How large debtors avoid liability to banks thanks to... the Deposit Guarantee Fund

Without ensuring legal certainty, legality, fairness and predictability of court decisions, one can, of course, continue to be amused by empty chatter that Ukraine is striving to join the EU and is seriously going to harmonize its legislation and law enforcement practice with European ones.

When it comes to the banking reform of 2014-2017, people usually remember ordinary citizen-depositors who suffered as a result of the liquidation of the so-called problem banks. But there is another side to the coin that is not remembered so often. And it’s called large borrowers. Leading enterprises, large firms, that is, serious players who turn to banks not for small change. As a rule, we are talking about millions of hryvnia.

As a result of the banking reform, in cases where the NBU decided to liquidate a particular bank, these large borrowers clearly remained in the black.

The case currently being considered in the Supreme Court concerns precisely such a conflict. We are talking about a dispute between PJSC Ukrinkom and the Deposit Guarantee Fund (DGF). The main stumbling block is whether PJSC Ukrinkom is the legal successor of Ukrinbank, and therefore has the right to collect debts from large borrowers?

Let us recall that in 2015 the NBU declared Ukrinbank insolvent. Why and how is a separate topic, which Rakurs covered in detail: many financial institutions at that time found themselves under the steamroller of the “great bank purge.” Not all of them actually had to be eliminated.

The former owners of Ukrinbank renamed it PJSC Ukrinkom, thus trying to return to the market. But the question of whether Ukrinkom and Ukrinbank are the same entity has not yet been resolved.

PJSC is faced with the problem of a significant number of defaulters who do not repay loans after the liquidation of the bank. Many borrowers try to avoid liability by taking advantage of legal loopholes and delaying collection processes through the courts.

Now the Federal Guaranty Fund believes that it owns all the rights to manage assets and collect debts. Meanwhile, PJSC Ukrinkom, which has the same EDRPOU code as Ukrinbank, thinks differently. It is this issue that is the subject of consideration in court.

What's the matter?

If the bank's funds are sufficient to satisfy its obligations to all creditors, it can continue to operate either as an ordinary legal entity, changing the types of activities, or by obtaining another license, in particular, to carry out financial transactions not related to banking activities. Moreover, if it is necessary to liquidate such a legal entity, the general bankruptcy procedure is applied - the same as for all ordinary legal entities.

For 8 years in a row, the proceedings opened at the request of the Plenum of the Supreme Court of Ukraine regarding the system of guaranteeing deposits of individuals have been lying in the Constitutional Court without any progress. The corresponding resolution of the Constitutional Court of Ukraine dated February 10, 2016 concerns the opening of constitutional proceedings in the case based on this submission. The Supreme Court of Ukraine asked to check the constitutionality of certain provisions of the legislation related to enforcement proceedings. The Constitutional Court decided to consider this issue by opening relevant proceedings, but has not yet made a final decision on the merits of the case.

This submission concerns, in particular, the constitutionality of the Law of Ukraine “On the System of Guaranteeing Deposits of Individuals”. In particular, the question is that the Fund, not being a government body, is endowed with excessive powers that only the National Bank of Ukraine can have.

In the court case, which is currently being considered in the Supreme Court, the authorized person of the Deposit Guarantee Fund refers to the fact that Ukrinkom is allegedly still in the register of banks, which is confirmed by the NBU.

Yes, there is PJSC “Ukrinkom” with a changed name, which was previously called “Ukrinbank”, and it continues to carry out business activities.

In the State Register of Legal Entities, under code 05839888, only one legal entity is indicated - PJSC Ukrinkom. Are there really two legal entities today - Ukrinkom and Ukrinbank? No. When you open the state register, you can only see Ukrinkom.

The Grand Chamber of the Supreme Court in its ruling indicated that the change of name was neither a liquidation, nor a transformation, nor a separation, annexation, division, merger or reorganization. This was essentially a renaming, which does not and cannot result in any organizational changes.

There are two cases, based on the results of which the legality of registration actions was confirmed. That is, the registration data on changing the name and KVEDs were recognized as legal. To date, there have been no actions by the Ministry of Finance to cancel re-registration.

The significance of this case is greater than the dispute between PJSC and the Deposit Guarantee Fund. As stated above, the Ukrinkom case is known far beyond Ukraine. Indeed, in addition to European financial circles, Ukraine’s main partner, the United States, is also well aware of this matter. And now this case is a cautionary tale for every potential investor who sees the powerlessness and defenselessness of a commercial bank. Having been forced to defend its position for years and still lacking confidence in the victory of the law and common sense, there is nothing to be said about the favorable investment climate. This is also why it is very important that in this case the court takes the side of Law and Justice, ultimately protecting the interests of the state and its citizens.

According to logic, the right is on the side of PJSC Ukrinkom. After all, it was this legal entity that, when it had a banking license, gave money, and therefore has the right to receive it back. If this is not done, another noticeable stone will be added to the wall that the state is persistently and consistently building between Ukraine and potential investors who are ready to participate in its restoration.