site.btaParliamentary Ad Hoc Committee Approves Draft Amendments Invalidating Set-offs in Insolvent Banks

117 ECONOMY - BUDGET - COMMITTEE

Parliamentary Ad Hoc Committee
Approves Draft Amendments Invalidating
Set-offs in Insolvent Banks


Sofia, November 25 (BTA) - The National Assembly Ad Hoc Budget
and Finance Committee Tuesday conclusively approved draft
amendments to the Bank Bankruptcy Act, limiting the validity of
set-offs effected by a bankrupt bank's creditors to the share to
which each of them is entitled upon the distribution of
monetized assets.

The draft legislation was prompted by the huge number of
assignments which have taken place since the Corporate
Commercial Bank (Corpbank) was placed by the central bank under
special supervision on June 20, 2014 after a run by depositors
left it illiquid and it suspended all operations. In these
transactions, holders of deposits with the bank exceeding
196,000 leva, which are not guaranteed, have been selling their
deposits to companies owing a loan debt to that bank, so that
the latter could set off the amounts due against the amounts
deposited.

Committee Chair Menda Stoyanova commented to journalists that
the revisions are intended to protect the public interest. "If a
borrower owing a secured debt of, say, 1 million leva, decides
to buy a 1 million lev deposit, he carries out an assignment
that is legally admissible," Stoyanova explained. "In this way,
the borrower becomes a depositor with the bank and asks the
bank's conservators to set off the deposit against his loan
debt. If such a set-off is effected, this means that the
borrower will settle his debt without paying any money into the
bank's bankruptcy estate. For his part, the depositor would
receive an amount exceeding the guaranteed threshold."

If all 1,700 million leva's worth of secured loans extended by
Corpbank are set off in this way, no hard cash will enter the
bankruptcy estate, Stoyanova said. "This means that all other
creditors, in the first place the Bulgarian Deposit Insurance
Fund, as well as the rest of the [non-guaranteed] depositors who
have not resorted to such assignments, would simply get
nothing," she added. The amendments will prevent this from
happening, she argued.

Another type of assignments, carried out between depositors with
the bank, seek to split the large deposits to a level below the
guaranteed one, so that they could claim the full amount, the
Committee Chair said. In her words, "this circumvents the law
and drains public funds", and the amendments will close this
loophole, too. PK/LG