, an increase in the tax-free allowance for personal income tax, and a reduction of the VAT rate. Introduction of a tax on real estate ownership is envisaged for 2018. Privatization of state-owned assets largely depends on the directives of the newly established Ministry for State Assets. We find interesting and spotlight-worthy the Adris Group’s publicly expressed intention to consolidate the insurance business in the region by means of a competitive takeover of Sava Re. 

    Serbia: In 2016 the value of foreign investments in Serbia reached EUR 1.25 billion, which is about 8.5% more than last year, and it is expected to be around EUR 1.9 billion in 2017. The Serbian government successfully sold the country’s sole steel producer – Zelezara Smederevo – to China’s Hebei Iron and Steel, although the long-awaited privatization of Telekom Serbia, Serbia’s largest operator, has failed, as Serbia’s government rejected all offers on the table. In 2017 it is anticipated that Serbia’s government will start the privatization of several state-owned companies from the banking, telecommunication, and insurance sectors.

    The infrastructure projects planned throughout Serbia should boost the economy and produce substantial work for local companies. Indeed, the highway section from Ljig to Preljina in central Serbia, worth EUR 308 million, was already built in the second half of 2016, and the Belgrade waterfront project, worth over EUR 3.5 billion and initiated in 2014 between Eagle Hills from the UAE and the Serbian government, is already helping the Serbian economy.

    The continued rise of NPLs resulted in the adoption of the NPL Resolution Strategy 2015 and commitment to various policy reforms under the IMF standby arrangement. As for legislation, a new Enforcement and Security law entered into force aimed at better controlling debtors, while work on the new Civil Code continues.

    Montenegro: Foreign direct investments in Montenegro at the beginning of 2016 amounted to EUR 223 million – an increase of over 100% from the same period in 2015. Looking forward to 2017, we expect that Montenegro will remain a magnet for investments because of its business-oriented economic system. The privatization of the New Tobacco Plant was successfully completed in the first half of 2016, and the Bar-Boljare Highway Project – a key infrastructure highway project led by the Ministry of Transportation and Maritime Affairs – is on schedule. After its construction, the highway will be incorporated into the international road network connecting several countries in Central Europe. As the Bar-Boljare Highway Project, worth EUR 2 billion, is the largest infrastructure project in Montenegro, it will continue to keep local companies busy in the upcoming year as well. 

    Macedonia: Affected by a decline in investment (affected largely by significant political uncertainties), growth in Macedonia is expected to slow to 2% in 2016 but recover gradually to 3.7% in 2018, backed by strong export performance (mainly from technological industrial development zones) and infrastructure investment. 

    Consumption remained the main driver of growth, supported by stable employment and higher public wages and transfers. Indeed, Macedonia continues to score highly on international rankings of ease of doing business and low tax burden. The World Bank Doing Business 2016 report ranks Macedonia 12th out of 189 economies, far higher than many other EU and neighboring countries. In 2015, the country’s Commercial Law was amended to reinforce minority shareholder rights, improve corporate governance, and increase the transparency of financial results reporting. As the quality of legislation is improving, the focus is on building institutions capable of ensuring effective implementation of the legislation.

    Bosnia and Herzegovina: In the first quarter of 2016, foreign direct investment in BiH amounted to BAM 145.3 million, compared to the BAM 22.5 million in Q1 2015 investments. The biggest investments this year were in the energy sector, including the signing of several contracts regarding the construction of electric power facilities.

    Although according to the country’s Privatization Plan for 2016 six state-owned companies were expected to be privatized, only two privatizations were realized: the sales of Fabrika Duhana Sarajevo d.d. Sarajevo and of Bosnalijek d.d. Sarajevo. In 2017 it is anticipated that the BiH government will finally start the privatization of state-owned companies from the telecommunication sector.

    It is expected that the foreign direct investments in 2017 should increase by about 0.2% over this year’s results.

    By Uros Ilic, Managing Partner, ODI Law Firm
    This Article was originally published in Our Third Special Year-End Issue of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
  • The Buzz in Slovenia: Interview with Grega Peljhan of Rojs, Peljhan, Prelesnik & Partnerji

    The Buzz in Slovenia: Interview with Grega Peljhan of Rojs, Peljhan, Prelesnik & Partnerji

    We can look at the current situation from the bright side in Slovenia,” laughs Grega Peljhan of Slovenia’s Rojs, Peljhan, Prelesnik & partnerji law firm. “We have Melania Trump and the world’s best cook, Ana Ros!”

