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The lawyers of Ario Law Firm defended successfully the interests of the individual managers of a bankrupt financial institution – JSC AB Ukoopspilka in a dispute with the Deposit Guarantee Fund, which acted as the liquidator of the financial institution for the amount of almost UAH 77 million. The Kyiv Economic Court for the first time rendered a decision on a case for recovery of losses from the heads of insolvent banks, whose claim was completely denied.
The plaintiff believes that the actions of the bank’s management, in particular, on conclusion of transactions on the bank’s acquisition of securities (time bonds) did not have economic sense, were unprofitable and resulted in insolvency of the financial institution. The fund estimated the damage in the amount of almost UAH 77 million, and intended to bring the former managers to joint property liability and recover this amount from them.
As the defense stresses, the actions of the top management of the bank on acquisition of bonds could not cause damage to the bank. Transactions on the acquisition of bonds are valid, not recognized as null and void, the maturity date of the bonds has not come yet, and therefore the plaintiff does not have the right to insist on the unlawfulness of the bank managers’ actions. Moreover, when the bank acquired the bonds indicated in the lawsuit, the curator of the National Bank of Ukraine, who did not see any risk for the bank in the acquisition of the said securities, worked at JSC AB Ukoopspilka.
“Demands to the bank, unsatisfied due to the insufficiency of its property, are considered to be repaid, which does not deprive the Fund or an authorized person of the Fund of the right to apply to the person related to the bank in the manner specified in part 5 of Article 52 of the Law of Ukraine “On System of Individual Deposit Guarantee”. For the moment, the Fund has not yet completed the liquidation procedure, the sale of the bank’s liquidation estate continues, that is, the statement that the bank doesn’t have enough property for settlement with depositors – is an assumption, which can be a basis for a lawsuit. Neither before the temporary administration was introduced, when the NBU curator worked in the bank, nor during 2015-2018 there was no reason to believe that the value of bonds acquired by the bank was different from the amount of funds paid for these bonds. From January 2015, when the temporary administration was introduced at the bank, and until August 2018, when the claim was filed with the Economic Court of Kyiv, the Fund neither considered the acquisition of bonds as null and void, nor tried to sell such bonds,” one of the lawyers in this case, the counsel of Ario Law Firm Andrii Fylyk said.
He also noted that the plaintiff’s arguments on the yield on bonds from 2.8% to 5.1% per annum do not constitute grounds for considering the acquisition of bonds to be invalid. The lawsuit does not contain legal norms that would prohibit the bank to acquire the bonds with such a yield rate. In addition, those companies that issued securities in question still conduct their business, are located at the place of their registration and the plaintiff’s statement of their “fictitiousness” is just an assumption, which does not constitute grounds for considering the transaction to be invalid.
The plaintiff cites as a proof the report on assessment of the bank’s liquidation estate, performed by a third-party limited liability company. The defense side of the bank’s top management proved in court that this report did not comply with legal requirements. One of the reasons for inconsistency of this evidence is the fact that the assessment was made not at the date when the decisions on acquisition of bonds by the bank were made, but at a much later date when the bank was already at the liquidation stage.
As for the Fund’s intention to bring the bank managers to joint liability, the corresponding provision in the law appeared much later than the conclusion of the transactions with bonds, and therefore the lawyers of Ario Law Firm are convinced that the law is not retroactive in this case and cannot be applied to the managers AB Ukoopspilka.
“The well-known legal principle says that the law can become retroactive only in cases when such a law softens or cancels the responsibility of a person,” Andrii Fylyk, the counsel of Ario Law Firm says.
Moreover, in the current legislation there is no legal norm on bringing the former managers of the bank (in our case, the defendants) to the joint property liability, since these persons worked in the bank in different periods, in different positions, made decisions separately from each other and on different operations, and therefore, in fact, it is impossible to establish the degree of liability of each of them, since both in the occurrence and in the performance of such operations, a separate composition of civil rights is formed, which is characterized by evidences that are not related to each other, and therefore in this case there is no unlawful joint behavior.
“We know that the AB Ukoopspilka property sale is in progress. Moreover, the property is sold at a price higher than its book value. It is also important that at the time of filing the claim the maturity of the bonds did not come, the issuers are listed on the stock exchange, the circulation of the bonds is not stopped, and consequently the plaintiff’s assertion about the low value of these securities and the inability to satisfy the creditors’ claims at the expense of the funds received as a result of the bonds redemption is an assumption. There are no real grounds for considering bonds to be invalid today,” Serhii Derkach, the lawyer for Ario Law Firm said.
The lawyers of Ario Law Firm note that this is just the first case against managers of bankrupt financial institutions considered in Ukraine after the banks’ collapse in 2014-2018 and over time, their number will increase by several times, cause since 2014 more than 90 banks have “fallen” for the Deposit Guarantee Fund. Thus, judicial practice on this issue is just beginning to form.
So, to be continued …
Ukrainian mechanisms of the individuals’ solvency restoration, introduced by the recently adopted Code on Bankruptcy Procedures, are among the most loyal among other countries in the world, where similar mechanisms are provided for by legislation.
However, given the social sensitivity of the citizens’ bankruptcy topic, some journalists and bloggers rushed to tag new opportunities as “zrada”, and some even began to intimidate people that they would be nearly deprived of a single housing already tomorrow. This was said by the senior partner of Ario Law Firm and one of the developers of the Code on Bankruptcy Procedures Julian Khorunzhyi during the round table “Bankruptcy of Individuals: Ukrainian Perspectives and International Experience”, which was held within the framework of the VII Judicial Forum organized by the Ukrainian Bar Association in conjunction with the Council of Europe projects.
On November 15, leading market experts – people’s deputies, lawyers, arbitration managers, representatives of the Ministry of Justice – during the round table at LigaBusinessInform, discussed and studied the main nuances of the bankruptcy procedure for individuals, introduced by the Code on Bankruptcy Procedures adopted in October 2018.
“The very philosophy of introducing the institution of the individuals’ bankruptcy is that if a person got into financial difficulties, he/she should have a chance to turn the page and live on. Insolvency should not be a sentence for such a person,” Ruslan Sydorovych, people’s deputy, one of the authors of the Code on Bankruptcy Procedures.
