Court rules privatization of PrivatBank invalid

Author

Oleg Gavrish

has obtained a copy of April 18, 2019 decision of the Kyiv District Administrative Court that recognizes the nationalization of Privatbank to be invalid. The text itself cannot be downloaded from the open database of court decisions. But the editors managed to get acquainted with the document.

We publish the most controversial moments of the decision in which the court agreed with the plaintiff, former owner of PrivatBank Ihor Kolomoisky. We also provide expert comments. Professional lawyers and lovers of judicial casuistry will find in the appendix the text of the decision itself, which we reprinted manually. And so, this is what the court agreed with and why it is important.

Jurisdiction of the case. The decision states: the court considers that due to the bank’s transfer to the state, the claimant as a shareholder has lost the right to control the governing bodies. That is, this dispute is corporate and must be resolved in the economic court at the location of the company, that is, PrivatBank. However, this lawsuit was considered by the District Administrative Court of Kyiv, which does not consider corporate disputes. The court, in fact, did not have the right to take action.

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Roman Marchenko from Iliashev & Partners said jurisdiction of the case is determined directly by the court considering the claim. But the defendant can challenge this decision in a higher court. "In the place of the National Bank, I would ask the Court of Appeal whether District Administrative Court had the right to consider the claim. I would proceed from his answer," Marchenko said.

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How are reserves determined? The decision of the court says that the bank should form reserves only for active operations. And such, according to the court, is the "loan in default". That is, as long as the borrower did not refuse to pay, it is not necessary to form reserves for the loan. Thus, the plaintiff disputes the size of banks reserves, which, at the request of the National Bank of Ukraine, it was to form. With this interpretation, they should be significantly less. So, NBU regulations were met, and there was no reason to nationalize the bank.

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Independent Association of Banks of Ukraine Board Chair Roman Shpek said he was surprised by such judicial know-how. "Reserves are formed on the basis of the financial condition of clients in accordance with NBU regulations. And of course, such a strange decision of the court cannot be called anything other than contrary to the practice common to the market," he said.

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Did Kolomoisky have the right to file such a claim. In his lawsuit, the ex-owner defends the rights of the bank. However, he refers to the decision of the European Court of Human Rights in the case of Boris Feldman and his Slovyansky Bank vs. Ukraine. After the liquidation of this bank, Feldman sued the state. The European Court guaranteed him this right, referring to the fact that if the governing bodies of the bank lost their powers, the majority shareholder may file a lawsuit on behalf of the bank. However, in the case of PrivatBank, this logic is questionable. Firstly, the bank is not withdrawn from the market, it has operating controls. And secondly, Kolomoisky is not the majority owner of the bank, because he does not own 50% + 1 share.

Pressure on the former shareholder. The plaintiff claims that he was forced to sign a letter asking to nationalize the bank. The decision of the court does not say whether there is evidence of this pressure. But even if this is the case, the NBU made the decision not at the request of Kolomoisky, but due to the fact that the shareholders of PrivatBank did not comply with the decision on the financial rehabilitation of the institution in 2016. They also did not provide the regulator with a loan portfolio restructuring plan.

None of the interviewed lawyers decided to comment on the last two points. We have not been able to get comments from the parties to the case either. But the editors are ready to give them the opportunity to speak on this issue.