This brief is to answer the following question, which has been subject to debate amongst court practitioners after the latest amendments of the Bank Bankruptcy Act (BBA):
“Should a depositor owe court fee for filing of objection under Art. 66 (6) 6 BBA after the recent revision of the BBA promulgated in State Gazette issue 33 of 26 April 2016?”
According to Art. 66(6) of BBA every depositor who has made Objection under Art. 66(1) of BBA before the trustee in bankruptcy against the latter’s refusal to accept the depositor’s receivable, is entitled to make a second objection under Art. 66(6) of BIA (Objection) before the bankruptcy court, against the decision of the trustee in bankruptcy to exclude the depositor’s receivable from the accepted receivables list (this objection is to be filed through the trustee in bankruptcy). Therefore, the review of the objection against the rejected receivables list is administered in two phases (steps): (i) before the trustee in bankruptcy (Art. 66(1) of BBA) and (ii) subsequently before the bankruptcy court (Art. 66(6) BBA).
According to the latest amendments of the BBA (State Gazette issue 33 of 26 April 2016 effective as of the same date), Art. 68 (1) is so that revised the Objections are to be reviewed in separate proceedings: “the bankruptcy court shall review the Objections against each accepted and rejected receivable in a separate proceeding in an open court session with the participation of the trustee in bankruptcy, the rejected receivable creditor and the objecting creditor and afterwards the court shall render a decision”. The considerations for the said amendment are mostly organizational and are related to the large number of Objections (given the pending Corporate Commercial Bank bankruptcy case). The review of each Objection in a separate proceeding guarantees the due process of rendering a lawful and fair judgement by focusing the attention of the court and the parties on the specific circumstances relevant to each objection.
The change of the method of review of the Objections is used as an argument in favour of the thesis that this proceeding should require the payment of a court fee of 4% on the amount of the disputed receivable. After the amendment of Art. 68 (1) BBA many panels of the Sofia City Court adopted the view that the review of the Objections requires payment of court fee of 4% on the amount of the disputed receivable. Failure to pay the said fee, respectively, renders the objection inadmissible and is ground to reject its review.
Still, the question remains whether this practice of the Sofia City Court corresponds with the reasoning of the BBA amendments?
The considerations set out here below are based on one of the possible hypothesis of Art. 66 (6) BBA: an objection on the part of a depositor in the bank against the decision of the trustee in bankruptcy to exclude the depositor’s receivable from the list of the accepted receivables. Assuming that the payment of court fee is necessary, the depositor’s objection is to be reviewed in court only after the payment of the said fee (alike in the case of filing a declaratory claim for such receivable) in the amount of 4% on the amount of the said receivable. The Objection is treated as declaratory claim. Similar analogy can be found also in the reasoning to the Bill for amendment and supplement of BBA (654-01-23/24.02.2016г.):
“in the case of bank bankruptcy the procedure for claiming of receivables and challenging of the initial lists compiled by the trustee in bankruptcy as well as the review of the objections to these lists is being developed before the trustee in bankruptcy, not before the court – unlike the case in the general bankruptcy procedure; there is a term, within which objections can be filed with the trustee in bankruptcy, a term, within which an initial list of accepted receivables is to be compiled and a term for filing objections against the accepted/rejected receivables; following the review of these objections, the trustee in bankruptcy is to issue a decision under Art. 66 (4) BBA. The review of the objections in bankruptcy court within the bank bankruptcy procedure is, in its essence, an equivalent of the declaratory claims procedure under Art. 694 of the Commercial Act (CA) in the general bankruptcy procedure, the only difference being that the court is approached by an objection filed by the trustee in bankruptcy, instead of a claim filed directly with the court – the case is reviewed in a public hearing, the court grants a separate judgement on each accepted/rejected receivable, which can be appealed under the general procedure of the Civil Procedure Code (CPC), respectively each judgement has a declaratory effect for the bank and all creditors of the bankruptcy. The review of all objections is to be done within one month, regardless of their number, which can be significant given the nature and scope of the bank activity and the legitimation of all parties entitled to file objections.”