He also noted that the banks also have long wanted to write off the debt accumulated. Therefore, these changes are equally beneficial to both parties – the debtors and the creditors. With the entry into force of the Code, within 5 years the problem of currency mortgage should be forgotten in general in Ukraine.
Ihor Nikolaev, the legal counsel of the Commercial Law Center, noted that introduction of the institution of the individuals’ bankruptcy is not intended to write off debts, but this is an opportunity for the debtor to restore solvency by soliciting the bank or the court. He also noted that adopted opportunities are a blessing that will be provided only to bona fide debtors.
Julian Khorunzhyi, the senior partner of Ario Law Firm, listed the main aspects of the Code concerning the restoration of solvency of the individuals debtors.
“First of all, it should be emphasized that the only possible basis for the proceedings opening is an application from the debtor. The comments of some “experts” that almost tomorrow the individuals will be thrown out of their apartments demonstrate that they did not read carefully the final text,” said Julian Khorunzhyi said.
He noted that at the same time, the debtor must be objective and analyze his/her property situation qualitatively, because the court has the right to terminate the proceedings if it becomes known that the debtor has submitted false information regarding his/her own property status. Moreover, it should be understood that the banks themselves will be very careful in analyzing the property status as well.
“The debtor should take into account financial costs, in particular, the remuneration of the arbitration manager. After all, after opening of the individual insolvency proceedings, a 170-day moratorium on satisfaction of creditors’ claims is introduced. The debtor with the arbitration manager must develop a restructuring plan. After approval of the restructuring plan, the restructuring manager completes its activities. These three months will cost the debtor (according to the rules) about UAH 26 thousand,” Julian Khorunzhyi said.
The lawyer also noted that the property sale will be based on the principle of the ProZorro. Sale system. At that, the only housing cannot be recovered and sold from the debtor – an apartment of up to 60 sq. m. area or a house of up to 120 sq.m. area.
Among the negative aspects for the debtor there is impossibility to open an insolvency case again within the next 5 years.
“Having studied European legislation, we can say that the mechanisms adopted in Ukraine are the most loyal. Therefore, for those who have not seen the final text of the Code yet, but have already criticized its norms, I’d ask them to wait for the publication and to read the final text carefully,” Julian Khorunzhyi said.
Director of the Department of Judicial Work and Bankruptcy of the Ministry of Justice of Ukraine Yuri Moiseev noted that the Cabinet will still need to develop about 30 bylaws for the functioning of this institution. He also noted that today the Ministry of Justice has not only a legal and regulatory framework, but also a technical one, but the Cabinet of Ministers still needs to decide on what kind of electronic auction system will be used.
The partner of Ario Law Firm, the Chairman of the APU Competition Law Committee Iryna Serbin assured that the Committee will carry out educational work and organize educational activities for arbitration managers.
“In matters of the individuals’ bankruptcy procedures, the arbitration manager must be of a different format, possess mediation skills, because these are not simple bankruptcy cases. These are also social and psychological cases that affect not only the debtors, but also their families. The Competition Law Committee should start the educational work and organize a number of events,” Iryna Serbin said.
The Shevchenko District Court of Kyiv satisfied the complaint of the lawyers of Ario Law Firm and released the citizen of the Republic of Moldova, the oppositionist Olexander Balika from extradition arrest. The court replaced the measure of restraint with night house arrest – with the prohibition to leave the living accommodation from 20.00 pm to 9.00 am of the next morning.The Shevchenko District Court of Kyiv satisfied the complaint of the lawyers of Ario Law Firm and released the citizen of the Republic of Moldova, the oppositionist Olexander Balika from extradition arrest.
The court replaced the measure of restraint with night house arrest – with the prohibition to leave the living accommodation from 20.00 pm to 9.00 am of the next morning. It should be noted that legal defense in Ukraine is provided to the Moldovan oppositionist by the lawyers of Ario Law Firm, the senior partner Julian Khorunzhyi, the partner Yevhen Hrushovets, the lawyer Natalia Shvets, the lawyer Yaroslav Serbin. Let us recall that Olexander Balika was detained in Kyiv on June 21, 2018. On July 6, 2018, extradition arrest was applied to him at the request of the Republic of Moldova. In Ukraine, he applied for political asylum. The required package of the documents confirming political motivation of the persecution and the application for a refugee status was signed by Olexander on July 5, 2018, but due to the fact that the oppositionist was detained on July 6 for the time of the extradition check and was in the pretrial detention facility, the SMS received the documents only at the end of July. The actions on registration of the necessary documents were taken by the SMS only in late September.
“Olexander Balika did not evade the investigation in the Republic of Moldova. He is absent in the Interpol database, which is confirmed by the fact that he repeatedly crossed the border with Ukraine. In addition, we provided the court with documents confirming that Balika was a candidate from the opposition party for the position of a member of the Parliament of the Republic of Moldova. Today there is a tough resistance between the opposition (the party the member of which Balika is) and the authorities. This indicates that his persecution is politically motivated,” Yevhen Hrushovets, the partner of Ario Law Firm said.
“Five members of the Parliamentary Assembly of the Council of Europe, representatives of Great Britain, the Netherlands, Italy and Germany, indicated directly the political motivation of the Olexander’s Balika persecution. We submitted their appeal to the Verkhovna Rada Committee on Human Rights and the State Migration Service to the Court and added them to the proceedings materials,” Julian Khorunzhyi, the senior partner of Ario Law Firm, said.
As follows from the text of the appeal, the PACE members note that Mr. Balika is one of the key witnesses of the criminal case against the leaders of the Moldovan political party “Democratic Party of Moldova”, which (the case) was opened in Romania in 2017, and then was transferred to Moldova, despite the fact that it has no prospects for an investigation in Moldova, since currently in Moldova the highest public office, including the post of the Prosecutor General, is occupied by the representatives of the same political party “Democratic Party of Moldova” and their allies. “
The extradition of Olexander Balika to Moldova will lead to criminal persecution against him personally for political reasons and may lead to the use of torture against him in order to obtain evidence against himself and the leaders of the political opposition in the country,” the appeal says.
In turn, the lawyer Natalia Shvets noted that the defense of Olexander Balika proved to the court the inconsistency of keeping Balika under custody.
