Appellate court cancels Privatbank inspection that triggered its nationalization

An appellate court in Kyiv has reached a ruling in
favor of the former shareholders of Privatbank in deciding on one of their multiple
attempts to question the bank’s nationalization, the National Bank of Ukraine
(NBU) reported on May 13. Namely, the court upheld that day the ruling of a
first-tier court that recognized as invalid an NBU resolution to initiate the
inspection of Privatbank in late 2016. That inspection concluded that
Privatbank had not implemented its restructuring plan in agreement with the NBU
and that the bank’s capital was insufficient. The results of such an inspection
created the grounds for recognizing Privatbank as insolvent in December 2016.

The questioning of Privatbank’s inspection “is part of
a push by the bank’s former shareholders to overturn the entire procedure under
which the bank was resolved,” the NBU commented. The regulator intends to
appeal the latest ruling in a cassation hearing.

Alexander Paraschiy: The ruling
of appellate and first-tier courts are not publicly available, so it is hard to
understand the courts’ reasoning. At first glance, the rulings do not look
logical, so we see a chance for them to be overturned in the Supreme Court. The
former shareholders of Privatbank have filed dozens of claims in the courts
trying to question the 2016 nationalization of Privatbank at each of multiple
stages, starting from initiating an NBU inspection of Privatbank and up to the
signing of the sale-purchase agreement of 100% of the bank’s shares between the
State Deposit Guarantee Fund and the Finance Ministry.

Officials are likely to have made a lot of procedural
mistakes at various stages of the process (this was not a trivial project). So
there is a risk that the validity of some of the stages will be successfully
questioned in a court. If so, Ukraine will be under risk of spoiling its
relations with the IMF, which strongly supported the nationalization.

The mentioned ruling won’t have a direct effect on
the prospects of the recovery of Privatbank Eurobonds that were written off
before the nationalization, but it could add more arguments in favor of
bondholders in their litigation against the bank in a U.K. court.