    Turning serious, Peljhan says that “the economy’s picking up and unemployment is doing down — so we can look quite positively towards the future.” Peljhan lays out just some of the encouraging developments: “A second wave of privatization is going on. The largest Slovenian bank, Nova Ljubljanska Banka, which is currently 100% state-owned, is going to an IPO this year, and the country’s 2nd largest bank will probably start the process this year as well. There are also some greenfield investments in the country: For instance Magna International is building a new factory here, and Yaskawa Electric is building a new robotics factory.” Peljhan describes these as “all good signs, meaning more work for us.”

    In addition, Peljhan says, “with the bank consolidation there’s quite a bit of M&A work, and the NPL markets are quite active, as NPLs from the three largest Slovenian banks (and some smaller banks as well) have been transferred to the Bank Asset Management Company, Slovenia’s bad bank, which is required to dispose of the assets, creating quite a bit of work on one side or the other.”

    Despite a generally positive outlook, Peljhan isn’t insensitive to the risks. “We also see some dangers,” he says, “tied primarily to the political situation and syndicates in the public sector. The syndicates in the pubic sector is putting huge pressure on the government to increase wages, which is likely to increase the deficit, and puts pressure on government to find the money. And there are attempts by the government to increase taxes, including taxes on profits. And the Ministry of Health is trying to pull contributions for health insurance from rent, profits, and everything, potentially increasing taxation about 6.5%.” Peljan describes this as “quite a huge increase.”

    “What’s also creating a problem for our sector is a very high tax on salaries,” Peljhan says. “For example, if we provide a salary of EUR 5000, we have to pay an additional EUR 10,000 in taxes. Consequently, it’s quite hard to keep the best people in Slovenia or to find people from outside.” The RPPP Partner sighs that this is “tough for law firms,” explaining that “if you want to have good people, you have to pay them, and this is, I would say, a problem. They also want to tax profits. For employers it’s a zero or even a minus game at the end of the day.”

    Peljhan describes the legal market and bar association as “pretty stable,” reflecting the “good leadership in the bar.” Peljhan notes the international law firms coming in to the country — “mainly from Austria” — but says “I would say it’s fair competition — we have to live with this.” He laughs: “We are definitely not furious. “ Indeed, Peljan — whose firm, he notes, is the largest in the country in headcount, turnover, and profits — notes that “they have been here for quite some time, but we are still managing to grow, so for us it’s ok.”

    Indeed, there’s a clear bright side. “The market has gotten used to international standards,” Peljhan says, “ and to the quality of work.” What’s more , “it’s also good for us to have quality lawyers on the other side of the table.” As a result, he says, “if I look back 10 years, the sophistication of the deals has gotten really high. I can say we’re reaching Western standards.”

  • CMS Slovenia Welcomes Two New Partners

    CMS Slovenia Welcomes Two New Partners

    CMS Reich-Rohrwig Hainz is announcing that lawyers Maja Zgajnar and Dunja Jandl are joining the firm’s Slovenia office as Partners. The two lawyers focus on the fields of real estate, property, litigation and banking & finance.

    Dunja joined the firm in February and Zgajnar joined in March, the firm reports.

    Zgajnar began her career with Schoenherr in 2001, and in 2003 moved to a local law firm. In 2007 she joined Wolf Theiss in Slovenia, then moved back to Schoenherr in February 2013. CMS reports that Zgajnar “has supported almost all major banking & finance projects in Slovenia in the past years,” including “the restructuring of the Slovenian conglomerate Istrabenz, which involved 20 banks and liabilities in the amount of close to EUR 1 billion, [and] … the restructuring of Pivovarna Lasko, Slovenia’s largest beverages producer, with an outstanding loan debt of EUR 370 million.” The firm reports that “she was involved in the most important NPL sale (ACH d.d. loans) of the Slovenian bad bank DUTB d.d. to Bank of America Merrill Lynch (value over EUR 160 million).”

    Jandl, who first joined CMS in 2008 and who focuses primarily on real estate, returns to the firm after a two year interval at Schoenherr. The firm says Strabag, CTP, Bauhaus, and Spitzer GmbH “are just a few of the clients she advised in the past years,” and reports that Jandl “will also head the office’s litigation team.”

    Gregor Famira, head of the CMS office in Ljubljana, comments, “In a market as small as Slovenia, it can be difficult to recruit the best people. The fact that as many as two of them will are joining us bears witness to our outstanding work and the interesting client structure of our office in Slovenia. We are happy that Dunja Jandl and Maja Zgajnar decided to join CMS – both the team and our clients will benefit greatly from this step.”

