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3. Constitutional Council Upholds Banking Authority and Ties Bank Reform Law to Gap Law

Lebanon’s Constitutional Council issued a ruling partially annulling Law No. 23/2025 on banking reform and restructuring, following an appeal filed by ten MPs.

In form, the Council accepted the appeal, as it was filed within the legal timeframe and met all procedural requirements. In substance, it decided to annul parts of the contested law.

One key aspect of the ruling is that the Council upheld several core provisions. Among them are Article 5, which preserves the composition of the Higher Banking Authority; Article 31, which keeps its decisions subject to appeal before the court established under Law 110; and Article 37, the final article, which maintains that the law’s entry into force is contingent upon the passage of the Financial Regularization Law, known as the Gap Law.

The Council explicitly affirmed that the restructuring law and the Gap Law are contiguous and complementary, making implementation of the former impossible without the latter. The link between bank restructuring and the Gap Law was designed to ensure that depositors’ rights are protected before any restructuring begins, as well as to determine the distribution of losses in the banking sector and the repayment mechanisms. For this reason, the phrase removed by the Constitutional Council had originally been intended to compel the government to submit the draft Financial Gap Law at a later stage.

In detail, the Council annulled the penultimate paragraph of Article 16 of the contested law, which stated that “the Higher Banking Authority may, when necessary to contain the potential impact of a bank default on the banking sector as a whole or to secure the maximum benefit for creditors as a whole, decide not to apply the general principle of equal treatment among creditors of the same rank, specifying the cases in which this principle does not apply and providing a transparent explanation of the reasons.”

By annulling this provision, the Constitutional Council eliminated the article that allowed unequal treatment of creditors of the same rank, ruling that it violates Article 7 of the Constitution, which guarantees equality before the law.

The original text of the law had already established a hierarchy of rights holders in the banking sector, ensuring that shareholders and banks would absorb the first share of losses, followed by other categories of creditors in varying degrees. However, it also gave the Higher Banking Authority the discretion to favor certain creditors over others within the same class, a prerogative that the Constitutional Council has now invalidated.

The Council also invalidated the second paragraph of Article 29, which had stipulated that “any case pending before the Lebanese Court of First Instance involving a dispute between a creditor or depositor and the bank, on which no final decision has been issued, shall be administratively referred to the special court within one month of the appointment of the liquidator or the liquidation committee.”

By striking this paragraph, the Council eliminated the automatic referral of pending cases to the special court under this law. It emphasized that transferring ongoing cases from one court to another constitutes interference in the judicial authority’s work, as it prevents the ordinary courts from completing disputes already before them.

In addition, the Council decided to delete a phrase from Article 31 that stated: “The appeal before the competent court does not stop the implementation of the contested decision and does not invalidate the decisions previously taken by the Supreme Banking Authority – Second Chamber, and the rulings issued by the special court in this regard are limited to determining financial compensation.”

Lastly, the Council annulled the date set in Article 1 defining “new deposits” as those transferred after October 30, 2019, ruling that this created a legislative contradiction, since elsewhere in the law October 17, 2019, is used as the benchmark date. To ensure consistency, the Council confirmed October 17, 2019, as the cutoff for classifying new funds exempt from loss allocation.