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What Loopholes the Banks Will Find in the Law “On Restructuring Loan Liabilities in Foreign Currency”


Dmytro Shemelin, Lawyer at Ilyashev & Partners Law Firm
Source: Ekonomichna Pravda

The problem number one – is to define the lender in Article 1 of the Law, i.e. the person responsible for restructuring. If the situation with the banks is more or less clear, the one with “persons to whom the right of claim is assigned” is vaguer. In particular, does the legislator mean here the persons to whom the mentioned right has already been assigned as of the moment when the Law entered into force or any person who will someday acquire the right of claim under a credit subject to restructuring?

Judging from the context, the legislators understand the creditor as a person who had already received the right of claim as of the moment when the law came into force. In particular, the law does not mention of the situation when the previous lender loses and the new creditor receives an obligation to carry out restructuring – as it would be the case in case of assignment after the moment when the law has entered into force. On first reading Article 2 of the Law, too, mentions the creditors who retained such status at the moment when established is the availability of obligation subject to restructuring, that is, again, as of the moment of entry of the Law into force.

 If this is really the case, then after the Law enters into force it will be enough for the bank to assign the right of claim under a loan to a third party to get rid of restructuring liabilities. The only protection against this is assurance of fair price of such assignment stipulated by Article 2 of the Law.

However, it is not worth relying too much onto the detailed procedure (prescribed by the Law) of implementation by the borrower or guarantor of its preemptive right of purchasing its indebtedness at the price under which such indebtedness is assigned to a third party.

Practically it is extremely difficult to track the real purchase price agreed be the related parties – it is no secret that banks and collectors have close economic relations. Even if the price of assigned rights is established according to the actually transferred amount (which is, by the way, not stipulated by the Law) will be very difficult to track and documentarily prove all the “undercurrents” by use of which a part of such payment may be returned back to the payer.

Such burden of proof will be even more difficult to handle for an individual borrower who has little understanding of the court procedures, bank documents, and does not have much money for legal expenses. In addition, statistics is not on the borrowers’ side. Unlike banks and collectors (who assign their commitments and conduct settlements as a whole “package”), each borrower will have to prove the price of its assigned independently.

Moreover, to initiate proceedings on transferring the rights and obligations of the new lender to the borrower, according to the law the borrower is obliged to transfer a full fair value of its assigned debt to the deposit account of the court. Let it be not 100% of the loan debt, but actually for the borrower in default it is extremely problematic to promptly find even 20-30% of the total sum of the indebtedness.

The second big problem is the restructuring of the loan which, in any case, requires execution of the agreement with the bank. The authors of the Law decided not to introduce provision making all the loans to be automatically considered as restructured under the new terms – is extremely difficult in terms of legislative technique.

In its turn it is difficult to take advantage of the claim on execution of an agreement under certain conditions. Our courts, which are good at recognizing the agreements to be void, may acknowledge obligations of the parties under the existing agreement, but it is rather difficult for them to “create” an agreement between the parties in practice.

Hence, the implementation of the bank’s obligation on restructuring the loan will largely depend on its goodwill and possibly from the NBU’s desire to force the banks to actively implement this Law.

It is enough to remember that the Law regulates only the interest rate and the amount of principal obligation in the new loan agreement, and such matters as the grounds and the amount of the borrower’s liability are agreed by the parties.

However, even if the borrower dares to file a claim with the aim of forcing the bank to enter into an agreement, in any case, until the court ruling enters into force (i.e. when appeal proceedings are finished) the borrower’s situation will not change and he have to settle the loan under the old rules.

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