Order;Information — ECLI:EU:C:2020:13
Date: 2020-01-15
Language of the case: Bulgarian
Court formation: Sixth Chamber
Subject matter: Right of establishment;Free movement of capital;Principles, objectives and tasks of the Treaties;Approximation of laws;Freedom to provide services;Area of freedom, security and justice;Judicial cooperation in civil matters;Fundamental rights;Charter of Fundamental Rights
Procedure: Reference for a preliminary ruling - inadmissible
Origin: Bulgaria

Summary C-647/18 — 1 
Case C-647/18 
Summary of the request for a preliminary ruling pursuant to Article 98(1) of 
the Rules of Procedure of the Court of Justice 
Date lodged: 
17 October 2018 
Referring court: 
Okrazhen sad Vidin (Vidin District Court, Bulgaria) 
Date of the decision to refer: 
15 October 2018 
Applicant in the main proceedings: 
Korporativna targovska banka AD in insolvency 
Defendant in the main proceedings: 
Elit Petrol AD 
  
Subject-matter of the main proceedings 
The main proceedings are bankruptcy proceedings against Elit Petrol AD (‘Elit 
Petrol’), in which Korporativna targovska banka AD in insolvency (‘KTB’) 
contends that it is the creditor of two outstanding bank loans secured by a lien on 
the debtor’s entire commercial business. At this stage of the proceedings, the 
foundation of the creditors’ objections are being verified and the list of admitted 
claims is ready for approval by the referring court, acting as insolvency court. 
Subject-matter and legal basis of the order for reference 
Interpretation of Article 2 TEU and of the value of ‘the rule of law’ enshrined 
therein, of Article 67(1) TFEU and of Article 7(2)(h) and Article 8 of Regulation 
(EU) 2015/848 on insolvency proceedings, in conjunction with the rights 
enshrined in Article 17(1), Article 20 and the second paragraph of Article 47 of 
the Charter of Fundamental Rights of the European Union, and Article 77 of 
Directive 2014/59/EU establishing a framework for the recovery and resolution of 
credit institutions and investment firms. 
EN 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING — CASE C-647/18 
 
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Legal basis: Article 267 TFEU 
Questions referred 
1. i) Should the value of ‘the rule of law’ protected under Article 2 TEU be 
interpreted to mean that, when legal provisions are adopted in a Member State, the 
national legislature is obliged to comply with the legal principles and criteria that 
characterise ‘the rule of law’, as developed and cited in the case-law of the Court 
of Justice of the European Union and in the Communication from the Commission 
to the European Parliament and the Council of 11 March 2014 entitled ‘A new EU 
Framework to strengthen the Rule of Law’? 
ii) Should the value of ‘the rule of law’ enshrined in Article 2 TEU and its basic 
principles — legality, legal certainty, and independent and effective judicial 
review including respect for fundamental rights and equality before the law — be 
interpreted to mean that they prevent the adoption of a provision of national law, 
such as that enacted in Paragraph 5 of the transitional and final provisions of the 
Zakon za izmenenie i dopalnenie na Zakona za bankovata nesastoyatelnost 
(Bulgarian Law Amending and Supplementing the Law on the Insolvency of 
Banks, ‘ZIDZBN’), which reregulates the social relations associated with the 
registration of security interests in public registers exceptionally for the benefit of 
a particular individual? In this particular case, the national provision retroactively 
annuls the deletions in the registers of security interests established for the benefit 
of the insolvent KTB AD and gives rise to legal uncertainty, as it stipulates that 
the insolvent KTB AD can cite the security interests deemed to have been deleted 
towards third parties ex lege, even though the liabilities for which the security 
interests were registered have been discharged. 
iii) Can the court directly invoke and directly apply Article 2 TEU if it finds that 
the way in which the provision of national law in Paragraph 5 of the transitional 
and final provisions of the ZIDZBN retroactively reregulates the legal effects of 
the security interests recorded in public registers for the benefit of the insolvent 
KTB AD infringes the value of ‘the rule of law’ and its aforementioned basic 
principles? 
iv) What criteria and conditions must the national court apply when considering if 
the value of ‘the rule of law’ within the meaning of Article 2 TEU permits the 
adoption of a provision of national law such as that in Paragraph 5 of the 
transitional and final provisions of the ZIDZBN? 
v) Should Article 67(1) TFEU, which states that the Union constitutes an area of 
freedom, security and justice with respect for fundamental rights and the different 
legal systems and traditions of the Member States, be interpreted to mean that it 
prevents provisions of national law which give rise to uncertainty in civil and 
commercial transactions or anticipate the outcome of pending litigation? 