“The defense has provided evidence that Olexander did not evade justice in his home country. Moreover, the materials of the extradition request submitted by the competent authorities of the Republic of Moldova indicate that for more than a year and a half since Balika was notified of the accusation, no investigative actions in the criminal case, including with his participation, have been carried out, it means no investigation has been actually conducted,” the lawyer Natalia Shvets said. “He also did not hide from the law enforcement agencies of any state”.
She also drew attention to the fact that there are no criminal proceedings in Balika’s home country, except for the case, which has the signs of political persecution.
Also among the arguments of the defense side there are:
- Olexander has strong social ties: he is married, has two children in his care, namely, a minor daughter and a young son,
- he has permanent place of residence in Kyiv;
- he has no convictions;• no reports of Balika’s being suspected of committing other crimes;
- appeal of Olexander Balika to the State Migration Service on application for granting him a status of a refugee or a person who needs additional protection;
- Olexander Balika has no documents that would give him the right to travel outside Ukraine;
- he has a certificate on appeal for defense in Ukraine.
Taking the above into account, the court decided to replace the measure of restraint and released the oppositionist from custody.
After more than 2 months of inactivity, representatives of the State Migration Service of Ukraine finally began to process documents for obtaining a refugee status filed by the lawyer and representative of the opposition movement of the Republic of Moldova detained on July 6, 2018 for the time of the extradition check Olexander Balika. Activization of the SMS on this issue was stimulated by the position of the Moldovan oppositionist’s defense – the lawyers of Ario Law Firm. So, 2 months after receiving the documents, the representatives of the Migration Service conducted a survey and an interview with Olexander Balika and within 15 days must provide an answer, whether they accept the documents submitted.
In order to encourage the SMS representatives to perform their duties, the lawyer of Ario Law Firm Natalia Shvets appealed to the President of Ukraine, the Verkhovna Rada Committee on Human Rights, National Minorities and Interethnic Relations, the Minister of the Internal Affairs, the Commissioner for Human Rights and others.
According to the lawyer, the required package of the documents, which confirm political motivation of the persecution and the application for a refugee status was signed by the client on July 5, 2018, but due to the fact that Olexander Balika was detained on July 6 for the time of extradition check and is in the pretrial detention facility, the SMS received documents on July 20 this year.
“For more than 2 months (until September 24), the Migration Service, in violation of the procedural rules, took no actions on processing the documents submitted by the client to resolve the issue of his recognition as a refugee or a person, who needs additional protection and did not carry out their preliminary consideration. Although in accordance with clause 2 of Section II of Regulation No. 649, the decision to accept an application for recognition as a refugee or a person, who needs additional protection should be taken by the territorial authority of the State Migration Service during the working day on which the person applied to it. After receiving an application, the SMS must issue the applicant a certificate on appeal for the defense in Ukraine and register the applicant. In fact, such a certificate is one of the confirmations that the person cannot be extradited during consideration of the submitted documents,” Natalia Shvets said. “So this blatant inaction on the part of the State Migration Service until September 24 has all the signs of the human rights violation, namely, the right to life and protection from torture or abusive treatment or punishment, the right to choose a place of residence and freedom of movement.”
Let us recall that Olexander Balika was detained in Kyiv on July 6, 2018 by the extradition request of the Republic of Moldova. According to Olexander, his persecution in the home country is politically motivated, because he is one of the key witnesses to the actions investigated in criminal proceedings initiated against people close to the highest officials of the Republic of Moldova.
In turn, the lawyer of Ario Law Firm Natalia Shvets drew attention to the increase in the number of cases of the human rights violations in the Republic of Moldova. In particular, on January 25, 2017, twenty-three members of the Parliamentary Assembly of the Council of Europe signed the statement “Moldova: political oppression against civil society and key witnesses.” On February 23, 2018, the Chairman of the Committee on Human Affairs and Democracy of the OSCE Parliamentary Assembly sent a letter to the Ministry of Justice of Moldova and the General Prosecutor’s Office of Moldova in order to emphasize the Committee’s concern about political persecution in Moldova.
In the author’s column, the senior partner of Ario Law Firm, Julian Khorunzhyi, who is one of the developers of the draft Code on Bankruptcy Procedures, talks about the current Ukrainian reality in the sphere of bankrupt property sale and possible revolutionary changes, subject to the Code adoption by the Verkhovna Rada of Ukraine.
An auction is the main, central event of a bankruptcy case. Despite the fact that the developers of the current version of the law tried to encourage reorganization in every possible way, its norms were written in such a way that, firstly, they make reorganization unattractive for both the debtor and the creditors, and secondly, the very formulation of the law makes it impossible to carry out most of the reorganization activities. Therefore, the current Law, in essence, leaves for the debtor and its creditors the only mechanism – liquidation of the debtor and sale of all its assets from the auction.
If in the European countries very the reorganization procedure is an opportunity for the debtor to clear from debts and save its business, and for creditors – an opportunity to receive satisfaction of their claims for often quite tangible financial losses (creditors make concessions to the debtor on understandable terms) and the liquidation procedure is aimed at maximum satisfaction of the creditors’ claims, where there is no in fact interests of the debtor, then in the realities of Ukraine, the liquidation procedure is used by the debtors to clear their assets from debts and the interests of the creditors are violated in every way. This, in fact, is the main reason why we have such low ratings, particularly in Doing Business.
There are also a number of factors for this, ranging from the actual inability to carry out effective reorganization, continuing with the fact that in a normal country a “scam” of the creditor by the debtor, if does not create problems in the field of criminal justice for the debtor (its actual owner), then definitely results in significant reputational losses, so the “debtor” is almost guaranteed to lose its positions in the market.
In Ukraine, reputational consequences for the “bankrupts” that have cleared their assets from obligations in the liquidation procedure are not working at all. Some of the “debtors” after 2-3 bankruptcy procedures, not only compete successfully with healthy companies, but even strengthen their positions in the market, gain trust from counterparties and attract new loans. There is no need even to talk about the absence of criminal responsibility for such actions. One of the main reasons for such state of affairs (of course, except for the ineffectiveness of criminal justice and the “faulty moral compass”) is precisely the procedure prescribed for preparing and holding an auction. That is taking into account the need for changes in the legislation in terms of the auction, we and the state must decide what purpose we are pursuing: to provide the debtor with an opportunity without a competitive procedure with almost 100% guarantee to keep business through the “controlled” auction for an a-priori known buyer and scam of the creditors? Or, nevertheless, solve the issue of high cost of loans, creating an investment climate, the guarantees to counterparties regarding the possibility to receive unpaid funds from the debtor and in general, in order not to be considered a banana republic any more at least in this sphere – to create transparent mechanisms for holding auctions, the purpose of which will be selling at the highest price and maximum satisfaction of the creditors’ claims?
