Hryvnia Wins Suit against Dollar: Precedent May Trigger Cold War
Ukrainian Business Resource
Viktoriya Boiko for UBR.UA
Last week appeared to be a trouble for banking sector. Mass media
informed that one of the Ukrainian banks lost a lawsuit in foreign
currency loan for about $19 million. Judiciaries that upheld the claim
on invalidation of the loan agreement took as legal ground the fact of
issuing the loan in foreign currency
The bank had no right to issue and borrower had no right to receive à
foreign currency loan, so far as both had no individual licence of NBU
for currency transactions. Thus the only legal means of payment for
these parties should have been the Ukrainian currency. So was the act
of the court. Consequently, loan agreement, executed two years ago, was
invalidated along with mortgage agreement and property rights pledge
Bankers name the ruling as unprecedented and able to trigger others to
take their chance in like disputes. “Such precedents have a negative
influence on overall situation and make it possible for borrowers to
waive payment of their debts, which, generally speaking, shall not be
under discussion if a contract is signed”, says Maryna Bykova, Deputy
Chairman of the Management Board of Savings Bank (Sberbank) of Russia.
Deputy Head of the Finance and Credit Bank, Sergii Borysov shares her
opinion. According to him this act of the court put up for show of
absolute inability of judiciary system touch the ground of the matter.
The court decision has been an unexpected one for both banks
respondents and the whole system. It courted controversy among
associates and attorneys at law. Thus, senior associate of Vasil Kisil
& Partners law firm, Yulia Kyrpa insists that court had ignored
that bank is a holder of the General Exchange Licence. This Licence,
according to the Decree of the Cabinet of Ministers on the System of
Currency Regulation and Currency Control, entitles bank to work with
currency values. Actually, Head of Financial Law Department of the
Ministry of Justice, Liudmyla Kravchenko said this ruling was strange
and assumed with certainty that it would be revoked by the higher
authorities. “Meanwhile, there were some grounds for the court
decision,” emphasized the Official of the Ministry of Justice. “These
are 3 Laws on Payment Systems, stipulating that hryvnia is the only
legal means of payment within the territory of Ukraine. Furthermore,
both Civil and Economic Codes indicate that contract price shall be in
hryvnias only and settlements shall be done in Ukrainian currency”.
But lawyers just partially agree with the statement. According to Lesya Kovtun,
attorney at law of Volkov Koziakov and Partners, interpretation of
hryvnia as settlement currency and currency of contract price is not
obligatory for loan agreements. Both Civil and Economic Codes allow
usage of foreign currency for contractual settlements between residents
of Ukraine. Basis is stipulated in the Decree of the Cabinet of
Ministers. And the issues regulated by the Decree cannot be regulated
by other later laws,” mentions attorney at law.
Lesya Kovtun is of the opinion that the court as well as bank’s defence
chose the wrong way at the very beginning as they mixed notions of
“loan” and “loan price” i.e. interest. Peculiarity of bank industry is
raising money and selling them for money. Therefore either a loan or a
deposit is a «banking product» or a product that shall be sold to a
customer at price denominated as interest on banking product amount.
Mentioned is approved by the Part 1 Article 189 of the Economic Code of
Ukraine interpreting the price as monetary definition of the value of
products (operations, services) realized by economic entities.
Court Translates Interests on Currency Deposits into Hryvnia
Ukrainian Business Resource October 26
Regulator and Ministry of Justice should react to the unprecedented
case that, in fact, the court invalidated a loan agreement as it
appeared to be a foreign currency agreement.
According to lawyers,
otherwise banks will be able to appeal against validity of foreign
currency deposit agreements on the same grounds, as well as to pay
interest on currency use in hryvnias. Currently, the issue of usage of
dollars and EURO in settlements of loan agreements is governed by
governmental Decree on Currency Control. According to it, banks having
General License may perform currency transactions related to transfer
of title to currency values.
Shall such court decision stay valid,
petitioner will be obliged to disburse a loan in full, as well as bank
to pay received interest. And it becomes and interesting precedent as
the petitioner will have used the loan of several million dollars free
of interest. Such practice may attract many borrowers.
attorney at law of Volkov Koziakov and Partners, commented upon for
UBR: "In this case, both court decision and the law stipulates no
procedure for fulfillment of measures connected to the invalidity of
the agreement, i.e. under what terms and conditions parties should
repay the amount received under the agreement. It is well known that if
a borrower is a legal entity, it may take a loan in US dollars and buy
currency in the interbank market íà. Otherwise, in case the agreement
was invalidated, such entity just would have no legal basis to buy
currency in the market ".
Lawyers Divide over Lawfulness of State Benefits for Collecting Dividends from Economic Associations with State Share
INTERFAX-UKRAINE Kyiv. October 22
Possible benefits of the State as for collecting dividends from
economic associations having the state share on the one hand can be a
breach other shareholders’ rights with consequent result in their
judicial assertion, but on the other hand they comply with a set of
provisions of the Constitution of Ukraine, such an opinion was provided
by lawyers interviewed by the Interfax-Ukraine.
