Legal expiration of substitute claims and public liabilities

The case was brought before the Court as a result of applications filed by members of parliament as well as by the regional court of Klagenfurt. The applications drew into question the constitutionality of parts of the Hypo Reorganization Act (Hypo-Sanierungsgesetz). Subdivided into four different laws, the Hypo Reorganization Act provides for the restructuring and controlled winding-down of the Hypo Alpe-Adria – Bank International AG (“Hypo”), an Austrian credit institution in financial trouble, which had been nationalized in 2009. One of the laws the Hypo Reorganization Act comprises is the “HaaSanG”, which foresees the expiry of certain subordinate claims as well as guarantees thereon, and the deferral of certain disputed claims. Another part is the Act on the establishment of a wind-down unit, “GSA”, which determines the conditions for the winding-down of portfolios by Hypo (henceforth acting under the name “HETA”). Both HaaSanG and GSA formed part of the proceedings before the Court.

Section 3 HaaSanG stipulates that with the publication of a corresponding ordinance by the Financial Markets Supervisory Authority (“FMA”), all subordinate claims and shareholders’ claims substituting equity maturing before the 30 June 2019 (“cut-off date”) expire. Section 6 HaaSanG provides that creditors, whose claims fall under section 3 HaaSanG, may gain a new claim against HETA if, after the completion of the wind-down, assets remain. Disputed claims (claims whose status as subordinate or as shareholder’s claim is unsure) are deferred at least until this date or until the proceedings are completed. According to the explanatory remarks to the government bill, a period of around five years with the cut-off date on 30 June 2019 was deemed to ensure an orderly wind-down of portfolios at the best possible conditions, while allowing to honour the remaining subordinated claims.

The applicants, however, submitted that the expiry of claims violated the fundamental right to the protection of property. They saw it as an expropriation or restriction of property rights. Since only claims of certain subordinate creditors were affected while other (equally subordinate) creditors as well as the Austrian federation as the owner of HETA could keep their claims, the pari passu principle was not respected. Even if a public interest were to be granted, the restriction of the right to property would be disproportional and violate the right to equal treatment. An ordinary insolvency procedure could have avoided this discrimination.

The Court took up on these concerns. The creditors’ claims were deemed to fall under the right to property as protected under constitutional law (Article 1 Protocol 1 ECHR and Article 5 Basic Law on the General Rights of Nationals) and under European law (Article 17 European Charter of Fundamental Rights). However, the Court found that the expiry of claims according to the HaaSanG was not an expropriation strictu senso, since the claims were chosen solely for their worth. Moreover, the restructuring of Hypo was in the public interest. Since the legislator had a wide margin of appreciation when making economic prognoses, he could choose a wind-down over ordinary insolvency proceedings. Also, a “hair-cut” may be necessary for the resolution of a bank in crisis. The differentiation between different groups of creditors (“normal” and “subordinate”) was legitimate, since subordinate creditors would also leave empty-handed in insolvency proceedings. Regarding the differentiation between subordinate creditors and the Austrian federation as the owner of HETA, it had to be taken into account that the Austrian federation had already put in more than € 5 billion to mitigate damages in the interest of other creditors.

However, the Court found that the right to property was nonetheless violated because the HaaSanG differentiated within the group of subordinate creditors by declaring only those claims expired that mature before 30 June 2019. Subordinate creditors with such claims were discriminated further as the securities and guarantees on their claims expired together with the claim, while other equally subordinate creditors were not affected at all and even kept their interest claims. Since it turned out that the cut-off date could not prevent HETA from failing before the end of restructuring period (measures under the Bank Restructuring and Resolution Act had been taken with regard to the remaining creditors after the entry into force of the Hypo Reorganization Act), it could not be justified with ensuring an orderly restructuring and resolution.

The Court also agreed with the applicants regarding the expiry of all securities together with the claims foreseen in section 3 HaaSanG (and section 1356 Civil Code). This particularly affected guarantees by the Land of Carinthia according to the Holding Act of the Land of Carinthia (“K-LHG”). The Court emphasised that claims resulting from such statutory guarantees (rendering the claims quilt-edged and equipping them with qualified protection) constituted a severe restriction of the right to property. While the government claimed the protection of creditworthiness of Austrian Länder as well as the prevention of an insolvency of the Land of Carinthia, the Court saw no reason solely for the specific group of subordinate creditors to be drawn on. The expiry of guarantees, which exclusively applies to those subordinate creditors whose claims expire while guarantees for other creditors remain unaffected, was found to be neither factually justified nor proportionate. Guarantees issued by a Land must not be rendered invalid retroactively, even when the Land is evidently incapable of bearing the risk (at the time of the judgment, the guarantees still amounted to around € 10.2 billion).

As regards the GSA, the applicants submitted, inter alia that it was unclear which assets may be transferred to other entities in the course of the winding-down of Hypo and that the minister of finance had too great a discretion in deciding how this transfer was affected (by way of ordinance or ruling). However, the Court found that owing to the legislator’s margin of appreciation and the flexibility needed for the resolution of Hypo, the GSA is in conformity with the constitution. Thus, also certain (e.g. cancellation or approval) rights may legitimately be limited when deciding on restructuring measures and specific insolvency rules foreseen for a wind-down unit.

The Court thus concluded that the HaaSanG is unconstitutional and repealed it in its entirety. Hence, the FMA ordinance based on it was repealed as well. A deadline for correction was not set and, thus, the HaaSanG is no longer applicable. As far as the applications concerned the GSA, they were dismissed as unfounded.