The National Bank of Ukraine should not liquidate profitable banks and declare them insolvent. However, if such an unlawful decision is made, a fair valuation of its assets should be made, and the model for selling assets should be economically justified. In addition, the remaining assets should be returned to the owners and compensated for losses after settling with all creditors. This opinion was expressed in an exclusive commentary to UNN by Denys Shkarovskyi, attorney at law, partner at VB RATNERS.
"To begin with, a profitable bank should not be declared insolvent by the NBU," Mr. Shkarovsky said.
However, if such an illegal decision is made, then the liquidation procedure, according to him, should look like this:
- a fair valuation of assets;
- the DGF's choice of an economically sound model for selling the bank's assets (restructuring the debt of solvent debtors, holding transparent auctions for the sale of property at market value);
- transfer of the remaining assets to shareholders after settling with all creditors;
- fair compensation by the state for the losses of shareholders who have unlawfully lost their business.
According to the lawyer, the current procedure for liquidating a bank by a decision of the National Bank provides for the complete removal of shareholders from the management of the bank's property and the liquidation process. After the NBU makes a decision to revoke a banking license, the powers of the bank's owner are actually exercised by the Deposit Guarantee Fund (DGF) or its authorized person, as only they can act on behalf of the bank during liquidation. It is they who must manage the property of the bank being liquidated, take measures to preserve it, as well as form the liquidation estate (assets) and sell the bank's property. The DGF also takes measures to recover debts of counterparties and bank property held by other persons.
"In theory, the bank's shareholders can only appeal against the DGF's decisions regarding the disposal of property (approval of the amount of the bank's liquidation estate (assets), the results of the sale of property, etc.) However, in practice, this right is difficult to exercise," Shkarovsky said.
He added that the general rules of compulsory liquidation of any enterprise, including banks, around the world stipulate that the shareholder should not manage the process and dispose of the property. This rule is in place to protect the interests of creditors. The only thing that the legislator should pay attention to is the establishment of control over the DGF's activities to ensure that the property of liquidated banks is disposed of rationally and economically.
"Therefore, the introduction of a control mechanism (for example, through a court or a committee of creditors, as in ordinary bankruptcy) would increase the efficiency of the bank liquidation procedure," the lawyer said.
As a reminder,
despite the war in Ukraine, the process of removing banks from the market has not stopped. Thus, since February 24, 2022, the liquidation process has been initiated in respect of 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, the owners and shareholders of banks can 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. But the process of bank liquidation is strictly regulated by law and can generally take up to three years.