These were their comments on draft law of the Ministry of Finance of
Ukraine, binding for the economic companies with the state share to pay
dividends to the budget without consent of all shareholders.
‘Due to enactment of above draft law, a lot of disputes can arise as
for its validity, or those concerning procedure of paying dividends’,
said Taras Rozputenko the attorney at law of the Volkov Koziakov and Partners Law Firm.
As he explained to the agency, for instance, constitutional documents
of an enterprise may provide the procedure of paying dividends (on
preferred or ordinary shares), which may appear to be controversial to
introduced amendments, and at the same time comply with regulations of
According to the attorney’s opinion, introduced amendments actually
restrict the rights of shareholders for disposition of results of
economic activity of an enterprise, in particular, the right of
shareholders to establish the procedure of paying dividends will come
up against the economic companies’ responsibility of dividends payment
to the State.
Settlement of NPL granted to individuals is impossible in existing legislative environment
INTERFAX-UKRAINE Kyiv. October 22
‘Existing legal mechanisms for settlement of troubled debts have proved
inapplicable; thus, there is a dire need to urgently elaborate and
approve a certain law in this field as a compromise of interests of
lenders, debtors and the state on the basis of redistribution of
risks’, informed the Attorney at Law of Volkov Koziakov & Partners,
‘By reason of absence of the uniform register of credit histories which
could contain data on troubled borrowers, escape from debt liabilities
in particular by bankruptcy will continue to be a common practice for a
long time in our country’, - she told in an interview to
Moreover, she added, one of the variants of NPL regulation is
recognition of fictitiousness of individual-debtors’ bankruptcy. In
this case the main fact for classification of fictitious bankruptcy is
required: it is a personal written official legal statement of a
borrower on his insolvency which should result in the court’s rendering
of ruling on bankruptcy case initiation.
‘However, if a creditor applies to the court with the bankruptcy
petition in relation to the borrower, the grounds for classification of
fictitious bankruptcy are absent, despite the fact that in practice
such scheme is often used,’ L.Kovtun told...
Exit of Banks’ Troubled Borrowers from Country is Illegal
INTERFAX-UKRAINE Kyiv. October 21.
Provision of information to border service by the banks to restrict
exit of the banks’ troubled borrowers from the country shall be
considered as contradiction to the Constitution of Ukraine and Law on
Entry and Exit of Citizens of Ukrainian to/from Ukraine, such opinion
was expressed by Lesya Kovtun, attorney at law of Volkov Koziakov and Partners to Interfax-Ukraine agency.
She said that any similar acts of state authorities and other parties
could be considered as an infringement of the right of citizens for
freedom of movement guaranteed by Article 33 of the Constitution,
including the right to exit the territory of Ukraine freely.
Thereupon L. Kovtun mentioned that Art. 6 of the Law on the Procedure
of Entry and Exit of Citizens of Ukrainian to/from Ukraine, provides
for temporary confiscation of the national passport until proceedings
will be completed, even in case if a civil suit has been filed against
the citizen. Yet, according to her, the law does not stipulate types of
Restraint of beer advertising, sales of alcohol and cigarettes should be ensured by due fines – attorney’s view
INTERFAX-UKRAINE Kyiv October 16
Government’s initiatives concerning sale of alcoholic and tobacco
products, as well as beer advertising shall provide for their control,
otherwise these regulations will be just declarative, says Taras Rozputenko, attorney at law of Volkov Koziakov & Partners.
‘This is the only chance for introduced regulations to be effective,
and escape the lot of “dead” regulations’, - he told to
Interfax-Ukraine agency, commenting upon the draft law on introduction
of additional limitations for sale of alcoholic and tobacco products,
and beer advertising provided by the Cabinet of Ministers.
According to T. Rozputenko, some special amendments should be filed to
the Code of Administrative Violations, establishing current fines and
penalties for violation of above limitations.
‘Speaking on beer advertising, it should be mentioned that orders
control (applying limitations, which are effective for alcoholic
beverages) may be provided by appropriate local department of human
rights’, - says attorney at law...
Nadra Bank distorted President’s Order
Ukrainian Business Resource
According to the lawyers, having distorted the President’s Order the institution violates provisions of the Law on Bank and Banking. Moreover, reference to the President’s Order is groundless as it, in fact, is not an act of the direct control. The Order does not mean and may not imply a directive to alter provisions of laws in force, and just calls other authorities to pay regard for necessity of implementation of constitutional powers. In addition, the head of the state is not known yet to have signed his order or not. If yes, then it shall come into effect only after promulgation supposed to take 15 days. However to bring the bank to responsibility one needs to prove that actions of its top managers were intentional and that customers suffered losses after information related to them had been disclosed.
