Limassol district court on Monday rejected a court case claiming the measures taken in March 2013 were unconstitutional and illegal.

The president of the Limassol district court dismissed a lawsuit against the government, the Central Bank and the Bank of Cyprus in which, among other things, the plaintiff claimed that the measures and decisions taken under the 2013 law on the resolution of credit institutions violated its constitutional rights, awarding costs in favour of the defendants.

According to a statement from the legal service, the court ruled the decrees were strictly necessary in the light of the prevailing circumstances.

It said that based on the Eurogroup agreement, the means of recapitalisation of the Bank of Cyprus were limited, the resolution measures taken were necessary since they were a condition for the signing of the Memorandum of Understanding between the Republic of Cyprus and its lenders and without that agreement the Republic of Cyprus would have been driven into bankruptcy.

The measures taken were necessary to prevent the collapse of the entire financial sector, with disastrous consequences for the economy of the country and the destabilisation of the entire financial sector, the court added.

The court said that reasons of public interest justified, in March 2013, the adoption of the contested orders by the resolution authority.

It was not immediately clear who filed the lawsuit as over 3000 cases had been filed against the ‘haircut’ or bail-in by depositors of former Laiki Bank and Bank of Cyprus (BoC).

They were appealing two decrees (R.A.D. 103/2013 and 104/2013), issued on March 29, 2013 by the Central Bank in its capacity as the Resolution Authority for credit institutions.

The Eurogroup decided in March 2013 to close down Laiki Bank and seize deposits over €100,000 to recapitalise the Bank of Cyprus. The lender has used 47.5 per cent of the deposits, which were replaced by new shares.

Depositors whose money was seized received equity in return creating a new group of shareholders and, subsequently, board of directors, while old shareholders saw their stakes diluted to less than one per cent.

Under the terms of the so-called haircut, the nominal value of all ordinary BoC shares was reduced from €1.00 each to ordinary shares of nominal value of €0.01 each.