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2. i) Can the applicable provisions of Article 7(2)(h) and Article 8 of Regulation 
(EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on 
insolvency proceedings, read in combination with Article 2 TEU, systematically 
be interpreted in conjunction with the fundamental rights enshrined in 
Article 17(1), Article 20 and the second paragraph of Article 47 of the Charter? 
ii) If the said provisions of EU law should be interpreted in conjunction with the 
rights enshrined in the Charter, is it admissible to apply those rights in insolvency 
proceedings in a Member State and should the protection afforded by those rights 
be interpreted to mean that it prevents a national legal rule which retroactively 
reregulates social relations exceptionally in favour of an creditor in insolvency 
specifically named by the legislature? 
iii) Do Article 7(2)(h) and Article 8 of Regulation (EU) 2015/848 of the European 
Parliament and of the Council of 20 May 2015 on insolvency proceedings, 
interpreted in conjunction with the rights enshrined in Article 17(1), Article 20 
and the second paragraph of Article 47 of the Charter, prevent the application of a 
national legal rule which retroactively annuls deletions in the registers of the 
security interests held by KTB AD and states that the ‘resurrected’ security 
interests for the benefit of the insolvent KTB AD can be cited against third parties 
ex lege, thereby infringing the rights of other creditors and changing the order of 
satisfaction of claims in insolvency proceedings? 
iv) Can Article 7(2)(h) of Regulation (EU) 2015/848 of the European Parliament 
and of the Council of 20 May 2015 on insolvency proceedings, in conjunction 
with the rights enshrined in Article 17(1), Article 20 and the second paragraph of 
Article 47 of the Charter, be interpreted to mean that it prevents the conditional 
admission in insolvency proceedings of the claims of a creditor specifically named 
by the legislature (KTB AD), where that creditor’s claims had been extinguished 
in full by set-off when the claims were lodged and litigation seeking annulment of 
the set-off is pending and has not yet been completed? If the claims of the creditor 
in insolvency are lodged under the condition that the national court finds the set-
offs by which the claims were extinguished to be unenforceable, does the right to 
a fair hearing in accordance with the second paragraph of Article 47 of the Charter 
permit a national provision of law which retroactively amends the conditions 
under which set-off may be invoked and thus anticipates the outcome of the 
pending litigation seeking annulment of the set-off or admission of the claim in 
insolvency proceedings? 
v) Can the court rely upon and directly apply the provisions of Article 7(2)(h) and 
Article 8 of Regulation (EU) 2015/848 of the European Parliament and of the 
Council of 20 May 2015 on insolvency proceedings, read in combination with 
Article 17(1), Article 20 and the second paragraph of Article 47 of the Charter, if 
it finds that the national provisions of law on which the conditional admission of 
the claim of KTB AD is based and/or which bring about the condition on which 
the claim is lodged conflict with EU law? 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING — CASE C-647/18 
 
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3. Should Article 77 of Directive 2014/59/EU be interpreted to mean that it 
prevents the application of a national law which retroactively amends the 
conditions of set-off of reciprocal claims and liabilities with a credit institution in 
recovery or resolution, thereby anticipating the outcome of pending litigation 
seeking annulment of the set-off declared to the credit institution? 
