A complete guide to the universe of courts on nationalization
On November 26, 2020, the big judicial battle for PrivatBank resumed.

The Sixth Kyiv Court of Appeal will continue to consider the claim of Igor Kolomoisky and Gennady Bogolyubov, who have been challenging the nationalization of the country’s largest bank for four years already.

The businessmen won the first round a year and a half ago, having achieved success in the District Administrative Court of Kyiv: Kolomoisky and Bogolyubov call nationalization the expropriation of private property by the state. The other side of this story is a possible $5 billion fraud, where PrivatBank and its depositors were the victim and the ex-owners of the bank were the perpetrators.

Was it fair for the state to take away the main financial asset from the oligarchs? Have billions of dollars been 
misappropriated from the bank over the years?

These are the most important, but far from the only subjects of litigations around PrivatBank.

In total, hundreds of claims related to the nationalization are being considered in Ukrainian and foreign jurisdictions. They include dozens of well-known names (among others, such as Dubilet and Surkis), hundreds of companies (including the largest ferroalloy plant in Europe – Nikopol Ferroalloy Plant), and sometimes absurd claims.

How to make sense of this? in a joint project with PrivatBank has recreated the “universe” of lawsuits generated by the nationalization of the bank. It contains five large “planets” and two dozen of their smaller “satellites”.

Will Ukrainian courts be able to bring this ecosystem to another “big bang”?
Ukrainian courts began to receive the first lawsuits challenging the nationalization of PrivatBank at the end of 2016, a few days after the bank became state owned.

But a big legal war was finally unleashed by the lawsuit filed at the end of May 2017. That year Igor Kolomoisky and a Cypriot company Triantal Investment filed a claim to the District Administrative Court of Kyiv personally.

They – as the recent owners of PrivatBank in the past (Igor Kolomoisky and Gennady Bogolyubov are the owners of Triantal) – demanded that nationalization be declared illegal.

The case didn’t have much progress for two years – until the spring of 2019 when only a few weeks remained until the second round of the presidential elections and the almost crushing victory of Volodymyr Zelensky.

Now, this is the main lawsuit on the nationalization of PrivatBank, while hundreds of other lawsuits depend on it: a large number of processes have been suspended until the end of the appeal on this case.

How it will end is difficult to predict.

A year and a half ago, the District Administrative Court of Kyiv (the PrivatBank case is one of the first odious decisions of the court led by the controversial Pavlo Vovk) agreed with the arguments of the plaintiffs ( covered the details of the non-public decision here), having considered that:
a) The NBU did not have evidence that PrivatBank had a hole in the capital, since it did not complete the inspection of the financial institution. There is a separate process regarding the inspection: Triantal Investment demands that it be declared illegal.

The company won two instances, and the parties are now awaiting a hearing in the Supreme Court.

The regulator’s counter-argument: the bank’s problem with a volume of more than UAH 100 billion was clear back in 2015. The inspection referred to in the materials of the District Administrative Court of Kyiv only confirmed that the owners of Privat were not going to continue the capitalization of the bank.
b) The National Bank incorrectly assessed the quality of the bank’s loan portfolio: Privat did not have overdue loans, thus, it did not need to form additional reserves, that is, to inject real money to minimize the risks for depositors.

Counter-argument: With the help of PrivatBank, Kolomoisky and Bogolyubov issued loans to themselves. The bank had a loan portfolio of 127 billion hryvnias, which was fully issued to dummy companies. The property rights for goods were used as collateral for these loans – the contracts were not even paid. The National Bank considered these pledges negligible and indicated that the bank should reserve all this debt.
c) Kolomoisky and Bogolyubov were not given time to rectify the situation. And then they were forced to hand over the bank to the state.

Counter-argument: Negotiations began back in 2015. A capitalization program was drawn up for Privat: one part had to be injected in real money, while the other part had to be secured with real collateral (that is, to replace the debts of "dummies" with loans to running businesses).
By the fall of 2016, it became clear that the ex-beneficiaries of the bank were not going to implement this program. A symbolic gesture, in this case, was the so-called transformation: in October-November 2016, Privat issued UAH 136 billion of new loans to 36 companies, which used this money to repay the debts of almost two hundred other borrowers of the bank. Privat did not demand the collateral for ten-year loans at a rate of about 10% per annum (a phenomenally low figure).