If it is true that the only difference between the Objection procedure under Art. 66 (6) BBA and the declaratory claim procedure under Art. 694 (1) CA is in the form of the legal defence envisaged – via objection (in the special procedure of bank bankruptcy) and via claim (in the general commercial bankruptcy procedure), then both procedures should adhere to the same rules with respect to the due court fee for review of the case in court. According to Art. 694 (2) CA, in the case of declaratory claim under Art. 694 (2) CA no court fee is to be paid in advance; it is due by the claimant only after and if the claim is rejected by the court. This rule, however, is not mirrored in the text of Art. 68 BBA. Still, the reasoning of the amendment of BBA evidences that the idea is to have the objections under Art. 66 (6) BBA subjected to the same rules of procedure applicable to the declaratory claims under Art. 694 (2) of the CA.
Before we elaborate further, it should be noted in the interest of precision that “objection” and “claim” have certain differences from the point of view of the civil procedure law. Even though both are means of legal defence for one and the same right, there are certain important differences.
The first and most important difference is in the position of the respondent party: if the claim is tool for attack, which grants the filing party the qualification of claimant, then the objection is a tool for defence available to the respondent party (i.e. the defendant).
The second difference, which is very substantial in terms of practical implications, is related to the necessity to pay court fee: while the claim is to be reviewed by court only after the payment of a certain court fee, the court is to render a decision on the objection without requiring any court fee to be paid by the debtor.
The logic under the second difference can be summarized as follows:
- The claimant is the one approaching the court and therefore the claimant is to finance the review of the dispute by the court;
- The respondent, against whom a claim is filed (defendant), is the party who is forced to defend him/herself in the court dispute initiated by the claimant – therefore the defendant should not be burdened with the costs for this dispute, unless the claimant wins the case or the defendant makes evidentiary demands, which entail certain costs.
The objection enjoys ‘preferential’ financial regime because it is granted as a means of legal defence to the benefit of a party who is forced to participate and defend in a court proceeding as a result of the actions of the claimant. The court fee paid by the latter covers also the costs of the court’s effort to review the objections made by the defendant.
This conclusion is also valid for objections, through which the defendant asserts his/her own rights against the claimant e.g. the right to invalidate a transaction (Art. 32 (3) of the General Contracts and Obligations Act (GCOA)), to rescind a bilateral agreement (Art. 87 (3) GCOA), to decrease the sale price of an item with defects (Art. 195 (1) GCOA), to set off (Art. 104 GCOA), to exercise right-to-retain (Art. 91 GCOA), etc. If the granting of the claim depends on any of the rights claimed by the defendant, this is a sufficient prerequisite to assert these rights through objection (not through counterclaim). The aforementioned objections filed in the course of the proceedings extend the scope of the case. Hence, for example, the judgement becomes effective and binding also with respect to the demands and claims for right-to-retain and set-off resolved in it according to Art. 298 (4) CPC. The context of this legal provision applies also to Art. 69 (2) BBA, which provides that the effective judgements on Objections have declaratory and binding effect on the bank and all bankruptcy creditors.
In its essence, the Objection is different from the objections, which the defendant makes to a claim filed against him/her in proceeding under the CPC. It is more closely related to act of challenging (appeal) of the decision of the trustee in bankruptcy regarding the inclusion of certain receivable in the list of accepted receivables. The challenging is made through transferring of the dispute to the court so that the latter would decide whether the decision of the trustee in bankruptcy is lawful and correct.
The focus of the proceedings under Art. 68 BBA is on the check of the decision of the trustee in bankruptcy, which is done through verification of the rights of the depositor. This specific focus of the Objection differentiates it from the declaratory claim to ascertain the depositor’s right, which is in its substance a separate independent claim to a certain right alleged by the claimant. Considering this particular purpose and designation of the Objection (which can also be viewed as legal defence), it seems that the latter is much closer to the legal nature of the objection under the CPC than to that of the claim. For this reason it is worded as “objection” in the BBA instead of “claim” (unlike the term used in Art. 694 CA).
