On the basis of Article 25 paragraph 6 of the Rules of Procedure of the Constitutional Court of the Republic of Macedonia (“Official Gazette of the Republic of Macedonia”, no.70/1992), upon my voting against the Decision U.br.43/2013 taken on 04.12.2013 for a repeal of Article 137 paragraphs 3 and 4 of the Law on Banks (“Official Gazette of the Republic of Macedonia”, nos.670/2007, 90/2009, 67/2010 and 26/2013), I separate and explain in writing the following
S E P A R A T E O P I N I O N
With the said Decision, with a majority vote the Constitutional Court decided to repeal Article 137 paragraphs 3 and 4 of the Law on Banks (“Official Gazette of the Republic of Macedonia”, nos.670/2007, 90/2009, 67/2010 and 26/2013) with an explanation that “… the said provisions grant the Governor of the National Bank of the Republic of Macedonia too broad powers in undertaking additional measures which are measures taken in exceptional situations against the shareholders in a bank. It means that in this case the Governor disposes of other person’s shares in the sense that if the shareholder does not sell the shares within the specified period, by order of the Governor they are sold on the stock exchange and the funds go into the reserves fund of the bank.” With this stance, the majority of the judges consider that with this manner of regulation of the matter the Governor is positioned above the management bodies in the banks that decide on these issues, as a result of which these “too broadly granted powers” question the constitutionally guaranteed right to property defined in the Constitution, without establishing a public interest and without giving proper pecuniary compensation.
Vis-à-vis the said arguments, and especially contrary to the decision taken I believe these provisions should have remained in the legal system, primarily given that the Court in view of the Article concerned already has a very specific case-law with the case U.br.138/2008 in which case no procedure was initiated to assess the constitutionality of Article 137 paragraphs 3 and 4
and Article 138 of the Law on Banks (“Official Gazette of the Republic of Macedonia” no.67/2007). In this case, inter alia, was elaborated whether the measures of restricting the right to payment of dividends and selling shares on behalf of shareholders issued by the Governor on shares acquired contrary to Article 59 of the Law on Banks and the shares for which the consent has been withdrawn pursuant to Article 153 of the Law, are measures taken to achieve and maintain the stability of the banking system and as such represent a public interest as defined by law, and have a constitutional ground in restricting the property and rights arising therefrom.
In this case, the Court held that on the basis of its legal powers the National Bank of the Republic of Macedonia assesses the solvency and potential risks that could threaten the solvency of the bank, evaluates shareholders and members of management bodies and their relationship with respect to an impact on the ability to implement effective audit. In this sense, the Governor is authorised to revoke the license if the bank fails to meet prudential standards for the level of own funds in relation to the specific risks to which the bank is exposed (credit, liquidity, currency and operational risk, country risk, etc.) given that he is responsible for providing and maintaining safe and stable banking system while respecting international standards. Therefore, the measures taken for the stability of the banking system are determined to protect the defined public interest.
The public interest in the banking system is reflected in its stable, efficient and transparent operation which inevitably reflects on the overall economy. Since the Law on Banks is based on standards that aim to protect deposits, that is, depositors and other creditors of the bank against possible incompetent, unethical, risky or dishonest operation and management of the bank, it provides several measures aimed at ensuring appropriate equity structure of banks. Therefore, a shareholder with a qualified holding in the bank may be only a person who has been granted an approval by the Governor for acquiring shares in the bank, in which sense Article 59 of the Law on Banks sets down the conditions for granting or refusal of the granting of prior consent for acquisition of shares or approval of the changes that occurred, while Article 153 of the same Law stipulates the conditions for the withdrawal of previously issued approval for acquiring shares in the bank. This procedure provides for the withdrawal of consent to limit the franchise that these shares have and providing adequate time for their transfer, that is sale (paragraphs 1
and 2). The restriction of the right to vote prevents the shareholder who has had the consent withdrawn or who has acquired shares without consent from influencing the operations of the bank. He is obliged to sell the shares within the time specified by the Governor. If the shareholder fails to sell the shares within the specified period, the Law obligates the Governor to make a decision finding that the shares, apart from the right to vote, do not give the shareholder the right to dividend payment, as well as to sell the shares in the name of the shareholder (paragraph 3). This measure is an additional step that should ensure unobstructed implementation of the basic objective of the banking supervision of the National Bank, and that is a reliable and stable banking system. It also provides that if during the period after the decision of the Governor on selling the shares on behalf of the shareholder until the sale of the shares the bank has paid dividends to other shareholders, the bank shall, within eight days of receiving the notification for acquiring the shares, pay the dividend to the new owner (paragraph 4). The shareholder who fails to dispose of the shares within the time specified by the Governor may not be or become a shareholder in a bank (paragraph 5).
Given that Article 31 paragraph 2 of the Law on the National Bank of the Republic of Macedonia defines that the stability of the banking system and the measures taken by the National Bank to achieve and maintain the stability of the banking system represent a public interest, it arises that the measures prescribed by the Law on the Banks, which the Governor takes if the bank, banking group, shareholders or organs of the bank fail to respect the regulations governing the operations of banks or their internal procedures, belong to the group of measures taken to achieve and maintain the stability of the banking system and as such represent a public interest as defined by the Law on the National Bank of the Republic of Macedonia. Therefore, the measures which are restriction of the rights arising from ownership of shares – revoking the right to vote in the assembly of shareholders and deprivation of the right to payment of dividends, which the Governor takes against shareholders who have
acquired shares contrary to the provisions of the Law on Banks or for which the consent is withdrawn, constitute special measures and procedures taken by the governor in order to achieve and maintain the stability of the banking system, which means that they represent a public interest as defined by law.
