“Rights of shareholders of banks being withdrawn from the market versus the permissiveness of the NBU: Ukrainian reality and EU experienceThe Supreme Court’s decision in the case of Concord Bank showed that shareholders of Ukrainian banks being withdrawn from the
market are deprived of effective judicial protection. The judges concluded that the claims of former shareholders cannot be
considered by any court, which contradicts the Constitution and European practice.
”, — write: unn.ua
Rights of bank shareholders in Ukraine: what the “Concord” case showedThe problem of protecting the rights of shareholders of Ukrainian banks undergoing liquidation became evident again after the Supreme Court’s decision in the case of Concord Bank. The court confirmed: former owners of such banking institutions are effectively deprived of the opportunity to legally defend their interests.
Why did the “Concord” case become indicative? Here, selective justice and the application of a law prohibiting challenging decisions of the National Bank of Ukraine and the Deposit Guarantee Fund for individuals in courts intersected. Even if these decisions were made with obvious violations of the law.
With a two-day difference, the Supreme Court issued conflicting decisions, in which it applied the law differently. In the case of “Concord”, the judges indicated that none of the Ukrainian courts has the authority to consider lawsuits against the National Bank.
In this resolution, the Cassation Administrative Court as part of the Supreme Court stated a legal conclusion that, according to the peculiarities of the legal regulation of disputed legal relations, the claim of a former shareholder of an insolvent bank (in this case, a liquidated bank) is not subject to consideration either in administrative or in commercial proceedings, and by the subjective composition of the participants in legal relations, it does not fall under the jurisdiction of a civil court. That is, such claims are not subject to consideration by any court
The Supreme Court deprived the former shareholders of the bank of access to justice. At the same time, the judges did not consider the cassation appeal on its merits at all, despite the fact that the courts of first and appellate instances recognized the liquidation of “Concord” as illegal.
The Supreme Court overturned two previous court decisions, by which we proved the illegality of the NBU’s actions regarding the revocation of Concord Bank’s license. After 7 months of waiting for cassation, we received a decision that not only contradicts the law, but also common sense. We were not even summoned to court. The consideration took place in written proceedings – without hearings, without arguments, without the participation of the parties
Legislative restrictions: why shareholders’ rights are blockedThe Supreme Court directly stated: the claims of former shareholders of insolvent banks are not subject to consideration by any court in Ukraine. That is, even if the regulator acted with a clear violation of the law, it is impossible to cancel its decision.
The wording “such claims are not subject to consideration by any court” means that regardless of the circumstances or evidence, a person will not get access to justice. This contradicts the Constitution and the European Convention on Human Rights
Nina Yuzhanina, a member of the Verkhovna Rada Committee on Finance, Tax and Customs Policy, shares a similar opinion. According to her, the problem also lies in the fact that the National Bank and the Deposit Guarantee Fund are collegial bodies where personal responsibility for certain decisions is blurred.
There is no personal responsibility of NBU and Deposit Guarantee Fund officials. This creates a precedent where the rights of bank shareholders are ignored
European experience: how shareholders’ rights are protected in the EUUnlike Ukrainian law, European legislation maintains a balance between the powers of the regulator and the rights of shareholders of banks undergoing liquidation. Directive 2014/59/EU provides that any person affected by a bank liquidation decision has the right to challenge it.
As in Ukraine, in the EU, the appeal process does not stop the regulator’s actions, which guarantees the stability of the banking system. But in Europe, shareholders and creditors get the opportunity to defend their rights in a transparent judicial process and demand fair compensation for damages. In addition, in the EU, the institution of business reputation is better developed, and after proving innocence, the reputation of bankers is restored. In Ukraine, unfortunately, the NBU resolves this issue with its separate document.
Thus, in the EU, the rights of bank shareholders are protected, while in Ukraine, the legislator has effectively blocked any judicial mechanism for protection against the arbitrary actions of the regulator.
Consequences for investors and the banking marketLawyers emphasize that the situation with bank liquidation and the lack of legal protection for shareholders undermines confidence in the Ukrainian financial system. Because of this, as well as the risks associated with the war, foreign investors are increasingly refusing to invest in a sector where any decision of the National Bank is final and not subject to review even in court.
In an attempt to adapt the norms to European law, Ukrainian lawmakers, obviously carried away, went even further – they actually deprived bank shareholders of the right to protection contrary to the Constitution of Ukraine. If in the EU an appeal is possible and works as a balance of interests between the state and the banker, then in Ukraine, the owners of banks being withdrawn from the market remain defenseless against the regulator’s decisions.
Experts emphasize that this issue requires urgent review in parliament. After all, restoring the right of shareholders to effective judicial protection is a mandatory condition for the development of the investment climate and strengthening the rule of law in Ukraine.
RecallDespite the war in Ukraine, the process of withdrawing banks from the market has not stopped. Thus, since February 24, 2022, liquidation has been initiated for 8 banks. In 2023, for the first time in Ukraine, not only bankrupt banks but also profitable institutions fell under liquidation and license revocation – this refers to Concord Bank. As Olena Sosedka stated, at the time the regulator announced the decision to liquidate the bank, the financial institution had enough highly liquid assets to make all necessary payments within 2-3 weeks. But the bank liquidation process is strictly regulated by law and can generally last up to three years.