EU law cited 
Article 2 of the Treaty on European Union 
Article 67(1) of the Treaty on the Functioning of the European Union 
Article 17(1), Article 20 and the second paragraph of Article 47 of the Charter of 
Fundamental Rights of the European Union 
Article 7(2)(d) and (h) and Article 8 of Regulation (EU) 2015/848 of the European 
Parliament and of the Council of 20 May 2015 on insolvency proceedings 
Article 77 of Directive 2014/59/EU of the European Parliament and of the Council 
of 15 May 2014 establishing a framework for the recovery and resolution of credit 
institutions and investment firms and amending Council Directive 82/891/EEC, 
and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 
2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 
and (EU) No 648/2012, of the European Parliament and of the Council 
Communication from the Commission to the European Parliament and the 
Council of 11 March 2014 entitled ‘A new EU Framework to strengthen the Rule 
of Law’ 
Judgments of the Court of 8 September 2011, Abdallah, C-144/11, not published, 
EU:C:2011:565, paragraphs 10 and 12 and the case-law cited; of 19 March 2015, 
Andre, C-23/15, not published, EU:C:2015:194, paragraphs 5, 8 and 9 and the 
case-law cited; of 4 July 2012, Abdel, C-75/12, not published, EU:C:2012:412, 
paragraphs 6 and 7; of 19 March 2014, Grimai, C-550/13, not published, 
EU:C:2014:177, paragraph 19. 
Judgment of the Court of 10 March 2016, Safe Interenvíos, C-235/14, 
EU:C:2016:154, paragraph 114 
Provisions of national law 
Article 12 and Article 14 of the Zakon za osobenite zalozi (Bulgarian Law on 
particular liens, ‘ZOZ’) 
Article 59 of the Zakon za bankovata nesastoyatelnost (Bulgarian Law on the 
Insolvency of Banks, ‘ZBN’) 
KORPORATIVNA TAROVSKA BANKA AD IN INSOLVENCY 
 
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Paragraph 5, Paragraph 7 and Paragraph 8 of the Prehodni i zaklyuchitelni 
razporedbi (transitional and final provisions) of the Zakon za izmenenie i 
dopalnenie na zakona za bankovata nesastoyatelnost (Bulgarian Law Amending 
and Supplementing the Law on the Insolvency of Banks, ‘ZIDZBN’) 
Articles 685, 686, 690, 692 and 725 of the Targovski zakon (Bulgarian 
Commercial Code, ‘TZ’) 
Summary of the facts and proceedings 
1 In June 2014, depositors of KTB panicked and triggered a run on the bank, 
whereupon the Bulgarska Narodna Banka (Bulgarian National Bank, ‘BNB’) 
adopted a decision on 20 June 2014 placing KTB under special supervision on the 
grounds of impending insolvency. Quaestors were appointed and all manner of 
banking transactions were suspended. 
2 According to a press release dated 22 June 2014, BNB instructed the quaestors to 
prepare a comprehensive analysis and valuation of the assets and liabilities of the 
KTB group of banks with the help of an independent external auditor. By that 
same press release, BNB announced that it and the Bulgarian government would 
be taking steps to increase the capital of KTB, with a view to the preservation and 
recovery of the KTB group of banks, in that BNB would exercise its powers to 
instruct the government-owned Bulgarska banka za razvitie (Bulgarian 
Development Bank) and the Fond za garantirane na vlogovete (Bulgarian Deposit 
Guarantee Fund) to increase its capital. BNB officially announced that it and the 
government would ensure that the KTB group of banks had sufficient liquidity 
support to discharge its liabilities towards customers in full. The press release 
announced that KTB would open again at 09:00 hours on 21 July 2014. 
3 Notwithstanding the BNB announcement, the bank remained closed on 21 July 
2014, the quaestors’ appointment was extended and BNB called upon the bank’s 
two biggest shareholders to submit proposals for capital and liquidity support. 
4 By decision adopted on 15 August 2014, BNB granted the KTB quaestors 
permission to conduct payment transactions for the purpose of loan repayments to 
the bank under special supervision and to take receipt of declarations by the 
bank’s debtors offsetting their outstanding loans against counterclaims acquired 
from the bank’s depositors. 