According to these measures, the shareholder who has acquired shares without the consent of the Governor, that is for which the consent has been withdrawn, is entitled, within the deadline set by the Governor, to transfer the shares. By the end of this deadline the shareholder is entitled to payment of dividend, if by that period the payment of the dividends is made. After the expiration of this period the sale of the shares on behalf of the shareholder will be executed by the Governor, and if the dividend is paid after this period it shall be paid to the new owner of the shares.
In the same decision it is noted that the legislator also opted for the said shares to be sold by public auction in accordance with the rules of an exchange authorized by the Commission for Securities, which enables transparency of the procedure and application of the rules of an organised market of securities in the Republic of Macedonia, which means a possibility through supply and demand on the market to achieve market value of the shares.
As the previous case, the currently repealed provisions in the Law on Banks (which in the meantime has undergone certain modifications) are challenged by similar arguments, but actually deal with the same legal issue.
The legal changes again define that the Governor take action and set deadlines for their implementation if the bank, banking group, shareholders or bodies of the bank do not respect the regulations governing the operations of banks or their internal procedures, among which there may also be some additional measures (Article 131, paragraphs 1 and 2). The additional measures are regulated in detail in a separate article (Article 133) where item 3 stipulates that the Governor may prohibit, restrict or impose specific conditions on the payment of dividends and the exercise of rights from shares.
Starting from the jurisdiction that the Governor is granted in this article, Article 137 is titled “Limitation of rights from shares”, and both currently repealed paragraphs stated that: “If the shareholder referred to in paragraph (2) of this Article fails to dispose of the shares within the specified period, the Governor shall, within eight days of the expiration of the set time limit, take a decision declaring that these actions, in addition to voting right, do not give the shareholder the right to dividend payment and there will be a sale of the shares on behalf of the shareholder referred to in paragraph 2 of this Article” (Article 137, paragraph 3) and “If in the period after the adoption of the decision referred to in paragraph 3 of this Article until the sale of shares the bank has paid a dividend to other shareholders, the dividend for the shareholder for whom with the decision referred to in paragraph 3 of this Article it has been determined no right to payment of dividend, shall be distributed to the general reserves of the bank” (Article 137, paragraph 4).
In this case also it is clear that the purposes of the measures provided for in Article 137 are an integral completed whole of actions to protect the safety and soundness of the bank by prohibiting, restricting or imposing special conditions on the exercise of rights from shares, that is, the voting right and dividend payment. Evidently, the above measures are taken only in cases of impaired financial condition and stability of the bank and also questioned timely performance of its obligations to creditors, that is, depositors of the bank, that is the purpose is to protect the ownership of these legal or natural persons. At the same time, this protective measure is realised against shareholders themselves fro a reason that the further deterioration of the financial condition of the bank is the basis for deciding to introduce an administration or bankruptcy of the bank. And again, because it is evident that these measures are aimed at ensuring the stability of the banking system they invariably represent a public interest which is legally established in this way. The property which enjoys special constitutional guarantee under Article 30 paragraph 1 of the Constitution creates both rights and responsibilities and should serve for the good of the individual and the community. The existence of a clearly identifiable public interest in providing a stable banking system through responsible protection and management of the property, legally regulated in detail in the case of having property that was acquired illegally is a guarantee exactly of the consistent observance of this Article of the Constitution.
In favour of the non-initiation of proceedings for these repealed articles is also the quite sustained opinion submitted to the Court by the Ministry of Finance. The opinion refers to the Basel principles for banking supervision from which stems the exclusive legislative authority of the National Bank of the Republic of Macedonia (Article 7, paragraph 1, item 9 of the Law on the National Bank of the Republic of Macedonia) to regulate a procedure for licensing and supervision of a bank. Hence, as stated, licensing shareholders is one of the basic international principles and standards for acquiring the status of a bank shareholder and aims at ensuring safe operation with other person’s assets and their protection, efficient supervision, reduction of the potential risks that could endanger banks’ operations and maintenance of the stability of the banking system as a whole.
The opinion also clarifies that a shareholder who has acquired shares in a bank without prior consent or who has had the issued approval withdrawn, is given the possibility within 180 days to sell the shares himself on the stock exchange at market value and without losing the right to dividend. The repealed paragraphs 3 and 4 apply to cases when upon the expiration of 180 days the shareholder fails to transfer the shares, in which case the Governor shall issue a decision declaring that the shareholder loses the right to receive dividends and shall conduct sales on behalf of the shareholder, in a public auction. If after the period of the taking of the decision until the sale of the shares the bank has paid a dividend, it will be allocated to the general reserves of the bank. This means that the distribution of the profit will be determined by the highest body of the bank, that is, the assembly of shareholders and not the Governor of the National Bank. The Governor conducts the sale of the shares on behalf of the shareholder, and the proceeds from the sale of the shares pursuant to Article 138 paragraph 12 of the Law on Banks belong to the shareholder, thus ensuring adequate compensation for the shares, and the dividend is distributed in the general reserves of the bank, thereby strengthening the stability of the bank itself and its capital base. This is a measure that relates to the restriction of the right to receive dividends only to the period from the decision-making of the governor to the sale of the shares.
Taking into account the above elaborate arguments from the so far case-law and the opinion of the Ministry of Finance, which coincide with my position on this issue, I find surprising the change of stance of the Court, in the absence of a more comprehensive explanation that would provide more elaborated opposite arguments than the already existing ones. At the same time time, I hope that new methods will be found which will reverse the possible negative repercussions arising from the repeal of these two provisions.
Dr Natasha Gaber-Damjanovska
Judge
at the Constitutional Court
of the Republic of Macedonia