"If a law firm working with the Guarantee Fund did not get its fee, it worked at a loss"ANDRIY SAVCHUK, PARTNER AT MORIS GROUP LAW FIRM, NOTES
— Is it possible to call the process of operation of the state run deposit guarantee system stable?
— I think it’s possible. The simultaneous collapse of about 100 banks in the state is a serious test, a kind of a large-scale crash test for the guarantee system. In general, the state-owned Deposit Guarantee Fund (the Fund) manages and works well under heavy work pressures. But stability is not all that describes the deposit guarantee system. The depositor is not interested in the reasons for non-return of his/her deposit. The depositor (both an individual and a legal entity) yearns for the quick and full return of the entire amount of the deposit, and not only UAH 200,000 that is payable to individuals, as it is now. A system that, in the event of a bank failing, will provide a quick return of 100% of the deposit to any depositor should be a standard. If the state represented by the National Bank of Ukraine, which regulates and supervises activities, fails to fulfill its duties and allows the withdrawal of assets and failure of a bank, then why should the depositor become a whipping boy? For people need to have confidence in the guarantee system to place their money into banks. In fact, the Fund should bring calm and comfort to every depositor. But that is still far from being achieved.
— How has the nature of your company's cooperation with the Deposit Guarantee Fund changed?
— We were one of the first companies that decided to work with the Fund and represent the interests of insolvent banks. Our colleagues often laughed at us for this choice, because it is much more profitable to represent the interests of the Fund’s solvent opponents. But we made our choice, and we do not regret it.
We concluded our first contract in 2015, taking over more than 100 loan agreements of more than 80 borrowers for a total amount of around UAH 2 billion. For more than a year, we heroically supported this array of cases, our court lawyers practically saw nothing except business trips, which the company paid at its own expense, as well as the salaries to these lawyers (the Fund paid out only from funds that were physically recovered to a bank account). After that, we recognized that we were, to some extent, short-sighted, and returned cases back to banks.
After such cooperation, we had two options: to determine our losses and stop working with the Fund, or to try once more. We chose the second option. Again, we do not regret it: we paid our dues, but gained invaluable experience. Books cannot give you such knowledge.
I cannot say that since then our cooperation with the Fund has become easy and immediately profitable.
The Fund also learned from its mistakes, and this was quite often reflected in the work of lawyers. I recall the imposition by the Fund of insane fines on lawyers for the loss of original documents or the omission of one court hearing. As it turned out, some law firms received cases, reneged on them in court, and "lost" the originals of important documents.
Today, we support about 200 court cases for a total amount of more than UAH 10 billion. To a certain extent, thanks to cooperation with the Fund, we have become one of the leaders among law companies in Ukraine. The quite limited period of time, during which you need to recover funds from the debtor, is one of the challenges that we now face. Also, it would be advisable for the Fund to improve the system of payment for legal services. The Fund pays fees subject to the achievement of the desired result. It is an anachronism, which should be replaced with modern forms, which would enable more companies to work with the Fund.
— Has the paradigm of disputes between the debtors of insolvent banks and the Fund changed with the start of work of the Supreme Court (SC)?
— Of course, with the start of operation of the Supreme Court, the paradigm of consciousness and not only of all the disputes changed, and these changes continue. I would even say that a new quality of legal proceedings has emerged. This is primarily due to the change in procedural legislation and the updating of the composition of Supreme Court judges.
As for the actual disputes of the Fund (involving insolvent banks) with debtors, changes took place as a whole in the category of disputes between creditors and debtors.
The SC began to get to the bottom of legal relations, regulated by special legislation on guaranteeing deposits, to analyze in detail the essence of operation of an insolvent bank. The judges of the Supreme Court very often pass judgment on disputes without transferring a case to a new hearing. And this is very important in terms of the limited term of the bank liquidation procedure.
Unfortunately, such changes are not yet being observed in courts of first instance and courts of appeal: debtors actively use various schemes to prevent the foreclosure or sale of claims and some judges assist them in doing this.
— What positions taken by the courts in this category of cases can be considered significant?
— The return of funds and withdrawal of property from a bank before it crashes is a big problem for the Fund. Often, the management of a bank, with the assistance of professional lawyers, does everything it can to preserve the most valuable property, withdrawing it with the assistance of quasi-legal schemes. In order to prevent such actions, the relevant provisions in legislation on the Deposit Guarantee system were introduced in due time. Authorized persons were able to identify transactions that fall under the criteria of invalidity by virtue of the law, and use their consequences.
It seems to me that we were the first company that initiated consideration in the Supreme Court of Ukraine (SCU) of a dispute regarding such actions by an authorized person. The courts of three previous instances arrived at formal findings that violation of the procedure for identifying such transactions is the basis for dismissal of a claim for their invalidity. However, the SCU clearly indicated that the validity of such transactions does not depend on the will or actions of the authorized person, but on their compliance with the criteria established by legislation. Thereafter, this position was reflected in the legal opinions issued by the newly-formed Supreme Court.
Disputes between former owners of banks with the Fund, initiated both by one and the other party, remain important. Owners dispute the withdrawal of banks from the market, and the Fund is trying to recover damages from them which were caused by their actions. There is still no single position in this category of disputes, and many cases await consideration in the Supreme Court.
— How would assess the prospects for cooperation of lawyers with the Fund?
— I think that we have already seen the peak of cooperation between law firms and the Fund. Banks are now very active in selling assets through an electronic trading system. In this situation, rendering legal services to the Fund has its own peculiarities. First of all, this is that period of time during which you should physically recover funds or at least get a positive court ruling. If it turns out that the bank sells the claim and the law firm does not have time to receive at least a positive court ruling, the Fund will not pay remuneration owed. In practice, the consideration of cases by courts may take a long time, and opponents will also try to do their best not to pay debts. In addition, there are almost always several proceedings (if not dozens) that are associated with one debtor. And all these processes need qualitative support and the Fund will be provided with relevant reports in a timely manner. I can say with confidence: if a law firm working with the Guarantee Fund did not get its fee, then it worked at a loss.
Now the Fund is initiating cases on the recovery of debts from bank owners. In virtually all banks (with the exception of very few) the amount of debt substantially exceeds the value of the property (that is, there are signs of insufficient assets), and this is a direct basis for recovering funds from the bank's owner and related parties. This could be a good market for legal services, especially since the law allows you to continue recovery even after physical liquidation of a bank.