Supreme Court postpones hearing on Surkis bail-in by Privatbank

Ukraine’s Supreme Court ruled on Jan. 31 to postpone
for an indefinite time a cassation (appellate) hearing on the bail-in of the Surkis
family funds held in Privatbank, Interfax-Ukraine reported the same day. The
reason for the postponement was the Cabinet of Ministers requested to become a
party to the court process, instead of the Finance Ministry. The ministry is no
more the shareholder of Privatbank as it has transferred all the bank’s shares
to the Cabinet in September 2019.

Recall, the first- and second-tier courts ruled in
2017 that Privatbank should return the deposits of the Surkis family (about UAH
1.1 bln) that were bailed-in after Privatbank was recognized insolvent and
before it was nationalized in December 2016. The reason for their funds’
bail-in was that the National Bank had recognized the Surkis family as a
related party to the bank. Following the ruling of the second-tier court
in November 2017, the bank repaid the funds to the Surkises.

Besides appealing the ruling returning the Surkis family
its deposits, Privatbank and the government are aiming to challenge in the
Supreme Court the ruling of second-tier court that questions the validity of
entire bail-in process, Interfax-Ukraine reported. Recall, during the December
2016 bail-in, Privatbank converted UAH 29.4 bln of obligations to “related
parties,” including USD 555 mln in Eurobonds (PRBANK), into the bank’s equity.

Alexander Paraschiy: The
hearing’s postponement was most important for the government since the highest
court could have confirmed the invalidity of the entire bail-in process
conducted in December 2016 (and most likely it would have done so). The results
of this hearing are also important for another case, in which the government is
trying to appeal the ruling of a first-tier court that recognized the
nationalization of Privatbank as unlawful (made based on the claim of the
former biggest shareholder of Privatbank, Igor Kolomoisky). In that case, the
second-tier court decided in December 2019 to postpone the appellate hearing on
the nationalization up until a ruling is reached by the Supreme Court on the
Surkis case.

Now that both cases (cassation on the Surkis family
bail-in case and the appeal of Kolomoisky’s nationalization case) are
postponed, the government has bought some time to amend Ukrainian legislation
to prevent these attempts to reverse the nationalization of Privatbank. Recall,
the adoption of such legislation is the key precondition for Ukraine to start a
new EFF program with the IMF worth USD 5.5 bln.

At the same time, a reversal of the bail-in process
(in the Surkis family case) is more likely, which raises the chance that all
the parties that suffered from the bail-in (including Eurobond holders) can
count on a full recovery of their money based on the rulings of Ukrainian
courts.