"Ukrinbank": how the oldest bank was liquidated and depositors were robbed. The Supreme Court has the floor

As a result of the high-profile banking crisis of 2014-2015, about a hundred banks were liquidated in Ukraine. Ukrinbank is probably the only one that is still fighting for justice, having long ago received a court decision on the illegality of its liquidation, which, as it turned out, is impossible to comply with.

However, this story is much larger than the long-term saga of one bank, no matter how reliable and old it may be. This is clear evidence of the implementation of a corrupt mechanism for liquidating banks using the state, aimed at reshaping the banking market and using other people’s assets with impunity. This story is about actually stolen billions and thousands of defrauded investors who still have not received justice.

Banking crisis of 2014-2015

PJSC "Ukrinbank" is one of the oldest banks in Ukraine. It arose back in 1989, even before Ukraine declared Independence.

The bank worked and actively developed, although the great financial crisis of 2008-2010 affected it, but having received a refinancing loan from the NBU in the amount of UAH 500 million, the bank managed not only not to lose its position in the market, but was even the only one among Ukrainian banks to return it ahead of schedule .

At the beginning of the second major crisis of the banking system of 2014-2016, largely caused by the annexation of part of the Ukrainian territories, and with them the property and assets of banks, the share of Ukrinbank occupied slightly more than 1% of the domestic banking market.

At the beginning of 2015, Ukrinbank’s balance sheet was UAH 5.7 billion, which at that time was the equivalent of $712.5 million. Among the bank's clients were real businesses, for example, PJSC Obolon, Sevastopol Ship Repair Plant, PJSC Lesmash, PJSC Krasilovsky Plant Tochmash, regional roads and the like.

However, the temporary occupation of Crimea and parts of the Luhansk and Donetsk regions led to the loss of 30% of Ukrinbank’s assets in the form of real estate, loans issued to residents and legal entities of these territories.

What should the state do in such a situation? Provide temporary support, such as refinancing and the like. Instead, the NBU conducted a so-called shock audit. A demand was put forward to increase reserves by UAH 500 million. The bank began searching for an investor and found three: American, British and Israeli companies. According to current legislation, the NBU must provide permission to attract funds from foreign investors to a Ukrainian bank. The Israeli company nevertheless reached the end of long and numerous negotiations and even warnings from the NBU that investing in Ukrainian business during a bank fall is risky.

On December 14, 2015, the NBU officially granted permission to attract $50 million of investment into Ukrinbank as part of a financial recovery plan and agreed on a time frame for such attraction.

Investors and the bank were given a month to do this. However, already on December 24 - 10 days after the decision was made to grant permission to the investor to raise funds in Ukrinbank - the NBU Board, headed by the notorious head of the National Bank Valeria Gontareva, approved a resolution on the introduction of a temporary administration in Ukrinbank, and a little later on its liquidation.

For the bank, this was, to put it mildly, an unpleasant surprise. The investor, naturally, did not understand this decision. Attempts to negotiate with the Deposit Guarantee Fund for Individuals introduced even more doubts. In order to have the opportunity to take part in the reorganization of the bank, the investor was offered to additionally deposit into the Fund’s account without any guarantees of return of funds... 30 million UAH in order “to be believed.”

How can we understand such decisions? What has changed in 10 days? Why didn’t the NBU stick to its own decision?

First of all, decisions to liquidate banks were made not by the courts, but by the regulator. They carried them out. Therefore, it is obvious that there was a clear conflict of interest, which created a wide field for abuse.

What became the basis?

Despite the fact that the bank lost a third of its assets as a result of the occupation, some large borrowers sought to repay their loans in advance and they did so.

The bank tried to hold on; none of its shareholders intended to withdraw funds and leave for Vienna or London, as many did. On the contrary, the bank tried to preserve assets and pay debts to depositors at the expense of those borrowers who were repaying loans.

Businesses had no time to wait during the crisis, some were planning an IPO, some wanted to take out a new loan from another bank and were interested in a clean credit history, some wanted to sell collateral in order to invest in another project. Things went on as usual.

However, the process of liquidating the bank, unexpectedly launched by the NBU, meant the beginning of a disaster. As a result, the bank stops carrying out any banking operations. The NBU appoints a liquidator. The liquidator must ensure payment of funds to the bank's creditors within the limits of existing assets.

All bank assets are assessed, and on their basis payments to creditors are made. The priority of payments is determined by law; usually, funds are paid first to individual depositors within the guaranteed amount.

The bank loses its banking license, the mechanism for returning it, even if a corresponding court decision is made, is simply... not provided.

Liquidation of a bank is a last resort measure, which is used in cases where it cannot fulfill its obligations to clients and creditors or violates the requirements of legislation and regulations of the NBU.

As we see, with regard to Ukrinbank, the NBU made two not just quite contradictory, but diametrically opposed decisions, with a difference of 10 days. There were no grounds for introducing a temporary administration at the bank, which was confirmed in the lawsuits that were initiated by the bank’s shareholders against the NBU. But this did not stop the liquidation process from starting against him.

Strange mathematics of regulators

For some reason, the NBU chose the position of not supporting the bank, which despite the crisis was staying afloat, not providing a loan for refinancing, not attracting investment capital, not adopting a plan for overcoming the crisis, and immediately liquidating it. Swiftly and purposefully.

What happened next? The bank's shareholders filed a lawsuit to declare illegal the decisions by which the NBU first introduced a temporary administration, and after 3 months launched the liquidation process.

