Het up

28 July 2015 By Neil Unmack Follow @unmack1

A law which wiped out guaranteed creditors of bust bank Heta has been thrown out. The sums are small, but the court’s decision may embolden creditors in a bigger fight, over 10 bln euros of other state-backed debt. The verdict hurts Austria, but the legal logic is hard to fault.

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The Verfassungsgerichtshof Oesterreich, Austria’s highest court, ruled that the Hypo Reorganisation Act used to inflict losses on junior creditors of the bank Hypo Alpe Adria is unconstitutional. In 2014 Austria passed the Act to wipe 890 million euros of subordinated debt. This also caused bondholders’ claims on the state of Carinthia, which provided a guarantee, to expire.

The court deemed the Act unconstitutional on the grounds that it affected some creditors but not others, and that it deprived junior creditors of the claim on the guarantee, but not senior ones. The court also stated that “legal guarantee statements issued by a federal province must not be rendered completely invalid retroactively through a single measure imposed by the law.”

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