5 Based on the permission granted on 15 August 2014, dozens of borrowers, 
including Elit Petrol, started to buy depositors’ claims against KTB, which agreed 
a discount on the nominal value of the claims, and then to offset the claims 
acquired from depositors against their liabilities pursuant to loan agreements with 
KTB. Thus, the persons who engaged in such transactions simultaneously became 
debtors and creditors of KTB and hence were able to cancel out the amounts 
reported on each side of their balance sheets. Depositors were acting in the aim of 
rescuing some of the money in their blocked deposits with the bank under special 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING — CASE C-647/18 
 
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supervision and borrowers were acting in the aim of discharging their liabilities 
towards the bank by acquiring claims at a discount on their nominal value. 
6 It is common ground between the parties to the main proceedings that Elit Petrol 
used this method in order to discharge liabilities towards KTB from the contested 
claims. 
7 These transactions were admissible when they were conducted under the 
Bulgarian law which applied at the time. The decision adopted by BNB on 
15 August 2014 expressly confirmed that these transactions were lawful and 
would be recognised by BNB. BNB went even further in that decision, by 
expressly instructing the quaestors to take the necessary steps to have security 
interests registered against the loans deleted once liability for the loan granted by 
the bank had been discharged in full, irrespective of whether the loan was 
redeemed by repayment or set-off. 
8 By decision adopted on 16 September 2014, BNB extended the period of special 
supervision of KTB to 20 November 2014. BNB stated in its press release that the 
conditions under which special supervision had been ordered still applied and that 
KTB was still lacking in large measure the liquidity needed to discharge liabilities 
towards depositors and other creditors. 
9 Furthermore, that decision offered shareholders and other potential investors 
demanding the restructuring of KTB the opportunity to submit offers between 
28 October 2014 and 20 November 2014 containing ‘specific financial and legal 
undertakings in terms of the provision of capital and liquidity’. According to 
BNB, they were to be based on the outcome of the valuation of KTB and the debt-
to-equity ratio determined, which were needed in order to be able to adopt 
financially justified and legally binding decisions on the future of the bank. 
10 By decision adopted on 6 November 2014, BNB withdrew KTB’s banking licence 
on the grounds of insolvency and ordered KTB to petition for insolvency and to 
notify the Deposit Guarantee Fund. 
11 The ZIDZBN, which entered into force on 28 November 2014, amended the 
conditions under which set-offs by insolvent banks could be found to be 
unenforceable, as enacted in Article 59(5) ZBN. The amendment also granted the 
facility to seek annulment through the courts of set-offs declared by creditors of 
the insolvent bank, not just set-offs declared by the insolvent bank. It also granted 
the facility to seek annulment through the courts of set-offs declared after BNB 
ordered special supervision, if the order predated the insolvency start date. Under 
the old version of the law, the courts could only find set-offs declared by the bank 
after the insolvency start date to be unenforceable. 
12 The Sofiyski gradski sad (Sofia City Court) opened insolvency proceedings 
against KTB on 22 April 2015 and ruled that the insolvency start date was 
6 November 2014. On 3 July 2015, the Sofiyski apelativen sad (Sofia Appeal 
Court) set aside the ruling in respect of the start date and ruled that the insolvency 
KORPORATIVNA TAROVSKA BANKA AD IN INSOLVENCY 
 
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start date was 20 June 2014, as the bank already had insufficient equity on that 
date. 
13 The insolvency administrator of KTB requested that the court find the set-offs 
declared by the bank’s creditors under Article 59(5) ZBN to be unenforceable. 
They included the set-offs by Elit Petrol. Those proceedings resulted in case-law 
for the benefit of creditors, such as Elit Petrol, which had declared set-offs under 
the old version of the ZBN. 
14 Before the proceedings were concluded at last instance, the national legislature 
passed a second amendment to the ZBN (DV No 22 of 13 March 2018), which 
expressly rescinded the amendment adopted on 28 November 2014 on set-offs in 
bank insolvency cases. 
15 KTB is arguing in the main proceedings that it is a creditor of Elit Petrol in respect 
of the following secured claims: a) a claim of USD 29 279 981.93 pursuant to a 
syndicated loan agreement dated 15 December 2011 which has been lodged as a 
preferential claim, as it is secured by a first-ranking lien on the entire commercial 
business of Elit Petrol and other security interests; and b) a claim of USD 
15 130 457.73 pursuant to a loan agreement with the bank dated 11 July 2013, 
which has been lodged as a preferential claim, as it is secured by a second-ranking 
lien on the entire commercial business of Elit Petrol. 