So, let us first look into existing realities of the auction. In other countries, in analogous laws, 3-5 articles are devoted to the issues of preparing for an auction and selling assets. In our current law – a separate section is devoted to this, as well as articles in other sections. And we see how this “works.”
There are several reasons. The first is the lack of independence of the arbitration manager. First of all, financial one. In addition, despite a significant number of rules regulating these issues – the rules are either not clearly defined and do not provide answers to key questions of the procedure, or contradict other provisions.
Considering the above, there was a hope that before the judicial reform, the Higher Economic Court of Ukraine and the Supreme Court of Ukraine would form the corresponding legal positions and ensure the unity of judicial practice in this matter. However, this did not happen. And as for the key issues – we had a plurality of different in content legal positions of these instances, which, moreover, often contradicted each other, and some even deepened the problems already inherent in the law. As a result, a market has emerged that can be characterized by the following indicators.
In the beginning let me note that none of the authorized authorities keeps any official statistics (although such a publication would be logical for the possibility of a quick market situation analysis). Therefore, the information that we publish below is obtained as a result of manual analysis of messages posted on the official portal of the judicial authority of Ukraine, and therefore in view of the significant amount of data and errors in the messages – its 100% relevance is not guaranteed.
Each year, the number of the auction organizers who conducted at least one auction in a year is more than 110 subjects. On average, the cost of the property sale makes about 20-25% of the initial value, it means that discounting reaches 75-80%. Moreover, electronic auction demonstrates significantly higher performance.
Consider: the initial value of the entire bankrupt property, which was put up for sale and sold both at regular and electronic auctions, in 2015 exceeded UAH 4.4 billion. The sale price of this property was just over UAH 1 billion. Financial efficiency – less than 24%. At that, in ordinary (“hammer”) auction, the cost as a whole fell to 23% of the initial. Whereas electronic auctions showed twice the efficiency – and the sale price was about 48% of the initial cost.
In 2016, the situation was similar. At the initial value of UAH 4.2 billion, the property was sold for only UAH 1 billion. The overall efficiency is almost 25%. The price reduction in non-electronic auction exceeded 76% (selling price was about 24% of the initial value). The property was sold more efficiently at electronic auction – at 46% of the initial value.
Year 2017 confirmed the trend. At the initial value of UAH 5.7 billion, the property was sold for more than UAH 1.3 billion (about 24% of the initial value). In non-electronic auctions the value dropped to 22% of the initial price. In electronic – the property was sold for 66% of the initial cost. This is the highest figure in three years.
For sure, not the entire discount in “non-electronic” auctions results from abuses that occur in the sale procedures. But, taking into account my own experience in appealing against illegal auctions, and analyzing court practice, according to which a significant number of lawsuits are filed precisely for the reasons of understated cost of sale, it can be stated with absolute certainty that the percentage of such abuses is decisive and indicative. Otherwise – we would not observe such a discount.
Some of the opponents of such a conclusion would say that the mentioned difference is a consequence of putting up for sale a significant number of integral property complexes of debtors, the price of which during the auction decreases significantly. However, the liquidators who are really aimed to sell the property at the highest price, could hold auctions, proceeding not from the aggregate of all creditors’ claims, but would put up the same property complex as a single lot at the next auction at an initial cost that would be adequate to the market price. Or, the liquidators could divide the property into “logical” lots (for example, having sold a land plot, in two months they could put up for an auction a real estate object located on it). This would allow attracting a larger number of participants, without scaring the potential participants away by the size of the guarantee fee, which is very often higher than the cost of this property sale as a result of such an auction.
In addition, formation of a real market for the assets sale is definitely not promoted by such a significant number of auction organizers, who, firstly, do not interact with each other on information about lots, participants and price offers, and, secondly, there is no single, normal, information field of assets offered for sale. Since the websites of the Ministry of Justice and the Judicial Authority, which are devoted to the auctions, are clearly not informative due to the absence of at least normal search mechanisms. First of all, they perform an information function for the participants in bankruptcy proceedings, rather than for the potential buyers.
What does international experience say? It can be divided into two categories. This is either a monopoly or complete freedom for the arbitration manager both in the choice of the auction organizer and in the choice of the sale method. And both approaches work there, first of all, due to the fact that the arbitration manager is not interested in frauds and sale cost understatement. However, introduction of any of these systems in today’s conditions in Ukraine will have the same efficiency that we have today, since there is absolutely no confidence in both the state monopoly and the complete freedom of the arbitration manager.
So how can this situation be solved if the given international examples in general do not suit us? Searching for our own “unique way” in the field of the bankrupt debtors’ property sale, as it was done in the field of public procurement or sale of problem assets in various areas – a complete transition to a two-level system of electronic auctions. With such a system, all auction organizers and their clients have equal access to the asset that is to be sold; and the auction itself, in order to ensure objectivity and transparency of its conduction, takes place on the organization’s server, which itself is deprived of the right to sell assets, and provides only IT-support of software used for conduction of such auction. This system eliminated all the above risks almost completely. At least the problematic issues of admission to the auction, posting information about the auction and the issues of conduction of the auction itself have lost their relevance. This system was successfully implemented in the procedures of the Deposit Guarantee Fund in the framework of the Prozorro.sale project and now something similar is being implemented in the field of e-commerce of seized property (OpenMarket).
As far as I know, very such a system for selling assets of bankrupt debtors is laid in the latest version of the draft Insolvency Code No. 8060. Even just for this, this draft is worth supporting.
