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Hryvnia Wins Suit against Dollar: Precedent May Trigger Cold War

Ukrainian Business Resource
October 27

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 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 agreement.
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

Currency Market 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.
Lesya Kovtun, 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 . 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


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 other laws.
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


‘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, Lesya Kovtun.
‘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 "Interfax-Ukraine".
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 those lawsuits...


Restraint of beer advertising, sales of alcohol and cigarettes should be ensured by due fines attorneys view


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 Presidents Order

Ukrainian Business Resource
October, 15

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
October, 14

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


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 clients.
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 overdue debts.
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...


Faded Melody

“Commersant Ukraine” Newspaper (), 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 Council.

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