Slovenian Bail-in Tactics Questioned as CJEU Opinion Supports Retail Subordinated Debt-Holders Reports VZMD

Pan-Slovenian Shareholders' Association (VZMD) reports that the CJEU court opinion, Kotnik e.a., delivered on February 18, 2016, supports approximately 2000 retail credit holders of Slovenian banks expropriated during the 2013 banking crisis and bail-in.

​Advocate General Wahl's opinion states EU banking communications are not legally binding on member states. Furthermore, there is no duty to impose a compulsory write-down of subordinated debt, nor is disproportionate burden-sharing a precondition for winning EU approval of state aid measures. 

EU court opinion provides general support to expropriated subordinated debt-holders, including retail investors and subordinated certificates-of-deposit holders, whose bank investments went up in smoke in the particularly harsh Slovenian bail-in of 2013. The Court of Justice of the European Union (CJEU) Advocate General’s opinion Kotnik and Others (Kotnik) was delivered on February 18, 2016.

"We are pleased with the Advocate General's Opinion in Kotnik as it confirms that disproportionate "burden-sharing" was not mandated by the EU."

Kristjan Verbic, President, VZMD - PanSlovenian Shareholders' Association

Advocate General Wahl’s opinion questions the validity of the Slovenian government’s actions concluding: 

  • European Union (EU) communications are not legally binding on member states. If an EU communication is incompatible with a country’s national legislation or constitution, no duty is imposed on the country to change its laws. 
  • The EU, even in the context of the Banking Communication of 1 August 2013 (Banking Communication), lacks the authority to require a member state to impose “burden-sharing” on debt-holders in the form of a compulsory write-down of their claims or a conversion into equity.

Kotnik serves to more clearly delineate the power of the EU with regard to its member states and the power of those states to institute bail-in measures. These determinations will come into play as EU members struggle to implement the Bank Recovery and Resolution Directive (BRRD) and fine-tune their bail-in tools. 

President of the Pan-Slovenian Shareholders’ Association (VZMD), Mr. Kristjan Verbic affirms, “We are pleased with the Advocate General’s Opinion in Kotnik as it confirms that disproportionate “burden-sharing” was not mandated by the EU.” 

View opinion delivered by Advocate General Wahl: 


VZMD, representing the rights of small, expropriated debt-holders, filed the underlying case, Kotnik e.a. at the Constitutional Court of Slovenia (Constitutional Court) on December 4, 2013. The Constitutional Court subsequently referred this case to the CJEU for guidance on the validity and interpretation of the Banking Communication. In the Slovenian bail-in, subordinated debt-holders of six banks, including all three systemic banks in the country, were totally wiped-out. Slovenia did not offer the subordinated debt-holders the option of a partial write-down or conversion of the debt to equity. In stark contrast with bail-ins in other European countries, debt-holders lost the entire amount of their investments and received zero compensation in return. The Slovenian government relied on the Banking Communication to justify its unprecedented expropriation of subordinated debt-holders, taking the position that the EU required it to impose disproportionate “burden-sharing” as a precondition to winning approval for state aid measures. The EU approved the government’s application to dispense state aid from the Slovenian budget in the form of recapitalization of the banks the day after the bail-in, more than eleven months after the initial request. To obtain this approval, the government took questionable measures. The valuations that purportedly justified the bail-in remain strictly confidential to this day. 

VZMD is led by founder and President Mr. Kristjan Verbic. Mr. Verbic is on the Board of The European Association 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.