Shareholders of Ukrainian banks are effectively artificially deprived of the opportunity to protect their property rights. This is especially true for those financial institutions that the National Bank of Ukraine has decided to revoke their licenses. The current legislation is written in such a way that shareholders have virtually no legal tools to protect their rights in national courts. Why did this happen, who benefits from it, and whether bank shareholders can protect what they own - lawyer Oleg Malinevsky expressed his opinion on this issue in an exclusive commentary to UNN.
Details
Malinevsky reminds that the provisions of the Constitution of Ukraine are direct action norms that guarantee the right to property and the right to judicial protection.
"The Constitution provides everyone with protection of their rights in court, protection of property rights under Articles 41, 55, 124 of the CCU. They guarantee the rights of bank owners, first and foremost, to protect their property from certain arbitrary interference by the Ukrainian state. The deprivation of such protection is a fundamental violation of the Constitution, which may indicate the unconstitutionality of the procedure set forth in the law on the deposit guarantee system and the law on banks and banking activities. And this has relevant practical implications. Because the way this system has been changing and the extent to which the court has been removed from the process of removing banks from the market, especially after 2014, we have had an unprecedentedly large bank failure. But we understand that it does not happen that up to a certain period of time all banks were normal and solvent, and their owners were honest, and then overnight they all became bad and had to be destroyed and removed from the market. Of course, there was the factor of the war in 2014. What we are seeing now is an escalation of the war that Russia started back in 2014, which led to the loss of a significant part of assets in the banking sector, deterioration of the overall economic situation in the country, and depreciation of the national currency. All of this fell on the shoulders of bank owners. Instead of helping banks and curing them financially, the NBU carried out the euthanasia procedure of such institutions, and, cutting them alive, massively withdrew them from the market. Often without justification, against the will and efforts of bank owners to save their institutions. Unfortunately, the procedure set out in the existing legislation, especially after the adoption of the so-called anti-Kolomoisky law, limited the possibility of reviewing such a decision by the NBU, despite the fact that illegal license revocation is a gross violation of property rights," Malinevsky notes.
The lawyer clarifies that the right to peaceful enjoyment of property is also enshrined in the European Convention on Human Rights. That is, the option of applying to the European Court of Human Rights may become an additional tool for protecting property rights.
"As for the ECHR, it really deals with cases where the state unreasonably interferes with the right to property, a violation of the right to peaceful enjoyment of property - this is Article 1 of Protocol 1 of the Convention. And in such cases, although they are exceptional, a person must be provided with the right of access to a court to verify the grounds for such interference and full restoration of rights if such interference was carried out illegally," adds Malinevsky.
At the same time, he notes that the possibilities of national courts, even in the current legislative field, are not hypothetically exhausted.
"There is a legal possibility. But unfortunately, this certain political pressure from our government officials is certainly doing its job, and the courts are very cautious about the possibility of protecting the bank's owners. Although such protection, in my opinion, directly follows from the Constitution. Despite what is written in the law. Although the provisions of the Anti-Kolomoisky Law are not applicable to banks that were already unlawfully liquidated before the Anti-Kolomoisky Law came into force, it is inadmissible to apply the provisions of such a law. However, I would like to draw your attention to the fact that both the law on the deposit guarantee system, which defines the powers of the Deposit Guarantee Fund, and the Anti-Kolomoisky law are currently being reviewed by the Constitutional Court of Ukraine. However, it is taking too long, which may further indicate the unconstitutionality of these norms and the delay in officially recognizing this fact. Once again, there is a legal opportunity to protect the property rights of owners even now. Especially in relation to the owners of banks taken off the market before the anti-Kolomoisky law. What is needed is the will of the law enforcement agency, especially the court. Moreover, if we have the courage to apply the norms of the Constitution and the European Convention on Human Rights, even the anti-Kolomoisky law will not be an obstacle in the future," Malinevsky said.
A separate issue is the sale by the Deposit Guarantee Fund of the property assets of banks that are being liquidated. The lawyer also sees certain encroachments on property rights in this procedure.
"This is one of the significant complaints about the imperfection of the procedure, which may create certain conditions for inefficiency of the Fund's activities or even corruption. Moreover, this remark does not refer to any specific officials of the NBU or the DGF, but to the system that was created after 2014 and was actively used during the bank collapse. As a litigation lawyer with almost 20 years of experience, I understand that it is more profitable for the state and for bank owners to collect funds from specific borrowers and use this property to repay the debts of such an institution, including to the Fund. Moreover, it is also important to work on recovering damages from Russia in favor of the affected banking institutions. Therefore, when we talk about the validity of state interference in property rights, in addition to depriving the bank owner of the right to access the court to protect his rights, we may also be talking about the unjustified deprivation of the bank owner of the ability to manage his bank - to determine the most effective way of management, including the return of its assets," Malinevsky summarized.
To recap
Despite the war in Ukraine, the withdrawal process has not stopped. Thus, on February 24, 2022, the liquidation process was 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 - we are talking about Concord Bank . The process of depriving a banking institution of its license takes place without a court. Of course, the owners and shareholders of banks may appeal 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. However, the process of bank liquidation is strictly regulated by law and can generally take up to three years.