Legal succession of banks

Ukrainian legislation prescribes a special reorganisation procedure for banks that, among other things, requires banks to:

• develop a reorganisation plan;

• obtain approval for internal statute changes from the National Bank of Ukraine; and

• conduct an audit to ensure the correctness of transfers (for mergers and acquisitions) or the demerger balance sheet (for spin-offs and transfers).

The successor bank (through merger or acquisition) acquires all property, rights and obligations that previously belonged to the predecessor bank on the execution date of the transfer. As such, proof of a transfer, a demerger balance sheet or the charter of the successor bank are all sufficient evidence of the transfer of a particular contractual obligation from the predecessor bank to its successor.

To confirm the succession of an obligation, the court should examine transfers or the demerger balance sheet only in order to identify the entity that has acquired the rights and obligations. These documents need not indicate a particular obligation.

Given that succession disputes have certain legal implications, a recent informative letter of the Higher Commercial Court of Ukraine(1) stipulated that there is no need for the specialist knowledge of court experts in such cases. In other words, the court should not initiate an expert examination to assess the amount of property, rights and obligations transferred to the successor bank.

Invalidation of unfair clauses in loan agreements

As consumers are typically the more vulnerable party to an agreement, civil law provides for the protection of consumers rights. The law prohibits the seller (producer) from including provisions in the agreement that are unfair to the consumer. The term 'unfair provisions' is defined as provisions breaching the principle of equity and entailing a sizable disproportion in reciprocal rights and obligations to the detriment of the consumer. If the court finds that a provision of an agreement is unfair, it will deem the provision invalid as of the date on which the agreement was concluded.

As the Supreme Court noted in a recent judgment,(2) these rules also apply to consumer loans. Therefore, consumer credit provisions that foresee possible changes in loan servicing charges or charges for advanced repayment are considered unfair and will be recognised as invalid.

Creditor compensation for foreign currency inflation

Under Ukrainian legislation, the parties to a contract are free to set prices in a foreign currency.

Compensation for a currency's fall in value is intended to offset creditors' losses. The State Statistics Committee calculates the reduction in the purchasing power of the Hryvnia (the currency of Ukraine) and presents its findings in the form of an inflation index. Following a resolution of the Higher Commercial Court,(3) creditors should be aware that in case of non-performance of a debtor's monetary obligations set in a

foreign currency, the creditor cannot claim compensation for inflation.

Unenforced court judgment does not terminate debtor obligations

Contractual obligations can be terminated by:

• due performance of the contract;

• payment of compensation for the termination;

• offsetting counterclaims; or

• any other manner agreed by the parties.

A court judgment does not terminate contractual obligations. Therefore, a court judgment granting a creditor's claims that has not yet been executed by the debtor does not terminate contractual relations between the parties and subsequently does not terminate the debtor's liabilities for non-performance of monetary obligations.

The creditor has the right to claim payment of a debt plus inflation and 3% of annual interest. Under civil law, such a claim is considered to be a remedy for protection of the creditor's material (financial) rights and interests. This remedy is intended to compensate the creditor for losses due to a fall in currency value and the debtor's inappropriate use of the money (sum of debt).

In this regard, court practice(4) establishes that where a judgment granting a creditor's claim has taken a significant amount of time to execute, the creditor can still file a claim with the court seeking compensation for inflation and 3% of annual interest for the period starting from the date on which the main court judgment entered into force until its full execution.

Abrogation of public auctions

The results of a public auction constitute a deed - that is, the conclusion of a sales agreement (auction sale). Therefore, the general civil law rules on invalidation of contracts apply. One of these rules addresses non-compliance with legal requirements at the time that the contract is concluded. Namely, an auction sale can be invalidated for a breach of public auction rules.

The Supreme Court has held(5) that where an auction is conducted in the course of a judgment enforcement procedure, violations committed by an officer of a state enforcement agency (eg, unlawful arrest or unfair appraisal of property) should not be considered as violations of public auction rules. Such violations are subject to appeal, as prescribed by the Enforcement Proceedings Law. Moreover, such violations are not grounds for the invalidation of an auction sale.