> Prevention and Resolution of Disputes

Dispute between the shareholders of Ljubljanska banka and the state resolved after 25 years

In the first half of the 1990s during the negotiations on the investment dispute in Malta, I often used to read Maltese newspapers. I remember a large title of an article about a court judgment, which has put an end to a 17-years-long ownership dispute. The article’s focus was on the slow grinding of Maltese court mills. As a relatively young attorney back then, I thought it was impossible that the resolution of an ownership dispute would take more than one and a half decade. The journalist who wrote that article found the news on the length of the dispute resolution sensational as well.

At that time, at the turn of 1992 and 1993, the Bank of Slovenia, due to the recovery of Ljubljanska banka, expropriated the shareholders of Ljubljanska banka and transferred their shares into the ownership of the Agency for the Recovery of Banks and Savings Institutions (ASBH). The concept of recovery was as follows: ASBH received bonds from the state in the amount of about 1 billion DEM (today about 500 million EUR) and used them as a purchase price of the the bad debts of Ljubljanska banka at their nominal value, simultaneously receiving into its ownership all the shares of Ljubljanska banka. Within the recovery procedure, ASBH should have realised the bad debts and sold the shares of Ljubljanska banka. The profit should have covered the costs of recovery, paid the debt to the state in the amount of 500 million EUR, while the remaining part of the assets should have belonged to the expropriated shareholders. This way, the expropriated shareholders received subordinated claims against ASBH in consideration for their shares.

In 1993, the expropriated shareholders began a court fight for their right, first against the Bank of Slovenia by unsuccessfully challenging the decision on recovery. In these proceedings, the judiciary, including the Constitutional Court, sided firmly with the Bank of Slovenia. The shareholders did not succeed with their arguments and proofs that Ljubljanska banka was not in such difficulties as demonstrated by the Bank of Slovenia pursuant to the report of a group of foreign experts led by the Spaniard Aristóbulo de Juan, as this report was never based on audited accounting information of Ljubljanska banka (how similar are the reproaches of shareholders and subordinated creditors expropriated in the recovery of Slovenian banks in 2013!). They even failed to succeed in proving that the expropriation took place and that they did not receive a proper compensation upon the expropriation. The courts namely deemed that precisely the subordinated claim against ASBH was a proper compensation. These proceedings ran relatively fast and many shareholders soon abandoned all hope that they will receive anything for their expropriated shares. However, not all of them.

The state provided for a further complication (and simultaneously the beginning of the resolution of the problem) with the 1994 Constitutional Act, pursuant to which Nova Ljubljanska banka (NLB) was founded. Due to transfer to NLB, the old Ljubljanska banka remained almost without all its liquid assets and without banking business. It seemed that the fate of expropriated shareholders was sealed, as the state stood firmly on the position that the shareholders of Ljubljanska banka have nothing to do with NLB and are thus not entitled to receiving anything from the privatisation of NLB.

Nevertheless, precisely the 1994 Constitutional Act contained a provision which turned out to be crucial for enforcing the subordinated claims of expropriated shareholders. Upon the establishment of Nova Ljubljanska banka, Ljubljanska banka had to return to ASBH the bonds which it had received within the recovery procedure, and ASBH invested them into NLB as equity. Thereby, ASBH received back the entire purchase price, which it had paid for the bad debts of Ljubljanska banka. It received NLB shares, which it transferred to the state later on. However, it was left with the bad debts of Ljubljanska banka, which it recovered with slightly more than 20% success. Thus, it would have been expected that following the realisation of bad debts and the payment of the costs of realisation, ASBH would prepare the closing accounts and pay the remaining assets to the expropriated shareholders. Namely, their claims have no longer been subordinated since the year of transfer of NLB shares into state ownership, as ASBH had no other creditor than the expropriated shareholders.

This is where the second part of the cavalry of expropriated shareholders begins. It turned out what the expropriated shareholders had claimed from the very beginning of disputes: the state awarded them subordinated claims with a false promise. ASBH has never conducted its business transparently. It was impossible to obtain the data on the realisation of bad debts. The Ministry of Finance ordered legal opinions with the purpose of proving that it does not owe anything to the expropriated shareholders. It is even evident from one such opinion that the Ministry of Finance did not like the first version of the opinion, so the author of the legal opinion wrote a second one that was acceptable to the Ministry. Moreover, precisely that version was then submitted by the Ministry in at least one court proceeding, of course without the initial version.

The recovery of banks, which started in the beginning of 1993, ended in June 1997, i.e. four and a half years after it was introduced in Ljubljanska banka. Upon the end of recovery, the Bank of Slovenia concluded that the decision on subordinated claims of “old shareholders” against ASBH would be taken within the procedure of NLB privatisation. The procedure of NLB privatisation was implemented in 2002, when 34% of NLB’s shares were sold to the Belgic bank KBC, and 5% to EBRD. After that, the state refused to prepare the final statement of account of subordinated claims and pay to the expropriated shareholders what they would have been entitled to according to the final statement of account. In 1998, the then Government of the Republic of Slovenia adopted a Decree on the Dissolution of ASBH, whereby it determined that the obligations of ASBH under the subordinated claims shall pass to the state within the time limits and in the manner and under the conditions as stipulated by law. This act has never been adopted and ASBH still exists on paper.

Due to such behaviour of the state, the expropriated persons were forced to seek in court the payment of what they were promised by the state upon the recovery of Ljubljanska banka. In 2000, the shareholders, who first failed with seeking the annulment of expropriation filed a lawsuit requesting the payment of compensation for expropriated shares, and finally reached the finish line 25 years after the expropriation and 18 years after filing the lawsuit: a few weeks ago the state paid them slightly more than EUR 365,000 (including default interest) for 11,601 expropriated shares (which represented 0.1877% of Ljubljanska banka’s equity). Persistence paid off this time, their justice has been served.

One would imagine from the title of this article that it is aimed at criticising the slow grinding of court mills. Yet it is not. At least not in its entirety. It is aimed at criticising how the state manages the property of its citizens. ASBH as recovery operator had the duty to prepare closing balance sheet upon the end of recovery and determine whether and how much the expropriated shareholders who became subordinated creditors should receive from the recovery. It failed to do this. If ASBH were a private person, such behaviour would reveal the elements of trust abuse. Since this is the behaviour of the state or its agency, it is obviously permitted (quod licet iovi non licet bovi!). The expropriated shareholders who did not file a lawsuit did not receive anything. I wonder whether the citizens should not have been able to expect from the state that according to its Constitution is governed by the rule of law, or even better from the persons who manage and operate such state, to act in accordance with the fundamental principles of law laid down already at the time of Ulpian (around 220 AD): honeste vivere, neminem laedere, suum cuique tribuere – to live honestly, to hurt no one, to give everyone his due? And that we would not need to enforce this in time-consuming legal proceedings.