The Supreme Court denied the State Migration Service of Ukraine opening of the cassation proceedings on the complaint against the decision of the Kyiv Administrative Court of Appeal on the suit of the Kazakhstani opposition journalist Zhanara Akhmetova, who was persecuted by the authorities in her home country. Let us recall, that the State Migration Service of Ukraine refused to recognize the woman as a refugee or a person who needs additional protection. In July of this year, the journalist appealed the decision of the District Administrative Court of the city of Kyiv (which denied Akhmetova’s claim). The Kyiv Administrative Court of Appeal obligated the State Migration Service to re-examine the application of the citizen of Kazakhstan. Defense of the woman in Ukraine is provided by the lawyers of Ario Law Firm and the Charitable Foundation “The Right to Protection”.
“This one more victory in Zhanara’s Akhmetova case, in my opinion, is logical and confirms unbiased and principled position of the Ukrainian court. And, for sure, this is a great step towards the moment where the dramatic “adventures” that befell Zhanara in Ukraine, where she was looking for protection from an authoritarian regime, finally end and she receives for which she came – freedom and security. Special mention should be made of the professional work of the “The Right to Protection” foundation lawyers, who represented Zhanar in administrative proceedings, and we thank them for their fruitful and effective cooperation,” one of the lawyers of Zhanar Akhmetova, the counsel of Ario Law Firm, Vladyslav Hryshchenko said.
Let us recall, that the Kazakhstani opposition journalist and blogger Zhanar Akhmetova was forced to flee to Ukraine along with her minor son Ansar back in March of the last year because of political persecution at home country caused by the criticism of the authorities, which you can read about here: http://ario.law/press-center/778/ .
In Kyiv, the woman applied to the State Migration Service for obtaining status of a refugee or a person who needs additional protection. While the Migration Service was preparing an answer, a number of hardships fell to Zhanar’s Akhmetova lot. In particular, two unknown persons attempted to kidnap her (as the journalist notes, it could be representatives of the intelligence services of Kazakhstan), then she was detained by the National Police of Ukraine at the request of the Republic of Kazakhstan and for the time of the extradition check the court chose for her a measure of restrain in the form of detention in custody. Zhanara learned about the SMS refusal to grant her a refugee status from the prosecutor during the court session.
The case of the journalist evoked a wide response among the international human rights organizations and the people’s deputies of Ukraine. Therefore, despite the deliberate production delaying by the law enforcement officers (for example, systematic non-bringing Zhanara to court sessions, etc.), the Kyiv Court of Appeal changed the measure of restraint for the time of the extradition request consideration from arrest to personal obligation. The People’s Deputy of Ukraine Svitlana Zalishchuk went bail for Zhanara. However the court sessions did not end for the Kazakhstani oppositionist after her release from custody, since a lengthy appeal against the SMS refusal to grant a refugee status began. Now the Cassation Court as part of the Supreme Court of Ukraine said its word, refusing the State Migration Service to open the cassation proceedings.
The position of the Supreme Court can be read here: http://www.reyestr.court.gov.ua/Review/76519299 .
Julian Khorunzhyi, the senior partner of Ario Law Firm, and Kyrylo Yukhno, the counsel, defended the interests of Lviv Municipal Enterprise Lvivteploenergo in a dispute with the State Enterprise Energorynok in the Court of Cassation as part of the Supreme Court of Ukraine. The amount of the dispute is more than UAH 29 million.
SE Energorynok filed a lawsuit to recover more than UAH 29 million from LME Lvivteploenergo, claiming that it paid the defendant this amount as an advance and the defendant had to supply electricity for this amount, but did not fulfill its obligation. The position of the defendant was that the funds received from SE Energorynok in the amount of UAH 29 million were not an advance payment for the electricity supply, but repayment of overdue debt, which at the time of payment exceeded UAH 40 million. In addition payment of UAH 29 million was implemented at the expense of budget funds for the implementation of the General Protocol Decision, concluded between 12 legal entities, in a special manner provided for by the decision of the Cabinet of Ministers of Ukraine.
The courts of the first and second instances dismissed the claim of SE Energorynok. In its cassation appeal Energorynok requested to cancel the decision of the Economic Court of Lviv region dated on 14.02.2018 and the decision of the Lviv Economic Court of Appeal dated on 25.04.2017 and transfer the case to the first instance court for a new consideration, considering that the decision on this case affects the rights of the National Energy and Utilities Regulatory Commission, which was not involved in the consideration of this case.
The Supreme Court drew a line under this process, dismissed the cassation appeal of the SE Energorynok and left the previous decisions of the courts of both instances unchanged.
The defense side of ME Lvivteploenergo, the lawyers of Ario Law Firm note that the court decisions in this case comply with both the current legislation, which determines the special procedure for settlements on the wholesale electricity market through adoption of the General Protocol Decisions and conducting mutual settlements at the expense of budget funds, and the supremacy of the law principle, after all, SE Energorynok violated the fundamental legal principle – pacta sunt servanda (from lat. “contracts must be fulfilled”).
“In fact, SE Energorynok acknowledged that it had the overdue debt to our client in amount of more than UAH 40 million, but at the same time believed that the funds paid in the amount of UAH 29 million should be used no for repayment of debt, but as payment for electricity to be supplied in future periods. However, such a position of the plaintiff was recognized by the courts as unjustified, since in the presence of overdue debt, funds paid by the debtor should be primarily used for repayment of debt, and not as payment for electricity to be supplied in future periods,” Julian Khorunzhyi said.
At that, as Kyrylo Yukhno, the counsel of Ario Law Firm, noted, the court decisions in this case do not affect the rights and interests of the National Energy and Utilities Regulatory Commission, and the court practice cited by the plaintiff in support of the petition on involvement of the National Energy and Utilities Regulatory Commission is unreasonable, as it concerns regulation of debt collection for electricity produced by energy suppliers located in the temporarily occupied territory.
“For sure, the regulations of the National Energy and Utilities Regulatory Commission and the court practice in cases on debt collection against the claims of energy suppliers located in the temporarily occupied territory cannot be applied to the legal relations that regulate payment for electricity produced by LME Lvivteploenergo and supplied to the wholesale electricity market,” he said .
Vladyslav Hryshchenko, the counsel at Ario Law Firm in his author’s column for LigaBusinessInform on why Ukraine needs the Gun Law.
No law – no responsibility
The absence of the Gun Law increases crime rates and does not help law-abiding citizens to defend themselves.
