17 ex-bankers still suing the NBU. However, none of the banks have returned to the market. Do they have a chance, and what do they want to prove?
And what is behind the attempts to appeal the decision to withdraw financial institutions from the market
Litigation is ongoing, in which shareholders of bankrupt banks are trying to appeal the decisions of state authorities. Mind has obtained information about the lawsuits initiated by bankers against the National Bank and the Deposit Guarantee Fund. These are appeals against the withdrawal of banks from the market in 2014-2017, when the NBU closed more than 80 financial institutions for various reasons.
According to Mind, there are currently 17 such cases in which the NBU is the defendant and nine more against the DGF. "Shareholders and clients of the banks withdrawn from the market filed lawsuits to administrative courts, asking them to declare the NBU's decisions unlawful and cancel them," the NBU explains.
Mind was looking into which banks these are and what the plaintiffs hope to achieve.
What exactly do owners and clients of failed banks want? As the Deposit Guarantee Fund told Mind, since 2014, bank shareholders had been quite active in going to court to appeal against the NBU and/or the DGF's decisions to remove an insolvent bank from the market or liquidate it.
"It is worth noting that the DGF takes decisions to remove a bank from the market or liquidate a bank only on the basis of relevant NBU decisions, so the DGF's decisions are appealed in courts as a derivative of the NBU's decisions. Consideration of this category of cases is quite time-consuming and, as a rule, such cases go through all court instances, and sometimes more than one round," the DGF said.
"The National Bank, in turn, denies the claims in full extent and asks the court to dismiss the claims," the NBU says, without naming the plaintiffs. However, open sources indicate that there have been lawsuits challenging decisions to declare banks insolvent or those that have violated financial monitoring rules, which has led to the introduction of temporary administrations.
These banks include Ruslan Shcherban's Kapital, Ivan Fursin's Misto Bank, Sergiy Diadechko's Soyuz, Novy (the shareholder of this institution was the state-owned M.K. Yangel Pivdenne Design Office), and others.
According to Mind, lawsuits against the DGF by the owners of Financial Initiative, Narodny Kapital, Khreshchatyk, Boguslav, Misto Bank, Sich, Megabank, and Unison banks are still ongoing.
Have other banks sued the NBU and the Deposit Guarantee Fund? Yes. Since 2014, 33 banks have appealed the NBU's decision to withdraw from the market. Additionally, 34 banks that came under the control of the DGF attempted to appeal the NBU's and/or the fund's decisions. In particular, Premium, Veles, Contract, Mykhailivsky, Green Bank, Zlatobank, Omega, Boguslav, Narodnyi Kapital, Kyivska Rus, Astra Bank, etc., as well as the largest banks of their time – Mykola Lagun's Delta, Financial Initiative and Oleg Bakhmatiuk's VAB. Bank – sued the NBU.
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Have banks won in lawsuits against the NBU and the DGF? Yes, some banks have won in the courts of first and second instance. Some were even taken out of the DGF's control. In particular, Veles, Premium, Zlatobank, Soyuz, Kapital, Ukrainian Innovation Bank, and KSG BANK succeeded in doing so.
According to the NBU, lawsuits initiated by shareholders of closed banks went only as far as the Supreme Court of Ukraine. We have not found any cases where any of the shareholders of a closed bank would have gone further, to international courts. "None of the closed banks have returned to the market," the NBU says.
Do those bankers who are still suing the NBU and the Deposit Guarantee Fund have any chance of getting their banks back? These chances are minimal, given the changes to the legislation introduced by Law No. 590-IX of 13 May 2020. This law gave the NBU almost unlimited power over the banking sector. "The court may not make any decision that may result in the suspension or termination of the initiated procedure for removing an insolvent bank from the market or its liquidation," the NBU says. "The initiated bank liquidation procedure cannot be suspended/terminated, including the case of recognition as unlawful and cancellation of individual acts of the National Bank of Ukraine and/or the Deposit Guarantee Fund that were the basis for its initiation – in accordance with part seven of Article 77 of the Law of Ukraine "On Banks and Banking Activities".
According to the DGF, Law No. 590-IX regulates this conflict. It stipulates that the cancellation of decisions in court that have become the basis for the withdrawal of an insolvent bank from the market/liquidation of a bank does not terminate such a procedure and does not return the bank to the market.
"This made it possible to return five of the seven so-called zombie banks that had fallen out of the DGF's control: the liquidation procedure at JSC Bank Veles and PJSC CB Premium has been completed, and the liquidation procedure at JSC Zlatobank, JSC CB Soyuz and PJSC AKB Capital is nearing completion. Two more banks are actually outside the DGF's control. However, from a legal point of view, they are still undergoing liquidation procedures in accordance with the rules set out in the Law of Ukraine ‘On the Deposit Guarantee System’. These are PJSC Ukrainian Innovation Bank and PJSC CSG Bank," the DGF said.
Thus, the law deprived the courts of logic, whose goal was to return the banks to the market.
Then why are the trials still going on? "The purpose of the plaintiffs appealing against the withdrawal of banks from the market is to avoid liability of bank owners for bringing banks to bankruptcy," the NBU categorically states.
Rostyslav Kravets, Head of Kravets & Partners Law Firm, says that they are trying to bring the shareholders of bankrupt banks to justice under the Criminal Code. "However, if the court cancels the NBU's decision to classify the bank as insolvent, it will not return the bank to the market, but the criminal case will fall apart. So it will be impossible for bank owners to make any claims," Kravets says.
If some bankers deliberately want to return their bank to the market, we should expect attempts to challenge the current legislation that currently regulates the National Bank's powers.
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