Even with the one similarity discussed above, there is prevailing amount of arguments in favour of the statement that the Objection should be subject of the same preferential ‘financial’ regime applicable to the objections under the CPC; hence no court fee should be paid for it.
Even assuming that the purpose of the legislative amendment mentioned above is to have the regime of the Objections aligned with the regime of the declaratory claims under Art. 694 (1) CA, the reasoning of the bill for amendment of BBA explicitly states that the “alignment” is made only with respect to the name of the legal defence available to the depositor and it does not provide for different treatment with respect to the administration of the proceedings enforcing it or the requirement for payment of court fee to have the objection reviewed. A creditor filing a declaratory claim to assert his/her rights against the debtor in bankruptcy enjoys a special privilege according to Art. 694 (2) CA – no court fee of 4% is to be paid in advance. There are no argument against the extending of this privilege also to a depositor in a bank in bankruptcy.
To the contrary, the social considerations related to the trust in the bank system as well as the special statutory protection of depositors – private individuals, requires that the latter persons should be supported in their claim to assert their rights in the bankruptcy procedure of the bank. The requirement to pay court fee for review of the objections under Art. 66(6) BBA in advance constitutes a procedural hurdle to the defending of the depositors’ rights and is in clear violation of the aforementioned principle for protection of the depositors’ rights. Even though the compensation of their deposits is guaranteed to a certain maximum amount by the law – a guarantee, which has evident social designation, the depositors are forced to pay 4% on the amount of their guaranteed deposits to have their objections against the decision of the trustee in bankruptcy reviewed (under Art. 66 (6) BBA) when theirs are excluded from the list of accepted receivables. The protection of depositors requires a different approach and a different interpretation. The decision of the trustee in bankruptcy should be checked by the court without burdening the depositors with additional costs (alike the lack of such costs when the depositor first makes his/her claim before the trustee in bankruptcy). Even assuming that the review of the objection in its substance is a review of a declaratory claim to assert the receivable, the applicable court fee is to be paid by the depositor only if and when the decision of the trustee in bankruptcy is confirmed by the court as lawful and correct (this is reasoning of the rule under Art. 694 (2) CA in the general commercial bankruptcy proceedings).
Considering the above, there are arguments to justify two answers to the question set out in the beginning of this brief:
- If we assume that the Objection constitutes claim – alike the one under Art. 694 (1) CA (leaving open the question of why it is defined as “objection” instead of “claim”), then the provision of Art. 694 (2) CA should apply, and in particular: court fee is to be paid only after the decision of the court on the Objection and only if the court has confirmed the decision of the trustee in bankruptcy to exclude the receivable of the depositor from the list of the accepted receivables. This conclusion can be justified with the fact that the aforementioned CA provision is a part of the general rules on commercial bankruptcy and therefore it is applicable by analogy to a similar case in the special procedure concerning a bank;
- No court fee is due to review Objection because this is a special procedure envisaged to protect the depositors’ rights in a bank bankruptcy even after the amendment of the BBA of 26 April 2016, effective as of the same date. It is my opinion that the second approach is closer to the substance and designation of the Objection in the bank bankruptcy proceedings, in which the depositors enjoy special protection. In the absence of specific rules regarding the collection of court fee for review of these objections, it should be assumed that no proportionate court fee is to be paid even when the Objections are reviewed in separate proceedings (after the amendment of Art. 68 (1) BBA). The only fee to be paid is the one under it. 16 of the Court Fees Tariff, which the courts collect under the Civil Procedure Act, and in particular – when there is no explicit provision for initiation of civil case, then the court fee is BGN 25 (EUR 12.50).
PhD on civil and family law