"Rehabilitation" in a Dispute
Starting from as early as 2014, the National Bank of Ukraine has taken a course on active and consistent cleansing of the Ukrainian banking market from insolvent banks, as well as banks involved in illegal money laundering and money withdrawal operations. The conduct of such work is declared to be due to the need to reduce the risks in the banking sector, which is expected to ensure proper implementation by the banking system of the main national mission - to provide credit support to the processes of restoration of the economic growth of the state, as well as to the processes of strengthening of the protection of interests of depositors and creditors.
From 2014 to 2018, the insolvency procedure was instituted in relation to 96 banks. At the same time, the peak of the "bank-fall" was in 2014 and 2015 (33 banks annually), gradually going down (2016 - 21 banks, 2017 - 8 banks, 2018 - only one bank - VTB).
Unlike the general bankruptcy procedure for legal entities, which is regulated by the Law of Ukraine "On restoring solvency of a debtor or declaring it bankrupt", and since October 2019 – by the Code of Ukraine on Bankruptcy Proceedings, and which is, from the very beginning, carried out within commercial legal proceedings, insolvency procedures of banks are carried out by the administrative procedure determined by the laws of Ukraine "On Banks and Banking" and "On the System of Guaranteeing Individual Deposits". The peculiarity of these procedures is a rather quick and simplified start, which is achieved essentially due to the decision of the National Bank of Ukraine on the institution of a temporary administration, and in some cases – right away on the liquidation of a bank.
The absence of a court filter at the initial stage of the bankruptcy procedure gives rise to additional risks, in particular regarding the bias, excessive promptness and partiality in actions of the regulator in the adoption of the appropriate decision, and, as a consequence, the unjustified launch of the processes economically harmful to the bank, such as complete external administration, loss of trust of depositors, damage to interests of the bank’s shareholders and others.
The unwillingness of the legislator to load the court with the questions of initiation of bank insolvency procedures causes a reverse effect in the form of complex court battles, which begin literally a few days after adoption of the decision by the regulator, when the owners of banks lose control of the banking institution. Actually, the restoration of ownership rights and control over the bank are the main objectives of such lawsuits.
The practice of considering such disputes has exposed a number of common problems rooted in the existing legislation, thereby pointing out ways to further improve it.
Access to the court
Despite the fact that it is a shareholder of the bank who is the person whose status directly and immediately changes by the decision of the regulator on the institution of a temporary administration and / or withdrawal of the bank from the market (deprivation of control, risk of loss of investment, special regime of liability, etc.), the courts have long been inconsistent in their own positions on the possibility of judicial appeal of such decisions by the NBU.
One of the key legislative reasons for such inconsistency was the narrow interpretation by certain judges of the provisions of Article 79 of the Law of Ukraine "On Banks and Banking", according to which the right to appeal in court in accordance with legal procedure the decision, actions or omissions of the National Bank of Ukraine or its officials is vested in the "bank" or other persons covered by the supervisory activity of the National Bank of Ukraine ".
In particular, the absence in the listed of a bank’s shareholder, according to some judges, indicates that he has no right to challenge such decisions of the National Bank of Ukraine or puts such right in dependence on the number of shares held by the shareholder. In particular, such a conclusion was made by the Supreme Administrative Court of Ukraine in its Resolution dated June 9, 2016 in case No. K / 800/4153/16.
This approach seems at least doubtful, since it greatly restricts the guarantees of property rights and remedies enshrined in Articles 41 and 55 of the Constitution of Ukraine and is contrary to the the decision of the Constitutional Court of Ukraine of December 01, 2004 in case No. 18-rp / 2004 (the case on “a legitimate interest”), practice of the European Court of Human Rights, in particular, that set out in the case of “Bellet vs. France” and “Feldman and the Bank “Slovyanskiy" against Ukraine".
The recent practice of the Grand Chamber of the already brand new Supreme Court unequivocally confirmed the power of the controlling shareholders of the insolvent bank to sue the NBU. Thus, by its resolution of February 5, 2019, in case No. 826/2184/17, the Grand Chamber of the Supreme Court affirmed the decision of the courts of previous instances, whereby the bank shareholders’ claim was granted in full. At the same time, in said decision, the court noted that taking into account that the executive bodies of PJSC "Zlatobank" were deprived of their powers, the Grand Chamber of the Supreme Court arrived at the conclusion on the existence of exceptional circumstances, by virtue whereof the power of the controlling shareholder to apply to the court in this case in the interests of the bank must be recognized.
Pyrrhic victory
However, winning a case against the NBU and abolishing illegal decisions does not result in automatic and complete rehabilitation of the bank in its own rights - the restoration of a banking license, the return of documents and the elimination of other artificial barriers for banking activities. Taking advantage of the lack of legislative regulation and abusing its discretionary powers, the NBU is practicing the adoption of repeated decisions on the initiation of the temporary administration / liquidation procedure.