16 The insolvency administrators of KTB have expressly noted, both in the 
application for admission of the claims and in the objection against dismissal of 
the claims by the insolvency administrator of Elit Petrol lodged thereafter under 
Article 690 TZ, that the contested claims are being lodged under the condition that 
the set-offs by Elit Petrol are found to be unenforceable by final judgment in the 
proceedings pending before Sofia City Court 
Principal arguments of the parties to the main proceedings 
17 It is common ground between the parties to the main proceedings that, when they 
were lodged in the main proceedings, the contested claims of KTB had been 
discharged as a result of set-off against counterclaims of Elit Petrol. 
Consequently, the security interests registered for those claims were deleted from 
the public registers with the express consent of the legal representatives of KTB. 
18 That notwithstanding, KTB is of the opinion that it is a secured creditor in the 
insolvency proceedings against Elit Petrol, as the secured claims have been 
‘resurrected’ ex lege pursuant to Paragraph 5 of the transitional and final 
provisions of the ZIDZBN (DV No 22 of 13 March 2018), which stipulates with 
retroactive effect that the deletion of security interests instructed by the quaestors 
of KTB are null and void and that the security interests registered for the benefit 
of KTB should be considered to exist and should retain their ranking. 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING — CASE C-647/18 
 
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19 The insolvency administrators of KTB are further of the opinion that Paragraphs 7 
and 8 of the transitional and final provisions of the ZIDZBN (DV No 22 of 
13 March 2018) expressly lend retroactive effect to the provision of Article 59(5) 
ZBN (in the version of DV No 98 of 28 November 2014), in that they 
retroactively amend the conditions under which set-off may be invoked by Elit 
Petrol, and that, therefore, the claims have not been discharged by set-off. 
20 On those grounds, the insolvency administrators of KTB have requested that the 
contested claims be admitted in the insolvency proceedings against Elit Petrol 
under the condition that the set-offs by Elit Petrol are found to be unenforceable 
by final judgment in the proceedings pending before Sofia City Court. They have 
also requested that those claims be admitted as preferential claims, as they are 
secured by a first-ranking security interest. 
21 The insolvent debtor, Elit Petrol, denies that KTB is a creditor in the insolvency 
proceedings. It assumes that, at the time of their declaration, the set-offs were 
validly declared under the applicable law and had discharging effect, whereupon 
the security interests registered for the claims were deleted. 
22 Elit Petrol further denies that the claims of KTB are conditional, as no terms 
within the meaning of Article 725 TZ were agreed in the loan agreements 
pursuant to which they accrued as a condition for their accrual; on the contrary, 
court proceedings seeking annulment of the set-offs by which they were 
discharged are pending. 
23 Elit Petrol is of the opinion that Paragraphs 5, 7 and 8 of the transitional and final 
provisions of the ZIDZBN (DV No 22 of 13 March 2018), which allowed the 
security interests for KTB deleted in the public registers to be ‘resurrected’ with 
retroactive effect and retroactively amended the conditions under which set-off 
against the KTB claims lodged may be invoked, infringe provisions and principles 
of EU law and has lodged an application, containing a detailed statement of 
grounds, requesting that the court submit a request for a preliminary ruling by the 
Court of Justice of the European Union. 
Summary of the reasons for the order for reference 
24 The referring court has before it a request seeking a ruling as to whether, as a 
result of the amendments to the ZBN, KTB is a secured creditor in the insolvency 
proceedings against Elit Petrol and admission of its claims under the condition 
that the set-offs by which those claims were discharged are found to be 
unenforceable. 