  • Deal 5: Darko Hrastnik, Chairman of the Board and CEO, on UNIOR Refinancing

    Deal 5: Darko Hrastnik, Chairman of the Board and CEO, on UNIOR Refinancing

    On December 20th, 2016, CEE Legal Matters reported that the Slovenian metal-processing company UNIOR had completed a syndicated debt refinancing process with a group of six banks. We interviewed Darko Hrastnik, the Chairman of the Board and CEO at UNIOR, who was directly responsible for handling the transaction and managing the external counsel.

    CEELM: We understand that UNIOR doesn’t have an in-house legal team. Who within your team was tasked with selecting and then liaising with your external legal counsel on this matter?

    D.H: UNIOR has its own small legal team which deals with day to day matters but does not have enough experience and knowledge about banking and refinancing processes, since they are not on our table very often. Therefore, the assistance of experienced external specialist, who is also familiar with practice, internal procedures, and thinking of the banks was needed. The process of selection and liaising with external legal counsel was managed directly by the management board of Unior with assistance of in-house legal team.

    CEELM: The company is in the process of being privatized in what has been described as “currently the biggest anticipated Slovenian privatization procedure.” Did this process complicate the refinancing process in any way? If so, how?

    D.H: The process of privatization partially initiated the process of refinancing. The goal of the company, the sales consortium, and the banks was to conclude the process of refinancing first and only afterwards to continue with crucial activities of the sales process.

    CEELM: Why was the existing debt refinanced by two separate syndicated facilities agreements?

    D.H: Under the MRA which was signed in 2013 between UNIOR and 12 banks, UNIOR committed to sell the Tourism division (profit center). UNIOR’s general activities can be divided into two parts: metal and tourism. The metal part represents around 86% of the company’s turnover. Before refinancing there were 12 banks with a lot of different loans. Collaterals and loans were mostly not linked with the two activities and their needs. We had a problem of cross collaterals between both activities, and, in addition, the banks had different positions with respect to their security. Refinancing has simplified the situation significantly. We now have fewer banks with the same treatment and a clear distinction as to which loan and which collateral belong to each activity of the company. Two separate agreements could simplify the sales procedure since our tourism division can now be spun off — and if necessary sold separately.

    CEELM: What were the criteria for which you picked Rojs, Peljhan, Prelesniki & Partners to work on this deal?

    D.H: RPPP was also our legal counsel for the MRA that was signed in 2013. We were extremely satisfied with their work at that time, when the first cases of financial restructuring in Slovenia appeared. At that time the participants of such cases in Slovenia did not have sufficient experience in this field. In addition we have cooperated with them in some other cases since 2012. They know our company, they were deeply informed about the commitments in the MRA, they are responsive and experienced in this field, always bringing solutions and smart proposals. Other than them we do not see many top level law firms specialized in these field in Slovenia.

    CEELM: What was the firm’s mandate specifically and what work was carried out by your own team in this deal both in terms of negotiating and signing the main terms and conditions of the refinancing (completed in August 2016) and in terms of negotiating and signing of the finance and ancillary security documents (completed in December 2016)?

    D.H: All negotiations between the banks and UNIOR were carried out with the presence of law firm and representatives from UNIOR. Legal matters were in some cases negotiated directly between UNIOR’s law firm and the law firm representing the banks. Of course, all the legal matters were finally agreed upon and confirmed by responsible persons from UNIOR and the banks. On the other hand, economic and matters connected with commitments and other conditions were agreed upon between the banks and UNIOR. With most of these issues the experience of the law firm was more than helpful and was expressed through ongoing advice which helped us to conclude the deal. 

  • The Constitutional Court of Slovenia (Court) Decides in a Highly Anticipated Bail-In Case

    Currently, one of the main issues in Slovenia is the ruling in late October 2016 of the Constitutional Court of Slovenia regarding constitutional rights violations suffered by investors in five major Slovenian banks when both their equity capital and the subordinated instruments were written off as a result of extraordinary measures exercised by the Bank of Slovenia between December 2013 and December 2014 as a result of the systemic banking crisis. 

    The Court’s ruling held that certain provisions of Slovenia’s Banking Act were inconsistent with the constitutional right to effective judicial protection of damages claims related to the allegedly unfounded write-off of equity and subordinated capital instruments.

    The Court’s review of the constitutionality of the abovementioned extraordinary measures based on the Banking Act was initiated by applicants claiming that they had unjustifiably lost all of their investments. In their view, the regulation on compulsory write-off of the eligible liabilities of banks, established by the Banking Act, directly and disproportionately interfered with the principle of non-retroactivity and the rights to judicial protection and to private property as set forth in the Slovenian Constitution. 

