Protection of shareholders' rights, especially in the banking sector, has been and remains problematic. In general, Ukrainian law is built on principles that are unfriendly to shareholders and investors. This opinion was expressed in the commentary to UNN by the Head of the Department, Doctor of Law, Professor, Corresponding Member of the National Academy of Legal Sciences of Ukraine, Arbitrator of the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry Oleg Podtserkovnyi.
If we are talking about shareholders in general in Ukraine, the protection of shareholder rights of any organization, not just banking institutions, is, of course, a big problem. With regard to banks, this is a double problem, in that the current legislation is fully focused on the priority in recognizing the legitimacy of decisions of the NBU, the Deposit Guarantee Fund and other government agencies that are somehow involved in the functioning of the banking system,
Podtserkovnyi noted that this situation is not an exclusively Ukrainian problem, as in some other countries, amid the financial crises, there is a bias towards state dictates in the banking sector, especially in terms of bank liquidation.
"On the one hand, this is due to concern for depositors, but on the other hand, it is difficult to talk about investor protection in these conditions," the expert clarifies and adds that currently in Ukraine "a situation has arisen where the legislation is built on, let's say, unfriendly to investors and shareholders principles."
Podtserkovnyi emphasizes that even the decision to revoke a license or liquidate a bank, even if it can be appealed in court, is purely to form a basis for compensation for the value of the bank's shares.
"But the legislation is written in such a way, in particular the law on banks and banking activities, that it is extremely difficult to get the appropriate compensation, if not impossible. At least I am not aware of any facts that this could be done. Because the NBU approves the list of companies that have to perform the valuation, only it can enter into a valuation agreement with them, it sets the criteria and the valuation procedure. In addition, a lot of restrictions on the inclusion of certain assets in the calculation of the value of shares also reduces to almost nothing the possibility of compensation for losses that may arise in connection with the adoption of an unlawful decision, whether by the NBU or the DGF.
In fact, we have to state that today, from the point of view of shareholders and investors, national legislation does not create a favorable regime in the banking sector. Even without taking into account the martial law, because the relevant legislative norms were introduced before the martial law," the lawyer believes.
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Commenting on the situation with the liquidation of solvent banks, in particular Concord Bank, which was a profitable financial institution at the time of the decision to revoke its license, the lawyer reminded that Ukrainian legislation has a long list of grounds for the regulator to make a decision on the liquidation of banks, and some of these reasons are quite formal and would require verification. However, in Ukraine, the decision is made and essentially cannot be reviewed in court.
"In other words, the legislator has expressly prohibited the courts from doing so, so the relevant decisions can only be challenged in court to compensate for the damage caused to shareholders. Thus, if a decision is made to revoke a banking license for reasons other than the bank's insolvency, and there are many reasons - including violations of the legislation on money laundering, failure to replenish the authorized capital on time, etc. - that is, some other violations that exist in agreements with depositors... That is, some formal issues that seem to require verification before making such a responsible decision as bank liquidation - they cannot be revised today to restore the bank's credibility. And, unfortunately, the legislation does not provide for any other mechanisms to try to compensate for the damage," Podtserkovnyi explained.
According to the lawyer, the current legislative norms adopted in 2020 and known as the "anti-Kolomoisky law" essentially broke the procedure for appealing against acts and actions of state bodies that existed before, when it was possible to restore the state of affairs that existed before a decision was made through the court. Now it has become impossible.
To recap
Despite the war in Ukraine, the process of withdrawing banks from the market has not stopped. Thus, since February 24, 2022, the liquidation process has been initiated for 8 banks. This year, for the first time in Ukraine, not only bankrupt banks, but also profitable institutions were subject to liquidation and license revocation, including Concord Bank . The process of depriving a banking institution of its license takes place without a court. Of course, owners and shareholders of banks may appeal against the decision of the regulator, the NBU, after it has made the decision to liquidate the bank, but in general, the process of removing a banking institution from the market, once it has been launched, is irreversible. In addition, Ukraine does not regulate the liquidation of a profitable bank. According to Olena Sosedka, co-owner of Concord Bank, when the regulator announced the decision to liquidate the bank, the financial institution had enough highly liquid assets to make all the necessary payments in 2-3 weeks. But the process of bank liquidation is strictly regulated by law and can generally take up to three years.