The first hearing of the appeal on this case took place on a symbolic date – December 18, 2019. The court immediately put the process on pause – until the completion of another landmark “Privat” trial on the lawsuit of the Surkis family.

Now November 26 is the closest of the key points in the PrivatBank-related lawsuits. Other important processes depend on it, the ones that are capable – at least technically – of reversing the bank’s nationalization and its consequences.
In the fall of 2019, the Economic Court of Kyiv became one of the most discussed “legal” topics in the country: every week hearings were held in a small court building of a lawsuit in which Igor Kolomoisky and Triantal Investment demanded that PrivatBank shares be returned to them.

One of the plaintiffs’ key arguments echoes the case of the illegality of the nationalization. The plaintiffs claim that the bank was taken from them under pressure. That is how Kolomoisky and Bogolyubov explain the existence of a letter in which they asked the government to nationalize Privat.
The process was stopped at a moment when the decision was about to be announced: the parties did not have time to hold debates, after which a judge retires to the deliberation room.

The last hearing did not take place: the courthouse was blocked due to reports of “mining”, and later it became known that the day before the judge Lyudmila Shkurdova decided to suspend the process until the end of the proceedings in the court of appeal on the lawsuit on the legality of the nationalization.

Almost a year after the suspension of the case, the company associated with Igor Kolomoisky “remembered” the process and demanded that the court reopen the case, without waiting for the outcome in other instances. The appeal hearing is scheduled for December 9 this year.
Until recently, the main business partner of Kolomoisky, Gennady Bogolyubov, kept aloof and did not take active part in the legal battles for Privat. In the fall of 2020 alone, he filed five lawsuits challenging the nationalization in the Pechersk District Court of Kyiv.
So far, the court has not begun to consider the arguments of Bogolyubov, but it is known that in one of the lawsuits he demands to restore his shares in PrivatBank as an individual – 33.3% (the rest belonged to him indirectly through Triantal Investment).

PrivatBank said that five simultaneous claims of a businessman are the so-called “fan”, a method known among lawyers to bypass the automated system for selecting a judge. On this basis, the bank challenged Judge Tatyana Vashchenko, but in a hearing on November 24, it was denied.

Separately, the nationalization of PrivatBank is disputed by a team of former top managers led by the ex-CEO Alexander Dubilet (Timur Novikov, Oleg Gorokhovsky, Vladimir Yatsenko, Tatiana Guryeva, Lyudmila Shmalchenko).

All of them were minority shareholders in the bank. The Economic Court of Kyiv
opened proceedings on the return of shares to them.
Separately, at the end of October this year, Alexander Dubilet altered the claim.

In fact, he used a structure similar to that of the claims of Kolomoisky and Bogolyubov: Dubilet demands not only the return of his shares but also the reduction of the authorized capital of PrivatBank to the before nationalization amount. According to Privat, the satisfaction of such requirements would jeopardize the viability of the bank.
A separate stream of cases are the claims of the companies from the list of persons related with PrivatBank and its ex-owners which the NBU formed on the eve of nationalization. The list has become one of the key reasons for reducing the government's contribution to the bank’s rescue.

The list of the related persons itself has already been declared inconsistent with the law – this is what the District Administrative Court decided, and did so on the same day the decision on the illegality of nationalization was made (April 18, 2019).

A special role in this context is played by the processes in which Kolomoisky-Bogolyubov’s companies are trying to shake off their obligations to the NBU, which issued refinancing loans to the bank, first guaranteed by the oligarch firms, and later by Kolomoisky personally.
Based on the above, the National Bank tried to reclaim the debt from the businesses of the ex-owners of Privat instead of the bank itself. But the Ukrainian courts ruined these plans.

Vivid examples are the cases of the Nikopol Ferroalloy Plant and the Odesa company Hajibey. They have successfully fought off their obligations to the NBU (Hajibey – in the Supreme Court) and now the debts of Kolomoisky and Bogolyubov will have to be repaid by the bank itself.

Not so long ago, the same NFP, which initiated more than three dozen court proceedings, turned a new page in this story. The plant wants to prove that it does not have any obligations to the bank.