    The Court found that the Banking Act was unconstitutional – but only regarding the provisions concerning damages claims related to damage incurred by the exercise of extraordinary measures of the Bank of Slovenia, whereas the procedure, conditions, and authorization of the Bank of Slovenia to impose the extraordinary measures were found to be consistent with the provisions of the Slovenian Constitution. The Court ruled that decisions on extraordinary measures were lawful, since the principle that individual creditors must not incur greater losses than they would in the event of the bank’s bankruptcy was respected, meaning that the right to private property had not been interfered with. In other words, according to the Banking Act, no individual creditor should incur greater damage by exercise of the extraordinary measures than they would have, had no measures had been adopted. In this case, the incurred damage would be the difference between (i) the proceeds that creditors would be entitled to in the event of the bank’s bankruptcy (or proceeds they would have gotten had the banks been solvent and bankruptcy proceedings not been necessary); and (ii) the proceeds received after the extraordinary measures imposed by the Bank of Slovenia.

    Notwithstanding the Constitutionality of the Extraordinary Measures themselves, the Court found that holders of subordinated instruments had not been provided with effective judicial protection, given that the challenged provisions of the Banking Act did not consider and properly evaluate their significantly weaker factual and procedural position compared to the position of the Bank of Slovenia.

    In reaching its conclusions, the following was deemed essential by the Court: (1) The lack of access to information and data related to the assessment of the value of bank assets and other relevant information that would enable claimants to bring actions for damages; (2) The absence of specific and customized procedural rules that would outweigh the information imbalance between the average holder of subordinated instruments and the Bank of Slovenia (in other words, the Court shifted the burden of proof for the necessity of extraordinary measures from the creditors to the Bank of Slovenia); and (3) The absence of specific speedy and economical collective judicial procedures to ensure well-founded and uniform decisions in disputes between all holders of subordinated instruments and the Bank of Slovenia.

    Based on its findings, the Court ordered the National Assembly of Slovenia to remedy the established unconstitutionality of the Banking Act by adopting legislation consistent with the Constitution within six months.

    In order to secure the constitutional right to effective judicial protection in the interim, the Court suspended the statute of limitation for damages claims against the Bank of Slovenia until the expiration of that six-month-period. 

    In the aftermath of the Court’s ruling, holders of subordinated capital instruments are preparing to bring actions for incurred damages estimated to surpass EUR 600 million in total (which is the amount of the written-off subordinated obligations without share capital). Claims will be based on the fact that the last published balance sheets and financial statements of the banks (on 30 September 2013) prior to the write-off (17 December 2013) did not indicate their negative capital, as reported later by the Bank of Slovenia when imposing the extraordinary measures (which were based on the different evaluation methods as established by International Financial Reporting Standards).   

    By Matjaz Jan, Partner, ODI Law Firm

    This article was originally published in Issue 3.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

  • Slovenian Central Credit Register: New Approach for Exchange of Information

    In accordance with the Central Credit Register Act (Official Gazette of the Republic of Slovenia, No. 77/16; “ZCKR”), the Bank of Slovenia established a centralised database of the indebtedness of private individuals and business entities (Central Credit Register; “CKR”) in order to enable more efficient managing of credit risks and ensure more vigilant lending.

    In this regard, an electronic system for exchange of information was set up and became operative on 3 January 2017. The already existing information system (“SISBON”) for retail borrowing is now supplemented by the information system for the exchange of information on indebtedness of business entities (“SISBIZ”). Both information systems are managed by the Bank of Slovenia and accessible through its website under the subpage “Central Credit Register”.

    Data are reported by banks, savings banks and other lenders whose core activities are crediting, the provision of financial leasing, real estate leasing or factoring services. Furthermore, also payment service providers, the Bank Asset Management Company (i.e. the Slovenian bad bank), the Housing Fund of the Republic of Slovenia, the Eco Fund, and the Ministry of Finance’s Public Payments Administration are required to report data to the CKR. Additionally, other lenders providing consumer lending services are able to join.

    The information collected within the CKR include basic data regarding borrowers and data on credit transactions, while in the case of business entities the Bank of Slovenia may also request additional information on forborne exposures, performing or non-performing exposures and their classification. Security of data is ensured by imposing mandatory technical and security requirements for all members, and by monitoring when, by whom, and for what purpose the data were accessed. The borrowers are also able to access their individual data in the system, further strengthening security and correctness of the information exchange mechanism.

    Upgrading the current system will certainly help to provide lenders with a better oversight of borrowing by individuals and businesses, and thus strengthening macro-prudential supervision and financial stability in Slovenia. Moreover, as the establishment of CKR also represents part of actions in the European banking area, the CKR will help in the creation of a single database on bank loans in the euro area, known as the Analytical Credit Datasets (AnaCredit).

    By Jasna Zwitter-Tehovnik, Partner, and Leon Ribic, Associate, DLA Piper Vienna