The Attorney at Law of Volkov Koziakov and Partners Law Firm Lesya Kovtun commented for UBR that moral damage might be substantiated by loss of business reputation, disruption of certain business links, contacts, etc. However, she added, the foregoing information must be confirmed by respective documents and other grounds as the damage could not be compensated just for the reason that the information had been disclosed.
NADRA BANK Misunderstands the President: No One Called for Disclosure of Debtors’ Names
Ukrainian Business Resource
NADRA BANK was not obliged to disclose its borrowers’ names. Attorney-at-law of Volkov Koziakov & Partners Law Firm, Lesya Kovtun explains that in terms of legal analysis of provisions set forth in the Order there are no grounds for the Order to be deemed as void. Whereas the Order is not the act of direct application. But it gave banks no grounds and direct references as for disclosure of the borrowers’ information. «The Order of the President does not require banks to disclose information on borrowers, as Nadra has done referring to the Order. Such act is unlawful, since the Order may not amend provision of the Law on Banks and Banking Activity specifying the grounds for disclosure of bank secrecy.
NADRA BANK has definitely violated the Law on Banks and Banking Activity, infringed his borrowers’ rights and disclosure of this information is illegal. To initiate a criminal case, it is necessary to prove that disclosed parties have suffered material damage. Furthermore, intention of the bank official shall be proved as well».
Bank customers have the right to claim compensation for the bank secrecy disclosure
INTERFAX-UKRAINE Kyiv, October 13
Nadra bank’s activities are regarded as the outrage of law which
envisages that a client may claim for compensation for both material
and moral damages. Lawyers interviewed by Interfax-Ukraine believe that
such a breach of law is difficult to prove by the bank’s individual
The aim of the interviewing was to evaluate Nadra’s actions regarding
publication of the list of 42 thousand individual loaners on the
web-site – small and medium business entities, corporate clients with
Each facility agreement is subject to contain the confidential clause.
According to Vladimir Shabelnik, lawyer of Alliance All-Ukrainian Law
Firm, pursuant to part 2 of Article 1076 of the Civil Code of Ukraine,
a client may claim for compensation for both material and moral damages
in the event of bank secrecy disclosure by the bank. Thereby, the
loaners may apply to court with relevant claim against Nadra bank.
Moreover, Article 60 of the Law of Ukraine “On Bank and Banking
Activities” envisages that information regarding the organisational and
legal form of legal client, its management and areas of business are
regarded as the bank secrecy.
Additionally, Mr. Shabelnik believes that Article 232 of the Criminal
Code of Ukraine provides the criminal responsibility for deliberate
disclosure of commercial and bank secrecy without its owner’s permit by
a person who is aware of the secrecy by their professional or official
activities if such information is disclosed by lucrative or other
impulses and causes a significant damage toward a business entity.
Our interlocutor emphasised that then it was difficult to determine who
was to blame for the Nadra bank secrecy disclosure, the scope of damage
and reasons for such actions but the criminal responsibility up to two
years of imprisonment is envisaged.
Lesya Kovtun, attorney at law of Volkov Koziakov & Partners, holds
the opinion regarding the loaners’ secrecy illegal disclosure by Nadra
bank, as the Decree No. 813 of October 08, 2009 does not provide the
legal rights for the bank secrecy disclosure. According to Lesya
Kovtun, the Decree does not move amendments to paragraph 10 of the Law
of Ukraine “On Bank and Banking Activities” regarding the principles of
the bank secrecy disclosure and does not concern the commercial banks.
It concerns the National Bank of Ukraine’s, the Cabinet of Ministers’
and the General Prosecutor’s Office activity only, claims Ms. Kovtun
evaluating the Bank’s actions which follows the Decree’s provisions. As
reported, Nadra bank following the Decree No. 813 of October 08, 2009
on stabilisation of banking system published the list of 42 thousand of
individual loaners on the official web-site, small and medium business
entities, corporate clients with overdue debts...
“Commersant Ukraine” Newspaper (Ú), N 146 dated 03-09-2009
Large radio-network was not able to pay for the license
Radio “Melody” – one of the largest radio-networks in Ukraine – has
been deprived of its license. It is the first known decision taken by
the National Council for TV and radio broadcasting issues with regard
to such a large broadcaster. The company was not able to pay UAH 4.2
million for the license and now its frequencies can be offered for
bidding. According to the experts, all the largest players of the
market will bid for them in this case – as the broadcasting station
coverage is more than 30 cities.
Legal position of the National Council in this case is very strong and
its disputing will be extremely complicated, says Mykola Podpalov,
partner of Volkov Koziakov and Partners Law Firm, who represented the
interests of “Gala-radio” broadcaster in a similar dispute. “A license
can be extended on the basis of the paid license fee. If the payment is
not made, the National Council has a right not to extend a license and
to offer the frequencies for bidding”, he notes. Possibility of bidding
for the “Melody” frequencies is also being discussed by the National