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27 December 2018

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 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 much later 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 of JS 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 JS 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 in 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 …