According to the recently published Small Arms Survey on Global Civilian-held Firearms Numbers, carried out by the Swiss Independent Center, Ukraine is in the top 25 countries of the world (out of 230) in circulation of legal and illegal weapons. According to the survey, about 4.4 million weapons were in the hands of civilians in Ukraine at the end of 2017. According to the report of the National Police, 663,126 firearm owners have been registered in Ukraine as of January 1, 2018, which have 736,918 units of hunting smooth-bore weapons and 145,859 units of hunting rifle weapon in personal use. At that, according to the Ukrainian Gun Owners Association, at the beginning of this year, the population may have about 5 million unregistered light weapons in its hands. These, even approximate, numbers are impressive.
For sure, it is impossible to calculate the exact number of illegal weapons among the Ukrainians. Firstly, for the fifth year in a row the growth of its quantity is affected by the military conflict in the East. Another factor is deterioration of the criminal situation in the country, both because of the lack of a normal reform of the law enforcement agencies, and because of a weak economy of the country. These factors make it easy for the criminals to arm themselves, and, paradoxically, force law-abiding citizens to buy illegal “guns” for the sake of their safety. This topic can be discussed indefinitely, but the wisdom of life: “it’s better if two bring you to the court than four bring you to the grave” is true, it is an objective reality of the present, which pushes people, whose work carries the risk of being targeted by attackers, to illegal purchase of weapon. Moreover, the cases of crimes involving both hand grenades and grenade guns are no longer sensational. Hence there is a question: should we prepare for the use by criminals of light armored vehicles and army mortars on the streets of peaceful cities?
As for the legal weapons, today the Ukrainians are allowed to keep hunting smooth-bore weapons. Moreover, if earlier you had to be a member of the society of hunters for this, now you just need to be a sane person, take a special course and get appropriate certificates. The procedure for obtaining permission to purchase rifled hunting weapons is a bit more complicated. However, it is possible as well.
As for the possession of traumatic weapons, it is allowed only to a certain category of the population: law enforcement officers, judges, journalists, participants in court proceedings and representatives of volunteer groups that protect public order.
The most problematic issue for citizens is the lack of the right to own short-barreled rifled weapons. Now the “legitimate” owners of such weapons can only be those who received it as a reward. Without questioning the merits of many of these persons, which gave them the right to receive such a reward, heroic merits of some people from this list is not only doubtful, but even surprising.
In addition, given the rather intense criminogenic situation, significant number of firearms in hands of the criminal elements and growing audacity of the crimes committed, the potential of “nonlethal pistol” can not even be compared with the injurious effects of a rifled short barreled gun.
By the way, the word “legitimate” above in the text is quoted not for nothing. This word should mean that there is a certain law that regulates the procedure for the weapon circulation. However such a law does not exist in Ukraine at all. There are bylaws in the form of orders of the Ministry of Internal Affairs on the procedure for manufacturing, purchasing, storing, recording, transporting and using certain types of weapons by citizens, there are departmental documents regulating the procedure for handling and using weapons by the Armed Forces of Ukraine and law enforcement officers. However, it is incorrect to equate such orders with the law.
No Law. Consequences
There is no doubt that illegal circulation of weapons is an evil, which, in turn, gives rise to other crimes that are committed with its use. However, the struggle of the state against one evil should not give rise to lawlessness, otherwise it will be impossible to break this circle.
According to Article 263 of the Criminal Code of Ukraine, carrying, storing, purchasing, manufacturing, repairing, transferring or selling firearm (other than smooth-bore hunting weapon), military supplies, explosives or explosive devices without a statutory permit – is punishable by imprisonment for a term of two to five years. Carrying, manufacturing, repairing or selling daggers, Finnish knives, brass knuckles or other cold weapons without a statutory permit – is punishable by a fine in amount of up to fifty non-taxable minimum incomes of citizens or restriction of liberty for a term of two to five years, or imprisonment for up to three years. Thus, the disposition of the article provides for the existence of a procedure for possession of weapons established by the Law and criminal liability for its violation. Obviously, it is impossible to break a law that does not exist.
However, our judicial system in most cases closes its eyes to the absence of this Law and makes convictions under Article 263. That is why, although still rare, but already not single cases of acquittal judgments, motivated by the absence of this Law, are considered by the representatives of the legal environment to be positive.
This indicates a real action of the principle “no law, no crime”. The fact that during 27 years of the independence of Ukraine the legislator has not been able to adopt the relevant law, it is not the fault of citizens or judges, but the problem of the state legislation formation.
I consider the reference to impossibility of applying this legal principle, which can paralyze the fight against the illegal circulation of weapons, to be an absolute manipulation. The society has long had a request for the Law to be the same for all. That is, today the legislator must either acknowledge the inconsistency of the disposition of Article 263 of the Criminal Code and make amendments to it, which will leave resolution of issues of weapon circulation among citizens to the mercy of persons who will come to the position of the Minister of Internal Affairs and form departmental instructions based on their own vision or according to the conjuncture of the political moment or once for all, adopt the long-awaited Gun Law, which settles the main issues of its circulation.
Severe restrictions or liberal legislation
The topic of the Gun Law adoption is extremely unpopular among Ukrainian politicians, because the very idea of adopting such a Law has many opponents. A certain part of society believes that with adoption of appropriate legislation, the streets of Ukrainian cities will turn into firing ranges. Thus, the proposed legislative initiatives do not go beyond the Verkhovna Rada Committee.
In my opinion, such points of view based on “another mentality” and “we are not ready” can be answered with a proposal to ban officially, for example, a fork, because it leads to obesity, or cars – because people die in road accidents. The point is simple: guns don’t kill people, people do.
Supporters of the Gun Law adoption are trying to ensure that citizens have more opportunities to defend themselves against an abuser or prevent a crime, and, accordingly, to “discourage” the thief’s desire to move the trigger.
Therefore, today the struggle goes around two main things:
1. Adoption of the law, which will give a clear definition of individual types of weapons and establish the basic rules of its circulation.
2. Ability for civilians to possess short-barreled firearms.
It should be briefly explained here: weapon is considered combat weapon, if it is in operational service with the intelligence services or the army. It has different characteristics depending on whether it is military or police. Military weapons have the most casualty-producing properties for conducting combat operations, while police weapons provide for use in conditions of a city, a small territory. So it goes about allowing free carrying of short-barreled weapons, let’s say, of a police type. It scares many people, but here’s some statistics to explain why this is necessary:
- In 1996, the Australian government banned possession of many types of firearms. Over the next eight years of the law operation the number of armed robberies increased by 59%.