Privat believes that in this way the company seeks to influence the course of the proceedings in the United States against its shareholders, which were independently initiated by PrivatBank and the US Department of Justice.
At the beginning of 2018, the NBU published the first (and so far the last) details of the forensic audit of the Kroll detective agency, which was investigating alleged fraud in PrivatBank.
Preliminary result: during 10 years from 2006 to 2016, $5.5 billion was misappropriated from the bank.

Later, the NBU transferred the materials of the investigation to the Prosecutor General’s Office of Ukraine (then the body was headed by Yuriy Lutsenko), now the National Anti-Corruption Bureau is engaged in the case.
At the end of 2017, the High Court of London handed down a shocking judgement for the ex-owners of PrivatBank: their assets around the world of about $2 billion were frozen – in case the suspicions of fraud in Privat on their part were proven.

The dispute between Privat and the ex-owners came to London thanks to six English companies that participated in the alleged fraudulent schemes to siphon off money from the bank (Privat gave loans to these firms to finance contracts for the supply of unrealistically large quantities of juice, ore, and other products).
It was very difficult for Privat's lawyers to keep the process in the UK: at first, the English court refused to consider this case, but the bank won the appeal.

At the same time, it is important that in its decision the London Court of Appeal explicitly indicated that PrivatBank had indeed become a victim of “a fraud on an a particularly large scale, carefully planned by the former owners of the bank”.

The judgement on merits will have to wait for a long time: the first hearing on this case is scheduled for March 2022. Until then, the assets of Kolomoisky and Bogolyubov will remain frozen.
In August 2020, the US Department of Justice (in America, it also performs the functions of the prosecutor’s office) filed two extensive lawsuits with local courts, in which it described in detail the schemes through which Igor Kolomoisky misappropriated money from the
Ukrainian PrivatBank, using it to buy real estate in the USA.

A year earlier, PrivatBank had filed a lawsuit with the Delaware Chancery Court (USA) regarding possible money laundering by Kolomoisky and Bogolyubov.

The consideration of the claims has not yet begun.
Cyprus is one of the most important points on the map of the alleged fraud in PrivatBank.

Kroll’s findings, PrivatBank’s lawsuits, and the investigation by the US Department of Justice agree that it was the Cyprus branch of Privat that was the 
center through which the money flowed from Ukraine to other jurisdictions. The bank claims that from 2006 to 2016, $470 billion passed through Cyprus.

In 2020, PrivatBank applied to a Cyprus court with a claim against the ex-owners for $5.5 billion. There is a similar claim in Israel, where the bank's claims amount to about $600 million.

The case of the Surkis family, who tried to reclaim through the courts 1 billion UAH of their deposits in PrivatBank, was the main reason for the annual pause in the courts over nationalization. Many other courts (including the appeal for nationalization) were suspended pending the decision of the Grand Chamber of the Supreme Court on the Surkises case.

It had to answer two important questions. First, whether the state legally converted the money of individuals and companies that the NBU identified as related to Kolomoisky and Bogolyubov (besides the Surkises, there are also claims of dozens of other related persons in the courts) into the bank’s capital.
Secondly, in which jurisdiction should the claims related to nationalization be considered: administrative or economic.

The Surkises were also put on the list of related persons. They almost managed to refute this connection (even though one of the business brothers – Igor Surkis – together with Kolomoisky owns the 1+1 media holding): back in 2017, they won the first instance and appeal.

In the summer of 2020, the Grand Chamber of the Supreme Court cancelled all previous successes of the Surkises. The judges overturned the previous decisions, leaving the plaintiffs the right to once again try to claim compensation from the state – through the Pechersk District Court.
The start date of the new proceedings in the Pechersky District Court is December 4, 2020
The consequence of the defeat of the Surkis family in the Grand Chamber of the Supreme Court – PrivatBank may renew claims against their assets: A-Bank and FC Dynamo Kyiv.

Since during the hearings in the Supreme Court Igor Surkis officially recognized himself as the owner of 1+1, Privat’s lawyers plan to use this as a “newly
discovered circumstance” and initiate new courts with A-Bank for UAH 300 million (he had previously won all instances against Privat).

