Analysis of practical issues on the revocation of National Bank of Ukraine’s decisions on banks insolvency and liquidation.
The cases on the revocation of the National Bank’s decisions are new for the Ukrainian practice. It appeared as the result of a massive liquidation of banks, which the National Bank of Ukraine has been carrying out since 2014 under the flag of system cleansing.
As of January 2014, 180 banks were on the Ukrainian market.
According to the Deposit Guarantee Fund, over the last 3 years, 94 banks, i.e. more than 50%, ceased their activities with 90 banks currently undergoing liquidation. In 3 more banks, a provisional administration was established (among them there are Unison and Financial Initiative, where court prohibit liquidation). One bank (Astra) was sold to an investor.
Part of shareholders and other interested persons did not agree with the Regulator and entered into a direct challenge for their assets and banking licenses.
As a result, the courts revoked their decisions concerning the liquidation/insolvency of 12 banks: Ukrinbank, Soyuz, Veles, Premium, Capital, Radical, Eastern-Industrial Bank, KSG, Kyivska Rus, Khreshchatyk, Financial Initiative, TK Credit. In the majority of cases, on three instances, the courts took the side of shareholders and these decisions came into force.
The National Bank called these decisions illegal which they appealed in the Supreme Court of Ukraine and accused the courts of being corrupted and refused to execute them. The Head of the NBU even took the liberty to address a letter directly to the Chairman of the Supreme Court, calling all court decisions “a threat to the banking system”.
In the last months, the Supreme Court reconsidered the cases of four banks. The decisions in these cases were not easy considering that each of them lasted several months and dozens of hearings had to be conducted.
After reconsidering the cases of Soyuz and Premium banks, they were returned to the court of the first instance for retrial. Shareholders of Capital Bank and Ukrinbank were denied the protection of their rights and other cases are now waiting for their turn.
The courts have formed certain practice, which allows us to make analysis of these cases.
The shareholders right to file a suit on the revocation the National Banks decision.
Denys Bugay, partner at VB PARTNERS law firm, president of the Ukrainian Bar Association (2013-2017)
Overall, a suit concerning a revocation of decisions in relation to a bank is filed by shareholders. In fact, there is no one else who can file due to the bank management being fired. For that matter a liquidator/a provisional administrator is assigned, and depositors are protected by the special law.
The eligibility of a shareholder to file such a suit was examined at length by the Supreme Court in cases of Premium and Soyuz banks.
The National Bank of Ukraine asserted that a shareholder could not file a suit, since it is aimed at the protection of rights of a bank and not a shareholder. The main argument is the decision of the Constitutional Court dated December 1, 2004 (on a law-protected interest). In this decision, the Constitutional Court established that the interests of a joint-stock company could not be equated to the interests of a shareholder.
Despite the fact that the Supreme Court returned these cases for retrial, it agreed with our position: a significant shareholder (owning more than 10%) can protect his or her rights by revoking the decision of the National Bank of Ukraine on bank liquidation. The Court confirmed that the bank liquidation infringes a shareholder’s right.
In October 2017, the Supreme Court affirmed this position while reconsidering cases of Ukrinbank and Capital Bank. The Court revoked the decisions of three instances in favor of shareholders and dismissed suits (in each case a plaintiff owned less than 10% of shares).
The eligibility of a shareholder has also been confirmed by the European Court of Human Rights (for example, the Capital Bank AD against Bulgaria).
Notwithstanding that the courts stated the ineligibility of a shareholder in relation to certain banks and dismissed suits (USB, Green Bank), in the following the position of the Supreme Court is obligatory and cannot be ignored.
Furthermore, the majority shareholder of Ukrinbank has already filed a suit against National bank of Ukraine based on this position of Supreme Court.
Therefore, we proved our position and a court confirmed the shareholder’s right for protection from illegal actions of the National Bank of Ukraine.
Execution issues.
In spite of the court decisions, which have been entered into force, in relation to more than 10 banks, the National Bank have not allowed any of them to restore their activities.
The Regulator has publicly declared about the absence of mechanism of the banks return to the market and the impossibility to execute a decision. In the opinion of the National Bank of Ukraine, a bank can only obtain a new license after all approvals have been received, but it cannot reinstate a revoked license.
This means that the force of a decision is offset by the omission of the National Bank.
Such omission is illicit since the court decision is binding. The absence of the decision execution procedure cannot be a reason for ignoring it.
Key conclusions.
At present, we have managed to consolidate a key position in practice: a significant shareholder (owning more than 10% of shares) can file a suit to the court concerning the revocation of the decision of the National Bank directly related to the bank. This position can be used in all similar cases.
However, during a fast tracked liquidation, the Regulator has committed violations of its own procedures, which resulted in the revocation of a number of decisions concerning to a banks liquidation.