- The British government banned possession of firearms in January 1997. However, later it also reported that from 1996 to 2003 the number of violent crimes increased by 88%; the number of armed robberies – by 101%; the number of rapes – by 105% and murders – by 24%.
- In the hands of the citizens of Germany there are 10 million units of legal weapons. With a simultaneous increase in the number of legal weapons, the total number of crimes involving the use of weapons from 1971 to 1994 decreased by 60%.
- University of Chicago in the United States conducted the research, which resulted in the fact that in states where hidden weapons are allowed, the overall level of criminal manifestations is less by 22%, murders – by 33%, robberies – by 37%, serious bodily harm cases – by 14%.
What does this statistic mean? In my opinion, this is obvious. Those who aim to seize weapons with criminal motives will seize them one way or another without obtaining permits, references from a psychiatrist, a narcologist, etc. – that is, without all the procedures that a law-abiding citizen must undergo in order to obtain his/her right to self-defense. Ordinary Ukrainians remain limited in their right to protect their own lives. Here we can provide a paradigmatic case of the Prohibition law introduction in the USA at the beginning of the 20th century, which led not to the reduction in alcohol consumption, but to the enrichment of bootleggers and unfaith law enforcement officials who protected them.
Therefore, I think we should not entertain illusions that the prohibition of possession by citizens of short-barreled firearms is salvation.
Unfortunately the criminals possessed, possess and will possess the weapons. Therefore the maximum reduction in the number of weapons in the illegal market is the only real consequence of the integrated struggle of law enforcement officers and society with illegal weapon circulation. I believe that we have to become realistic and not just in words declare the right of free citizens of the country to protect their lives and health, but to provide real mechanisms for this defined by the Law, and one of such rights is the right to possess short firearms. For sure, subject to conduction of appropriate checks of the candidates and proper state control over it.
Odessa Administrative Court of Appeal closed the appeal proceedings in the case of the Mykolaiv mayor Olexander Senkevych, who was dismissed beyond the law by the City Council deputies in October of the last year. This illegal “impeachment” was appealed to the Central District Court of the city of Mykolaiv.
In the courts of the first and second instances the Mykolaiv mayor was represented by the Ario Law Firm team, consisting of the senior partner Julian Khorunzhyi, the counsel Kyrylo Yukhno and the lawyer Natalia Shvets. Today, in the decisive “battle” with the appellants – the Mykolaiv City Council deputies Serhii Isakov and Rostyslav Filevsky – Olexander Senkevych was represented by Kyrylo Yukhno.
“We believe that the first instance court justified fully from the standpoint of the rule of law and with reference to the practice of the European Court of Human Rights that the appealed decision of the Mykolaiv City Council is not rendered proportionally, is not rendered with due regard to all the circumstances relevant to the case and this should be taken into account in accordance with Article 2 of the Administrative Court Procedure Code of Ukraine in the current version. We consider that the decision on termination of the mayor’s powers is illegal both on the basis of the form and on the merits of this decision. In the course of our consideration, we established that the draft of this decision differs significantly from the one that was signed. In addition to the fact that we consider the decision of the City Council illegal, we want to emphasize that the rights of the appellants were not violated, not a single subjective right protected by the law was violated by the first instance court. They did not say what they are limited in, what additional obligations were assigned to them. What the right were they deprived of? What does prevent them from exercising their rights and powers now? Therefore, we believe that in this case the closure of the appeal proceedings is required. In any case, the decision of the first instance court is considered legal and such that should remain in effect, and the appeals are not subject to satisfaction,” – Kyrylo Yukhno said during the debate.
On July 27 it was hot in the courtroom: almost 6 hours of judicial confrontation. Here is a brief description of how it happened:
- At the beginning of the meeting, the panel of judges announced that the independent composition of the court had made a decision on consideration of #Senkevychcase in the same composition.
- The representative of Isakov said that he “accidentally” became aware that the meeting was scheduled for today. The judge noted that the meeting was reported to the participants in advance, and the notification of representatives is not the jurisdiction of the court.
- Rostyslav Filevsky filed a petition on study of the video materials of the plenary session, at which an “impeachment” was announced to the mayor. The petition of Rostyslav Filevsky was supported by the deputy Isakov who filed the same petition.
- The representative of the defense, the counsel of Ario Law Firm Kyrylo Yukhno noted that such statements are, in his opinion, another attempt of the appellants to delay the process.
- “These petitions are not sufficiently specified and not substantiated, since it is not established and it is not indicated what kind of fact, given the fact that there are shorthand notes, written evidence, minutes of the committees, can be confirmed by the video. We have all the written evidence: from the deputy committee, the plenary session of the City Council, the draft decision, and the explanatory note. The applicant did not indicate in the petition what exactly the video can add to this. I believe that the circumstances have already been established, the shorthand notes, which are represented in the case file and include 142 pages, reproduce literally the speeches on which the plaintiff’s side relied, in particular, the speech of Mr. Isakov and the speech of Mr. Filevsky, who supplemented by ear the draft of the emergency decision at the session and included it into the agenda,” Kyrylo Yukhno said.
- The representative of Isakov, in turn, stated that “he did not read the shorthand notes in full and did NOT compare them with the video materials”. The court partially satisfied the petitions of the deputies Isakov and Filevsky about the study of the video materials and found it necessary to investigate the circumstances indicated in the shorthand notes indicated by the appellants.
- After study of the video materials, Mr. Isakov filed another petition for summoning for interrogation the witnesses, in particular, the members of the Standing Committee on Human Rights, law, publicity, anti-corruption policy, Local Self-Government, Parliamentary Activity and Ethics (Malikin Olexander Volodymyrovych, Kyselyova Olena Vasylivna, Burganenko Olexander Ivanovych and Boyko Dmytro Kostyantynovych). The court refused to satisfy the petition of Mr. Isakov and proposed to proceed to the judicial debate.
- Judicial debate was postponed for an hour to allow the appellants to prepare.
- According to the results of heated debates on both sides, the court closed the appeal proceedings. The appellants have 30 days to appeal the decision of the Odessa Appeal Administrative Court in the Supreme Court.
