NATIONAL BANK OF UKRAINE (NBU) SIMPLIFIES CAPITALIZATION
AND REORGANIZATION PROCEDURES FOR COMMERCIAL BANKS

Baker & McKenzie law firm, Kyiv, Ukraine, December 2008

KYIV - As part of Ukraine's anti-crisis legislation, the Nationa Bank of Ukraine (NBU) has introduced a simplified procedure for the financial rehabilitation of commercial banks by means of their capitalization and reorganization.

On 1 December 2008, the Board of the National Bank of Ukraine (the "NBU") adopted Resolution No. 405 "On the Special Procedure for Implementing Measures for the Financial Rehabilitation of Commercial Banks" (the "Simplified Procedure"), which was aimed at simplifying the procedure for the capitalization and reorganization of commercial banks.  The Simplified Procedure becomes effective on 29 December 2008.
In essence, the Simplified Procedure introduces simplified mechanisms for the financial rehabilitation of commercial banks by means of (i) increasing the charter capital of a commercial bank, i.e., its capitalization, and (ii) reorganizing a commercial bank, e.g., the merger of two or more banks into a new bank, the merger of one bank into another bank, etc. 

The Simplified Procedure also outlines the specifics of the financial rehabilitation of a commercial bank under temporary administration, and the participation of the Government of Ukraine in the capitalization of a commercial bank.
Under the Simplified Procedure, a decision on the approval of bank's financial rehabilitation plan (the "Rehabilitation Plan") must be adopted by the general meeting of the shareholders (participants) of the bank and should provide for either the increase of the charter capital of the bank or its reorganization. 

The NBU must either approve/reject the Rehabilitation Plan within two business days after its receipt, or adopt a special resolution on the specifics of the capitalization of the bank.  Only upon the approval of the Rehabilitation Plan by the NBU, would the bank be able to apply the simplified procedure for its financial rehabilitation.
The Simplified Procedure significantly accelerates the bank capitalization procedure in terms of the timing of and the formalities for the approval of the amendments to the charter of the bank by the NBU, the application for the approval by the Antimonopoly Committee of Ukraine, and the registration of the share issuance with the State Commission for Securities and the Stock Market of Ukraine. 

It is unclear, however, how these latter two state authorities will be able to comply with the Simplified Procedure, because neither the Antimonopoly Committee of Ukraine nor the State Commission for Securities and the Stock Market of Ukraine has issued a similar simplified procedure for commercial banks.

The Simplified Procedure permits the shareholders (participants) of the bank to decide upon the reorganization of the bank without the prior consent of the NBU by the inclusion of such a measure in the Rehabilitation Plan.  Notably, the plan for the reorganization of the bank is deemed to be approved immediately on the day of its filing with the NBU. 

The bank reorganization procedure is then carried out pursuant to the existing NBU regulations.  If required during the course of the relevant reorganization procedure, the NBU will decide on the issuance of a new banking license and a written permit to the bank within 10 days after the NBU's receipt of all of the necessary application documents for such banking license and written permit.

According to the Simplified Procedure, a commercial bank may be capitalized at the expense of the Government of Ukraine only if such bank is a joint stock company and its capitalization is strictly in compliance with the Resolution of the Cabinet of Ministers No. 960 "Procedure for State Participation in Capitalization of Banks", dated 4 November 2008. 

The Simplified Procedure permits a commercial bank to apply to the NBU for such participation by the Government of Ukraine only after the adoption of a decision approving such participation by the general shareholders' meeting of the bank.  Before such application may be submitted the bank is required to carry out an external appraisal of the value of its shares and to decrease its charter capital if its net assets fall below the amount of the registered charter capital of the bank. 

If the bank is under temporary administration, all decisions and actions prescribed by the Simplified Procedure during the course of its capitalization or its reorganization must be taken by its temporary administrator.  If the temporary administrator decides on the reorganization of the bank, then the Simplified Procedure provides that the reorganization procedure must be completed within 30 days after the appointment of the temporary administrator.
Additional notes
For further information on the topic please contact Ihor Olekhov (ihor.olekhov@bakernet.com) at the Kyiv Office of Baker & McKenzie by telephone (380 44 590 0101), facsimile (380 44 590 0110), or e-mail (kyiv_info@bakernet.com)

The LEGAL ALERT is issued to inform Baker & McKenzie clients and other interested parties of time-sensitive legal developments that may affect or otherwise be of special interest to them. The comments above do not constitute legal advice or opinion, and should not be regarded as a substitute for detailed advice in individual cases.

NOTE:  Baker & McKenzie is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.