Thus, for the first time, the NBU made a decision to revoke the banking license and liquidate PJSC CB "Soyuz" on March 15, 2016. Then, on March 28, 2013, Kyiv Regional Administrative Court declared unlawful and revoked the resolution to revoke the banking license and liquidate PJSC CB “Soyuz”.On April 26, 2016, Kyiv Appellate Administrative Court denied complaints of the NBU and DGF. Thus, the decision of the Regional Administrative Court of Kyiv took effect. The NBU complied with the court decision. However, on April 28, 2016, the National Bank of Ukraine adopted another decision to revoke the banking license and to liquidate PJSC CB “Soyuz”.
Obviously, the reason for such a situation is the failure by the legislator to abide by the principle of judicial control, which is fundamental for insolvency law doctrine, when all the key issues of the procedure of insolvency of a legal entity, including those related to its commencement, are resolved by the court. It is this court that should follow this procedure in the future, without allowing the dispersal of disputes related to it to other courts or jurisdictions.
Post-rehabilitation
Equally problematic in practice was the question of the status of a legal entity, which in the past was a bank, managed to defend justice in the courts, by setting aside the illegal decisions of the regulator on its insolvency and liquidation, but can not use its own license due to the omissions by the National Bank of Ukraine regarding return of the license. This is exactly the situation that happened to one of our clients - the financial company PJSC "UkrInCom", which in the past had a license and the name PJSC "UkrInbank". After the setting aside of illegal decisions of the regulator regarding the institution of a temporary administration and liquidation and sue to failure to get back the license, PJSC "UkrInCom" was forced to change the name by excluding the word "bank" from it and to obtain a license of a financial company. This was necessary, inter alia, for continuing business activities and servicing obligations to depositors.
Taking into account the lack of proper legislative regulation of the further fate of banks whose solvency was subjected to court trials and which continue carrying on business as financial companies (for example, UkrInCom), two opposing approaches have emerged in court practice.
The first approach suggests that UkrInCom by the "general legal capacity" is the same entity as "UkrInBank", that is, the absence of a special legal capacity can not exclude the capacity of the entity in other legal relationships, and, therefore, "UkrInCom" must perform obligations to depositors under deposit agreements and accordingly has the right to repayment of previously extended loans. The above approach has remained dominant and fully supported by the civilist doctrine and practice of civil courts.
The second approach is that UkrInCom, is not entitled to its own assets acquired at the time when it had the status of a banking institution, and, therefore, it can not collect loans extended by UkrInBank or perform any obligations to depositors. Such an approach was initiated in the aforementioned Resolution of the Joint Chamber of the Cassation Commercial Court of the SC of Ukraine of August 3, 2018, in case No. 910/8117/17. Certain commercial courts started to mistakenly follow the approach, thereby not only violating the rights of a legal entity, the former bank, and its shareholders (who achieved the setting aside of illegal decisions of the NBU), but also ignoring the rights of depositors (creditors) of the institution, depriving them of hope recover their own savings in full.
In accordance with the Resolution of the Cassation Commercial Court of the SC of Ukraine of January 23, 2019 and the Resolution of the GCh of the SC of Ukraine of February 26, 2019 in case No. 925/698/16, that question was referred to the Grand Chamber in connection with the existence of an "exclusive legal problem" and the need to step aside from the position of the Joint Chamber, which is set out in the resolution of August 3, 2018 in case No. 910/8117/17. Thus, the Cassation Commercial Court, in fact, questioned the position of the Joint Chamber of the Cassation Commercial Court formed in the resolution of August 3, 2018, in another case No. 910/8117/17 (case "UkrInCom" v. PJSC "Obolon"), whereunder the change of the name the legal entity from PJSC "UkrInbank" to PJSC "UkrInCom" makes it impossible for the latter to retain the rights in the assets of PJSC "UkrInbank", including rights under loan agreements.
Twist the nuts
The Draft Law No. 6608 dated June 21, 2017 was introduced for consideration by the Verkhovna Rada of Ukraine. The Draft Law proposed to amend Article 77 of the Law of Ukraine "On Banks and Banking" by restating some of its provisions as follows: "The National Bank of Ukraine concurrently with the adoption of the decision to revoke a banking license and liquidate the bank must enter an appropriate record of the exclusion of that bank from the State Register of Banks." "The initiated procedure of liquidation of a bank may not be stopped / suspended, including in case of cancellation of grounds for its initiation".
Despite the fact that the very legislator's awareness of the current problem is positive, the proposed solution is unlikely to be adopted by the Verkhovna Rada of Ukraine.
Such a revision is aimed at removing external manifestations of the problem rather than at solving it, simultaneously deepening constitutional contradictions and limiting the influence of the court and the right to judicial protection. In such circumstances, it seems to be more appropriate to legislatively define the status of the bank after the setting aside of the decisions of the NBU / DGF in court; it is necessary to regulate the procedure for returning the license and the choice of legal ways of changing the status, to determine the guarantees of depositors, to differentiate and strengthen the liability of shareholders and management of the bank, as well as that of the regulator.