NBU appeals against court rulings about illegality of PrivatBank's nationalization

"On May 24, the National Bank of Ukraine filed appeals against two rulings of Kyiv's District Administrative Court dated April 18, 2019 in the case No. 826/7432/17 under a lawsuit filed by [businessman Ihor] Kolomoisky about the cancellation of the decision to withdraw the insolvent PJSC PrivatBank from the market with the participation of the state and in the case No. 826/13813/17 under a lawsuit filed by a former shareholder of the bank, Cyprus-based company Triantal Investments Ltd, about the cancellation of the decision of an NBU commission to determine the list of related individuals with PrivatBank," the report reads.

The NBU also drew attention to separate court arguments, which became the basis for the adoption of these court rulings that are being challenged.

In particular, according to NBU experts, Kyiv's District Administrative Court completely ignored the establishment by the NBU of PrivatBank's needs for its additional capitalization; non-fulfillment by PrivatBank and its shareholders, Ihor Kolomoisky and Hennadiy Boholiubov, of the program of financial rehabilitation regarding the additional capitalization of the bank, which became the reason for the bank to be classified as insolvent; made false conclusions that only staff reports by the NBU's structural divisions were the basis for the decision, which is not true.

The NBU noted that the court had incorrectly applied the rules of substantive law regarding the essence of credit risks and the formation of reserves for them and came to the wrong conclusion that credit risks are calculated by banks exclusively under loan agreements that are implemented with delay and that in all other cases, reserves under active operations do not have to be formed at all. In addition, according to the NBU, the court could not define the concept of "active operation" and equated it with the concept of "unfulfilled operation."

The NBU stressed that the decision on PrivatBank's transfer to state ownership and other decisions that accompanied this process had been prepared, coordinated and approved at the state level by the involved state authorities in strict conformity with Article 41.1 of the Law of Ukraine "On the system of guaranteeing deposits of individuals." This decision helped protect more than 20 million Ukrainian citizens who keep funds in this bank and use its services, in particular, 3.2 million retirees and 1.6 million representatives of other socially vulnerable groups of the population.

In December 2016, the government of Ukraine, on the proposal of the NBU and shareholders of PrivatBank, the largest of which at that time were Ihor Kolomoisky and Hennadiy Boholiubov, approved the decision to nationalize this largest financial institution in the Ukrainian market. The bank became state-owned, and the state spent more than UAH 155 billion on its additional capitalization.

However, on April 18, 2019, Kyiv's District Administrative Court, having considered at a court session the case on a lawsuit filed by businessman Ihor Kolomoisky to the NBU, the Cabinet of Ministers, the Deposit Guarantee Fund and the National Commission on Securities and the Stock Market, ruled that the nationalization of PrivatBank was illegal. The consideration of this case lasted from June 2017. Kyiv's District Administrative Court explained its decision to recognize the nationalization of PrivatBank as illegal by the fact that the defendants, in this case, had not proved the legitimacy of the classification of the bank as insolvent.

In general, courts in Ukraine and abroad hear about 240 cases related to the nationalization of PrivatBank and debts of its former owners for refinancing loans.

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