Supreme Court overturns lower court rulings on invalidity of Surkis deposits bail-in

The Grand Chamber of Ukraine’s Supreme Court ruled on
June 15 to overturn the rulings of first-tier and appellate administrative
courts in Kyiv that declared illegal the bail-in of Surkis family deposits for
a total amount of UAH 1.1 bln, Interfax-Ukraine reported the same day. The
lower courts had (1) overturned the decision of the National Bank of Ukraine
(NBU) to recognize Surkis family members as related parties to Privatbank, (2)
recognized as illegal the bail-in of their deposits and (3) forced Privatbank
to repay the deposits (which the bank has since done). The Supreme Court also
ruled that the Surkis family claims fall under the jurisdiction of civil
courts, not administrative, Interfax-Ukraine reported.

The NBU welcomed the Supreme Court’s ruling in a June
15 press release, expressing satisfaction that it affirmed the Surkis family as
related parties to the bank, as recognized by the NBU in 2016. It noted that
Ihor Surkis had been a co-owner of several television networks together with
Ihor Kolomoisky, the biggest shareholder of Privatbank in 2016. The Surkis
family fortune was estimated at USD 250 mln in 2019 by the annual survey of
wealthiest people in Ukraine conducted by the focus.ua news site. Kolomoisky’s
wealth is estimated at USD 2.6 bln.

Recall, Privatbank was recognized insolvent and nationalized
in December 2016. Before the nationalization, the government bailed-in some of
the bank’s obligations to “related parties” for a total amount of UAH 29.4 bln.

Alexander Paraschiy: This is the
first court victory of Privatbank against the Surkis family in their four-plus
years of litigation. Therefore, it is a surprise. The ruling complicates
Kolomoisky’s current legal battle to challenge the validity of the Privatbank
nationalization. However, this ruling is not an ultimate victory for the bank
in the case of the bailed-in Surkis deposits. The family will have the
opportunity to turn to the civil courts to recognize the rights, and the
outcome of such an attempt is hard to predict.

The ruling in and of itself seems positive for
Ukraine’s relationship with its Western financial partners, which fully
supported the bank’s nationalization and deposit bail-in approach. So it’s
positive for Ukraine’s investment case. At the same time, it does not change
the chances for the Eurobond holders of Privatbank to recover their rights to
their bonds in the U.K. courts.