“The Court of Appeal today actually refused to satisfy appeals of Isakov and Filevsky against the decision of the Central District Court of Mykolaiv. The court recognized that the rights of the appellants were not violated and closed the appeal proceedings. From the point of view of the procedural rules, there were two possible options: either decision on the merits – it means the refusal to satisfy appeals, or the termination of appeal proceedings. Having held five sessions, having checked carefully all the circumstances, having examined all the evidence, the court, in our opinion, verified the legality of the decision of the first instance court and the absence of violation of any rights and interests of the appellants. The appellants did not provide an explanation of whether their rights as citizens were violated, or if they were deprived of parliamentary powers, or if they are not satisfied with the court decision from the point of view of the members of the territorial community. The court made, in our opinion, a logical and law-governed decision“, – the lawyer of Senkevych, the counsel of Ario Law Firm Kyrylo Yukhno said after the announcement of the court decision.
On July 3, 2018, the Verkhovna Rada of Ukraine adopted in the second reading the 6027-d law draft on the resumption of lending. The adoption of the law was met with “applause” mainly by the representatives of the financial community. The rest of the population didn’t take the innovations so unquestionably positive. Olena Dynnik, the senior lawyer at Ario Law Firm, investigated the pros and cons of innovations for two eternally opposing camps – lenders and borrowers, in her author’s column specifically for Finance.ua.
Back to basics
First of all, we should refer to the basic concepts, namely: what is an obligation, a loan agreement, its proper performance. Thus, Article 509 of the Civil Code of Ukraine contains the concept of an obligation, i.e. legal relations, where one party (the debtor) is obliged to carry out in favor of the other party (creditor) an action (transfer property, perform work, provide a service, pay funds, etc.) or refrain from performing a certain action (negative obligation), and the creditor has the right to demand from the debtor the performance of such obligation.
In addition, the legislator has clearly defined that the obligation should be based on the principles of good faith, rationality and fairness.
Part 2 of Article 19 of the Economic Code of Ukraine provides for the obligation of each party to take all necessary measures required for the proper fulfillment of its obligations, taking into account the interests of the other party and ensuring the general economic interest.
At the same time, breach of the obligations makes a basis for application of sanctions provided for by codes, other laws or a contract. It is worth remembering about the need to fulfill the obligation properly on time, which is regulated in Articles 526, 530 of the Civil Code of Ukraine.
According to Article 1054 of the Civil Code of Ukraine, under a loan agreement, one party (lender – bank or other financial institution) undertakes to provide funds (loan) to the borrower in the amount and on the terms stipulated by the agreement, and the borrower undertakes to repay the loan and pay interest. That is, the lender’s obligation is to issue funds, which, according to the contract, corresponds to the borrower’s obligations to return funds with all accrued interest.
The current practice in our country shows that often having signed a loan agreement, having received money (loan) from a bank (lender), using them, the borrower does not always aim at fulfilling its obligations and returning borrowed funds to its lender.
In theory, the borrower (debtor) should understand and be aware at the moment of the loan agreement conclusion that in one way or another, it will have to repay not only the loan amount, but also all charges to it, provided for by agreement and / or by the law, and for late payment as well.
The Unified State Register of Judicial Decisions is literally overfilled with a huge number of decisions on recovery of debt (loan) from borrowers and foreclosure of property as its security, which testifies to unfairness of a large number of Ukrainian debtors.
Changes introduced by the Law
In my opinion, the Law “On the Resumption of Lending” adopted by the Rada is primarily aimed at radical change of the aforementioned situation, namely, at protecting the interests of creditors from unfair borrowers. Therefore, those who pay on time, fulfill their obligations fully, in general, will not feel the rules of the new law.
In addition, this draft law provides for a number of effective changes.
When changing the size of the principal obligation, for which the guarantor provided its guarantee first, the guarantee does not stop, but on the contrary, it lasts only in the amount of the obligation initially assumed as security – that is, the amount of the obligation (loan) previously discussed and agreed in the guarantee agreement.
In addition, in the event of liquidation of a debtor – legal entity, the guarantee does not stop if, prior to the day the relevant entry is made in the Unified State Register of Legal Entities, individual entrepreneurs and public organizations, on its termination as a legal person, the creditor appealed to the court to the guarantor on breach by such debtor of its obligations.
In simple words, the bank will one way or another be able to collect what is stipulated in the agreement. Opportunities to evade fulfillment of obligations, as it happens so often now, will be minimized.
For banks and borrowers. Changes are made directly to the content of the pledge agreement regarding the possibility of indicating in it only reference to the agreement that establishes the basic obligation. This simplifies the process of making the appropriate changes.
For banks and borrowers. Financial institutions get access to the Registry of civil status acts, which, in essence, will simplify and make cheaper (in terms of payment for extracts from them) for borrowers the process of loan agreements registration.
It is important to note that this happens only with the consent of the persons concerned.
For borrowers. It is proposed to conclude vehicle pledge agreements in a simple written form, and not notarial, which is also a “bonus” for the borrower to reduce costs and enter into agreements for securing obligations.
For banks. Banking institutions will be able to make their demands for return of the debt (loan) to the heirs from the moment when they learned about accepting the inheritance or receiving a certificate of inheritance.
For banks. Banks and other financial institutions will have access to information in open form – to the State Register of Proprietary Rights to Real Estate, including archive components, the Register of Titles to Real Estate, the Unified State Register of Prohibitions on Alienation of Real Estate Objects, the Unified Register of Mortgages, the Unified Register of Powers of Attorney.
For banks. All changes made to the subject of the mortgage, for example, reconstruction, restructuring, construction, causing a change in the area of the property, first transferred to the mortgage, still remain the subject of the mortgage.
Accordingly, for the bank, this will reduce the number of refusals to register in out-of-court and judicial procedures as means of repossession of mortgage property.
It is worth noting individually that this draft law does not violate the retroactivity of the law provided for by the Constitution of Ukraine.
Fundamentally, it will apply to obligations that primarily arise from new agreements, as well as in existing old agreements.
But if the dispute between the borrower and the lender is already at the stage of consideration in the court, then it is considered on the basis of the rules in force at the time of filing t o the court a lawsuit on protection of violated or disputed rights and interests.