25 The KTB claims lodged in the insolvency proceedings against Elit Petrol have 
been discharged by set-off and the security interests registered for them have been 
deleted from the public registers. Further to the adoption of Paragraph 5 of the 
transitional and final provisions of the ZIDZBN, which declared the deletions of 
the security interests from the public registers to be null and void with retroactive 
KORPORATIVNA TAROVSKA BANKA AD IN INSOLVENCY 
 
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effect, the court should rule that the security interests provided to KTB and 
regarded as deleted have been ‘resurrected’ ex lege and can be cited against third 
parties with the ranking originally registered. The court should apply Paragraphs 7 
and 8 of the transitional and final provisions of the ZIDZBN which lend 
retroactive effect to Article 59(5) ZBN (in the version of DV No 98 of 
28 November 2014), which in turn regulates the conditions under which the set-
offs by which the KTB claims were extinguished can be found to be 
unenforceable. In that case, the court should admit the claims of KTB in the 
insolvency proceedings against Elit Petrol, even though litigation is pending over 
the existence of those claims.  
26 The referring court is of the opinion that the applicable provisions of national law 
in Paragraphs 5, 7 and 8 of the transitional and final provisions of the ZIDZBN 
(DV No 22 of 13 March 2018) conflict with EU law, which takes precedence over 
the national laws of the Republic of Bulgaria. The objection by KTB has raised a 
number of fundamental questions of EU law which depend upon interpretation of 
Article 2 TEU, especially of the ‘the rule of law’ enshrined therein as a value of 
the European Union and of its fundamental principles of legality, legal certainty, 
and independent and effective judicial review including respect for fundamental 
rights and equality before the law, and of their direct application by the courts of 
the Member States. The rule of law requires respect for the principles of legal 
certainty and the stability and predictability of the law during the legislative 
process and in the application of the law and prohibits retroactive reregulation of 
social relations contrary to citizens’ legitimate expectations. These questions also 
concern the legal regulation of insolvency in Regulation (EU) 2015/848 and the 
recovery and resolution of credit institutions under banking law, as specified in 
Directive 2014/59. Fundamental rights must also be protected in these areas; 
hence the referring court is requesting systematic interpretation of provisions of 
secondary EU law, namely Article 7(2)(d) and (h) and Article 8 of Regulation 
(EU) 2015/848, in conjunction with the fundamental rights enshrined in 
Article 17(1), Article 20 and the second paragraph of Article 47 of the Charter. 
27 The aforementioned provisions of national law are equally out of keeping with 
Article 2 TEU, which is of fundamental importance and has overriding legal 
effect, as it lays down standards in support of the values and principles of the 
European Union and should be interpreted to mean that it prevents the application 
of those provisions. In that context, the referring court has relied in addition on the 
Communication from the Commission to the European Parliament and the 
Council of 11 March 2014 entitled ‘A new EU Framework to strengthen the Rule 
of Law’ and its annex. That document sets out guidelines for the interpretation and 
application of the principles of the rule of law as fundamental principles of the 
European Union. The amendments to the ZBN introduced in March 2018 
contradict the Commission’s guidelines on the application and interpretation of 
the principles of the rule of law set out in that document. 
28 The interpretation is necessary. Should the Court rule that the provisions of EU 
law are to be interpreted to mean that they prevent the application of provisions of 
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national law that retroactively reregulate the legal effects of past facts and rights 
and obligations that have already been extinguished, the referring court will refuse 
to apply them. In that case, the court will rule that KTB is not a secured creditor 
ex lege and that its claims in the insolvency proceedings are not conditionally 
admissible. Therefore, the request is not hypothetical; it is vital in fact to the 
outcome of the proceedings. 
29 The ruling by the referring court will be final under Article 692 TZ and will not be 
open to judicial remedy under national law. Therefore the requirements of the 
third paragraph of Article 267 TFEU, whereby the national court must refer 
questions necessary to enable it to give judgment to the Court of Justice of the 
European Union, are fulfilled. 
30 The referring court is of the opinion that the requirements of Article 107 of the 
Rules of Procedure of the Court are fulfilled. The request for a preliminary ruling 
concerns questions raised in insolvency proceedings pending. It is in the interests 
of the creditor in insolvency to bring the litigation to as swift a conclusion as 
possible, so that it can obtain fair satisfaction within a reasonable period of time.