The public dispute about the Corporate Commercial Bank is rising multiple questions about the procedure, the authorities, and the rights of the depositors.

The bank continues to be under special supervision and it is still not clear when and how will the investors be compensated. Here is what the current legislation has to say about the question.

The Bank Deposit Insurance act and Ordinance № 23 on the terms and procedure of deposit payment in banks with a revoked license up to the guaranteed amount, set the frame for the procedure. The provisions apply to banks with a permission to accept deposits in Bulgaria.

The Deposit Insurance Fund is the main body in the procedure. Its main function is to protect the rights of depositors and to guarantee banks’ stability. In order to do this The Deposit Insurance Fund (Fund) has to dispose with a significant financial resource. This resource is composed of deposits which every bank with a license is obliged to pay. The accumulated funds can be invested in different financial instruments. The restrictions are that these instruments are securities, issued from or guaranteed by the government, short-term deposits in commercial banks and deposits in the Bulgarian National Bank (BNB).

By the end of 2013 the money in the Fund is just over 1.8 billion BGN. According to the latest data from BNB the household deposits are 38.6 billion BGN. The non-financial enterprises’ deposits are just above 15 billion BGN. Of course, many deposits above the guaranteed amount are not included here. But what happens when the money in the Fund is not enough to cover the guaranteed deposits in a bank with a revoked license?

Even if there is a shortage of funds, the obligation to pay the guaranteed deposits remains and the Fund has a few options to secure the necessary resources. The Governing Council can obligate the banks to transfer annual premium contributions, to increase the amount of the annual instalment or to use a loan. Loans could be borrowed by Bulgarian and foreign banks, and other persons, but also from the state budget with a permission from the National Assembly. When using a loan the Fund can secure its obligation with a state guarantee or with its own assets, including future drawings from premium contributions.

According to the law deposits in BGN and foreign currency are guaranteed. “Deposit” means money in a bank account, regardless of its type, opened on the name of one or more individuals or legal entities. It also means credit balance resulting from temporary situations, caused by routine bank transactions which the bank is obliged to pay back to the depositor. In practice, it is not only about deposits. Money in a bank account of any kind, opened on the name of an individual or a non-financial institution is guaranteed up to a certain amount.

Here we should note a particularity – if a depositor has arranged a privileged regime for his deposit, the funds are not guaranteed. Deposits of financial institutions, of local and central authorities, of shareholders in the bank with more than 5% participation, of members of the management or control authorities and of auditors of the bank and their close relatives are also not guaranteed.

The law guarantees full repayment of sums up to BGN 196,000 on deposits of an individual in bank, regardless of their number and amount. Deposits in a foreign currency are repaid with their BGN equivalent, determined by BNB exchange rate at the initial day of the guarantee payment. This means that if a person has five deposits each of 100,000 BGN in a bank, the Fund shall pay maximum amount of BGN 196,000 in total for all the deposits. If he has five deposits, each of 150,000 in five different banks and the license of all the banks gets revoked, the depositor has to receive the total amount of money on each deposit. For the excess money above the guaranteed amount the depositors are granted with bank assets, that is to say – through bankruptcy proceedings in which each depositor has to protect his interests and expect proceeds from the sale of the bank’s assets.

In a joint deposit the share of every person is taken into consideration when determining the total amount of his bank deposits. If five persons, with equal contributions, have deposited      BGN 500,000, each one of them will receive BGN 100,000 (unless he has other deposits in the same bank).

In the case of a deposit contract in favor of a third party, the right to receive payment from the Fund will belong to the third party (the beneficiary), unless the contract provides otherwise. When there are more than one beneficiary, then the rules for the joint deposit are applied.

If the depositor has obligations to the bank, the determined guarantee is deducted from them.

It is important to note that the accrued interests at the date of the withdrawal of the license are included in the mentioned maximum amount. In practice this means that if a person deposits BGN 196,000 with BGN 6,000 interest, this person will receive BGN 196 000, not BGN 202 000. If he has a deposit of BGN 40,000 and interest of BGN 10,000 BGN, he will receive BGN 50,000.

The appointed quester, liquidator or syndic is obliged to submit to the Fund’s Management Board information about deposits in the bank in within 3 business days as of the date of BNB’s decision.

The payment of money from the Fund begins within 20 business days as of the date of license withdrawal. Under exceptional circumstances this period could be extended with 10 more days. In the Corporative Commercial Bank’s case this period has not yet begun – the bank continues to be under special supervision by BNB and there is only one stated intention to withdraw its license, but no real decision for this.

The date of the guarantee payment has to be announced within 7 business days before the payment begins itself. This date as well as the servicing bank have to be published in at least two central daily newspapers. Before the first date of payment the appointed questers, liquidators, syndics or any other person explicitly authorized by them, have to prepare information regarding the payable sums, including data from the contract with the bank, as well as the total amount of money from the guaranteed deposits. This information is given to the Fund and the servicing bank the day before start of payment of the guaranteed deposits. The Fund verifies the information and if any errors are found, they need to be removed before the initial payout day. The Fund transfers to the servicing bank the determined amount of money and orders it to pay the sum to the depositors. Upon request, every depositor can receive a written certificate of the amount to be repaid.

In order for a depositor to receive the guaranteed deposit amount, starting day for payment must occur, but also the set of documents specified in Ordinance No 23 have to be submitted.

A person who claims to have a deposit but is not included in the prepared list or questions information thereunder, has the right to submit written objections within a year. Seven days is the period for delivering a decision about the deposited objection. Upon refusal, the depositor can assert his rights in accordance with the law. Should the objections be accepted, the corrected information is send to the Fund and the servicing bank in due time.

After submitting a written declaration in duplicate in the servicing bank, every depositor can receive payment on the guaranteed amount on his deposits. With the written declaration the depositor declares that he does not fall under the exclusions, mentioned in art.5, para 1, items 2-5 of the Bank Deposit Insurance Act. In addition, the depositor must provide the following documents:

• for individuals – identity card (identity document of a foreign individual);
• for legal entities – unified identification code or BULSTAT registration certificate, as well as a registration certificate of the individuals who manage and represent the legal entity

If a proxy receives the payment, he must present a Power-of-Attorney and a notary certified declaration for the lack of circumstances, mentioned in art.5, para. 1, items 2-5 and para. 2 of the Bank Deposit Insurance Act. The servicing bank checks the identity and documents. If everything is all right, the bank pays the amounts. The amount of debt of the bank with a revoked license decreases with the paid amount of money.

The steps for repayment of the guaranteed deposit amounts are clearly set out in the enactments. The Bulgarian National Bank and the Fund are burdened with the heavier part of the procedure, but it is important that every depositor takes the necessary steps on time so he/she could protect his/her rights. The law has provided a set of means with which the depositors can respond to errors by competent authorities. However, the use of these means require an active position of those concerned – foremost they must be informed about their rights and know who to turn to.

* The article was published on capital.bg on 18.08.2014.

Author: Mihail Stankov, Attorney-at-law, Partner at Stankov, Todorov, Hinkov & Spasov, Attorneys-at-Law