And this is where the Deposit Guarantee Fund for Individuals comes into play. In the three months that have passed since the NBU’s decision, the Fund has paid off debts to individuals in half a billion tranches, but only within the limits of the guaranteed deposit reimbursement amount of 200,000 hryvnia!

The arithmetic here is quite simple and cynical. Given that the liquidation process was irreversible, those who led it quickly and with impunity took advantage of the opportunity to dispose of the bank's assets.

Banks pay 3% of the deposit portfolio of individuals to the Fund, which guarantees the return of their deposits to citizens, but not more than 200 thousand hryvnia each. The fund first obtains a loan from the Ministry of Finance to pay depositors, and then tries to recover its funds from the bank's assets. Therefore, the bank had assets worth more than UAH 5 billion, of which UAH 3.5 billion was the deposit portfolio of the population. Only UAH 1.7 billion had to be paid by the fund to investors.

Simple math. Good business?

At the same time, Ukrinbank is seeking to have the NBU decisions declared illegal in all three courts. On August 8, 2019, Ukrinbank received a final decision on the illegality of liquidation.

Do you think anyone was punished for this?

Or perhaps the license has been reinstated? The position of the regulator is that there is no corresponding mechanism provided.

How so? After all, there are billions of dollars at stake?

As Karl Marx rightly noted in his time, there is no crime that capital would not commit if the profitability exceeds 300%. In our case, along with “capital”, the NBU and the Deposit Guarantee Fund deservedly occupy their place.

Isn’t this what the whole mechanism, as simple as the racketeering of the 90s, was intended to do - to take advantage of the crisis, to reshape the banking market and profit from it with impunity?

Another important question: if a restitution mechanism, that is, a return to the original state, does not exist, what in this case is justice for business, the state, borrowers, and most importantly, bank depositors?

There are huge gaps in this area, but the state and the legislator must answer this question.

At the same time, someone received a gift of fate in the form of the opportunity to buy back their loan for 5% of the cost...

The collateral is put up for auction for next to nothing. Usually either speculators or large borrowers eat here. This does not bring any benefit to the state, nor to investors or shareholders.

In addition, the latest, so-called “anti-Kolomoisky” law generally shifts financial responsibility to shareholders for losses outstanding as a result of the liquidation of the bank. Despite the fact that the bank’s shareholders do not participate either in the assessment or in the implementation of this mechanism by the Fund.

Not only was the liquidation of the bank groundless and led to depositors losing their funds, but for many families this decision turned into a tragedy.

Just one example. The bank's depositor is a former pilot who earned six figures in US dollars while working in Africa. He hoped to provide a decent future for his family and a comfortable old age for himself. Instead, he received 200 thousand UAH from the Foundation and during the year of litigation he literally burned out from stress and died without waiting for a fair resolution of the issue of debt repayment. His wife and daughter are still suing.

Big Game of the Grand Chamber of the Sun

It is possible that this entire “liquidation” operation was the result of the influence of large borrowers and administrative resources, who, through joint action, decided to take over the bank’s loan portfolio and assets. For this purpose, even a very logical decision of the shareholders of Ukrinbank was used to exclude the word “bank” from the name of the legal entity, in connection with which the legal entity received the changed name Public Joint Stock Company “Ukrinkom”. This decision of the shareholders was based on the provisions of banking legislation prohibiting the use of the word “bank” in the name of a legal entity that does not have a banking license.

In one of its decisions, the Grand Chamber of the Supreme Court, at the suggestion of the Fund, unexpectedly establishes that Ukrinbank and Ukrinkom are two different legal entities. Although the talk was only about renaming. The EDRPOU code of the legal entity has not changed.

In development, the Grand Chamber of the Supreme Court also decided that all demands of Ukrinkom to Ukrinbank borrowers on this basis are illegal.

This decision, which cannot be appealed, was made with a margin of 1 vote and with the existence of 9 (!) separate opinions of dissenting judges. But it created a violation of the principle of legal certainty for the former bank and made it impossible to collect the debt in the future.

So what fell on the scales of blind Themis? Mystery. But if the legal positions of the Grand Chamber create legal conflicts, then is there any point in this essentially fourth court, amazingly composed of representatives from all jurisdictions, and what should be the mechanism for eliminating these problems? It is symptomatic that business executives voted against this decision, and representatives of criminal justice, whose specialization in this case is in no way, voted “for”.

This issue is still being discussed in the legal community, although 5 years have passed since the decision was made.

During these years, while no one can collect debts, neither the Fund nor Ukrinkom, borrowers continue to use credit holidays, and depositors essentially pay for the redistribution of the banking market from their accounts.

So isn't it time to change and correct your own mistakes?

What's next?

As you can see, the financial institution does not give up and is ready to work with borrowers, is ready to pay off debts to depositors, the Fund has accumulated debts and continues to seek justice in the courts.

But the legislator has something to think about. Was the liquidation mechanism effective? Doesn't it look like ordinary raiding under the guise of correct slogans? Why was the bankruptcy mechanism not applied? What is the benefit to the government of facilitating the sale of valuable assets for next to nothing?

What to do with those assets that, due to the OP’s decision, are stuck in legal limbo? And who should protect the interests of citizens, the state, and investors in this situation?

“Ukrinkom” does not give up and has its own plan to overcome the current situation. But it appears that both the state and national regulators apparently owe the bank and its depositors basic justice. Now the Supreme Court has the floor again. And many are looking forward to whether justice and legality will prevail in this case, or whether the interest of some large borrowers of the bank will again prevail, who, as a result of all these ups and downs, have received luxurious credit holidays lasting more than 7 years and cherish the hope of getting rid of debts altogether. We will know about this in the coming days.