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Legal Implications of Nationalization of PRIVATBANK. Appealability of the Decision


Oleksandr Vygovskyy, attorney at Ilyashev & Partners Law Firm
Source: Ukrainian News

The procedure of nationalization of an insolvent bank (or, as the legislation lays it down – “the procedure of putting an insolvent bank from the market with participation of the State”) is expressly stipulated by the Article 41-1 of the Law of Ukraine “On the system of securing private contributions” as of February 23, 2012. In the course of performance of this procedure putting an insolvent bank from the market is carried out at the expense of the state budget and/or funds of the state-owned bank. The State acquired the title to the shares of the bank upon expiration of two calendar days from the day of commencement of such procedure. At the same time the State may either contribute monetary assets to the charter capital of the bank or exchange state government bonds for the shares of such bank. The Government has chosen the second option in the process of nationalization of PJSC Privatbank. As it is stated in the Decree of the Cabinet of Ministers of Ukraine No. 961 as of December 18, 2016 “Certain mattersof securing stability of the financial system”, the State, as represented by the Ministry of Finance of Ukraine shall purchase full package of shares of PJSC CB Privatbank for one hryvnia, and the Ministry of Finance is entrusted to issue state government bonds in the amount of up to UAH 116 800 000 000 with the period of repayment constituting up to 15 years with their further tender on behalf of the state in payment for the additional shares of PJSC CB Privatbank.

In such way all the legislative provisions stipulated for commencement of this procedure have been complied with.

As soon as such decision was taken by a public authority the mentioned Decree of the Cabinet of Ministers of Ukraine No. 961 as of December 18, 2016, according to which nationalization of PJSC CB Privatbank is carried out, may be appealed by lodging a claim to the administrative court. Pursuant to Article 6 of the Administrative Procedure Code any person has the right to lodge a claim to administrative court if it considers that by its decision, act or inaction the public authority violated the rights, freedoms and interests of such person. This is why (hypothetically) the clients of PJSC CB Privatbank who believe that the mentioned Decree violates their rights, freedoms and interests may appeal it to the court and even may lodge a petition on application of measures to secure such administrative claim through issuing a court ruling of the decision of the corresponding public authority in full or in part.

However, the perspectives of such an appeal apper to be fairly weak.

The main reason for nationalization of PJSC CB Privatbank, which holds a third of all the deposits in Ukraine, is the failure of its shareholders to realize the plan of additional capitalization of the bank (according to the NBU the current gross financing requirement amounts to UAH 148 bln). The mentioned Decree mentions that with the aim of renewal and stabilization of the bank’s work the state will participate in its additional capitalization through acquisition of the additional shares under the current nominal value. In other words, the state undertakes to do the things that the owners of the bank ought to have done, namely, to replenish its capital for the bank to be able to perform its obligations towards its clients. Such actions of the state do not really violate the interests of the bank’s clients.

Apart from that the State, acting as the new shareholder, shall guarantee uninterrupted operation of the bank, as well as safety of the deposits at the current, deposit and card accounts of individual persons and legal entities, servicing of the cards issued by the bank, as well as safety of the monetary assets entrusted to the bank. The bank’s clients will take guarantees of protection of their deposits and savings. To which, as well as before, the state compensation guarantees shall apply. Such guarantees are provided by the law of Ukraine “On the deposit guarantee system in Ukraine”. The declared changes in operation of PJSC CB Privatbank will, for the time being, affect only the composition of the Management and Supervisory Boards of the bank.

What is more, the level of protection of interests of the clients PJSC CB Privatbank will only increase after its nationalization. Within a record low period (on December 20, 2016) Verkhovna Rada of Ukraine (the Parliament) passed a draft law on introduction of amendments to the Law of Ukraine “On banks and banking activities” regarding the state guarantees of the private deposits (registration No. 5553 as of December 19, 2016). Currently the State fully guarantees the deposits of individual persons in the state banks including the share of the deposit exceeding the limiting amount of compensation of the deposits guaranteed by the Deposit Insurance Fund (i.e. UAH 200 000.00).

Taking the aforementioned into consideration we may suppose that the administrative court will unlikely agree to suspend or terminate the mentioned Decree of the Cabinet of Ministers of Ukraine.

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