The second potential process is a trial with Dynamo Kyiv for a loan of $20 million. Earlier Privat technically repaid this obligation to the club by the Surkis family money. But after the victory in the Grand Chamber of the Supreme Court, Dynamo's debt to the bank must be restored.
Another serious case related to the Surkis family is the claim of British companies owned by them, which also lost money due to their ties to the ex-owners of PrivatBank.

The firms were clients in the Cyprus PrivatBank, where they kept about $250 million. Now they are trying to
recover this money, plus $100 million interest through the Ukrainian and Cypriot courts.

The decision on merits has not been handed down yet, but in Ukraine, these Surkises’ companies almost managed to recover $350 million from the bank as a security for the claim (an unprecedented requirement for Ukrainian practice).

However, after a series of scandalous court decisions, the Supreme Court has so far blocked a possible write-off.
In the UK, two lawsuits on PrivatBank are being heard: in addition to the fraud case, the holders of PrivatBank’s Eurobonds, who also fell under the procedure for converting the funds of related parties into capital, are suing the bank.

In fact, these are third-party creditors of the bank: after the nationalization, Privat unilaterally refused to service their debt.
According to the state, the reason is that the companies related to the ex-owners were involved in the issue of the bonds.

The amount of the claims against PrivatBank in this process is about $500 million. Last summer, the British Arbitration Court ruled that the bank should still repay the debt, but first, the holders of the Eurobonds must disclose their names and prove that they are not related to Kolomoisky and Bogolyubov.

Since that decision, no other serious developments took place in this process.

A similar trial in the case of PrivatBank’s Eurobonds is being held in Ukraine: THEO Worldwide, which calls itself a holder of bonds worth $600,000 has already reached the Supreme Court.

This case is also important for the proceedings in London: a few years ago, the NBU turned to the Bank of England with a request to evaluate the very procedure for converting the funds of
related parties into the capital of PrivatBank (the so-called bail-in). There is still no answer.
In November 2020, the Supreme Court overturned all previous decisions in THEO’s favor and sent the case back for a new trial.

Nevertheless, there is still a possibility that the decision of the Ukrainian courts against the bail-in of Eurobonds could be a signal for the Bank of England that Ukraine itself does not recognize this operation as legal.
Because of this, Privat is likely to lose UK arbitration.

During one of the final hearings of the Surkis family case in the Grand Chamber of the Supreme Court, state lawyers petitioned for the application of the norms of the “banking law” adopted in May 2020, which prohibits the courts from overturning the decisions of state bodies regarding banks.

It is believed that this law should ensure that PrivatBank under no circumstances will return to the hands of Kolomoisky and Bogolyubov (because of this, the media call it “anti-Kolomoisky”).
The best they can count on is financial compensation if they can prove their losses.
The Surkises disputed one of the decisions of the National Bank – based on this, as the lawyers of Privat and the NBU had assumed, their case had to be closed. However, the Grand Chamber of the Supreme Court did not apply the norms of the “anti-Kolomoisky law”, explaining that it was guided by other grounds.

Such an interpretation further complicates the judicial battle for PrivatBank: the decision of the Grand Chamber of the Supreme Court leaves the lower courts certain freedom in terms of applying the norms of the banking law.

There is already a negative result: in early November, the Supreme Court decided not to apply it in the case of one of the companies associated with Kolomoisky and Bogolyubov, which challenged the bail-in procedure.


In November 2020, the District Administrative Court of Kyiv received another lawsuit from the trade union of PrivatBank employees (this organization was created in 2019 from the management that has been working in PrivatBank since Kolomoisky time) demanding the dismissal of the leadership of PrivatBank: Petr Krumphanzl, the chairman of the board, and Sharon Easky, the head of the supervisory board.
It is not the first time the trade union is used to get rid of Krumphanzl in a court. In general, the organization initiated more than seven dozen court proceedings to challenge the powers of the management and its decisions.

In one of the interviews, the head of Privat stated that six criminal proceedings were opened against him, including those regarding possible espionage (Krumphanzl is Czech by nationality).
Текст: Сергей Шевчук
Коллаж: Евгений Адаменков
Верстка: Дмитрий Шелестинский

Дата публикации: 26.11.2020 г.

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