Restructuring and Insolvency Practice Newsletter (Issue 1, 2016)
Federal legislation
Ministry of Economic Development prepares major amendments to the Insolvency Law
On 25 of January 2016, a meeting with Deputy Prime Minister Igor Shuvalov reviewed a bill to make major amendments to fhe federal Insolvency Law. The bill, developed by the Ministry of Economic Development, will introduce a number of significant changes to bankruptcy proceedings, in the areas such as creditors' rights and the interaction of the judiciary. The amendments also would introduce a new financial recovery procedure.
The latest version of the bill also provides the pre-trial debt restructuring rate for debtors, creditors, and other parties. Revised procedures will include a report on the financial status of the debtor, which shall be attached to the debtor’s restructuring application, along with a list of creditors, assets, and debts.
If enacted, the bill is expected to come into force on 1 January 2017.
Bail-in mechanism to be introduced for the sanation of banks
After long discussions about options for sanation of Vnesheconombank (VEB), the government has decided on the first stage of the capital increase. The capital increase will occur due to the conversion of a large part of VEB debt to the Central Bank in a perpetual subordinated loan. In fact, the Central Bank will test this “bail-in” mechanism on themselves, as part of an initiative to consolidate at a legislative level the methods for the the rehabilitation of banks.
Though bail-in is not formally recognized in legislation, the mechanism has been used in practice. Thus, when the Bank Tauride was sanated, its main creditor Lenenergo was not able to get back deposits amounting to RUB 16.5 billion. Lenergo had to extend them to 20 years and convert them to subordinated liabilities. The Central Bank added another RUB 28 billion to save Tauride.
Banks, the Central Bank, and the Finance Ministry prepare to introduce new money market instruments
The National Securities Market Association (NSMA), big banks, the Finance Ministry, and the Central Bank are preparing a new money market instrument: a special certificate of deposit that essentially will be a hybrid of bills and bonds. The need for this tool arose in connection with the shortage of money market instruments and the prospects for reducing the amount of liquid cash collateral from banks. The NSMA drafted, and coordinated with the Ministry of Finance and Rosfinmonitoring, a proposed federal law for the Voluntary Certification System, which would amend the second part of the Civil Code.
Events
Prosecutor General's Office finds irregularities in bank sanation
For the first time, the Prosecutor General's Office has given a negative assessment of the activity of employees of the Deposit Insurance Agency (DIA) for the management of ailing banks. The Prosecutor General’s findings, the measures that have been taken, and the DIA action plan were considered at a meeting of Board of Directors of the agency on 26 January 2016.
The sanations of banks, on which large amounts of money are spent, has become a subject of critical analysis, the results of which has revealed violations. The most important issues concern a lack of regulation and the detailed actions by agencies involved in bank sanations. In particular, the transfer of assets provoked lots of questions. In response, the Deposit Insurance Agency remedied some of the issues and developed measures to address those situations that cannot be resolved immediately.
Another big state bank may appear in Russia
Two subsidiaries of the bank VEB - Svyaz-Bank and Globex – may join the Russian Capital Bank. As a result, a new major player, with assets of more than RUB 870 billion, may soon appear in the banking market.
A postal savings bank has been established in Russia
On 28 January 2016, VTB 24 and Russian Post signed an agreement to establish the Postal Bank. The Post Bank has been created on the basis of Leto Bank, which is owned by VTB. Postage Finance LLC, a subsidiary of Russian Post, will pay RUB 5.5 billion for a “50% minus 1” share of Leto Bank. VTB Bank is planning to invest RUB 16-20 billion in Postal Bank in 2016; and Postal Bank will begin operations in a network of post offices in the first quarter of 2016.
The Central Bank introduces a temporary administration of the Interkommerts Bank
The Bank of Russia has introduced a temporary administration of the Interkommerts Commercial Bank for six months. The Central Bank’s decision concerns the "reduction of own funds (capital)" of Interkommerts by more than 30% during the last 12 months from their maximum value, while violating simultaneously one of the mandatory standards set by the Bank of Russia.
VEB to sell Svyaz-Bank and Globex at market value
Vnesheconombank plans to sell Svyaz-Bank PJSC and Globex Bank JSC to the Deposit Insurance Agency (DIA) at market value. All proceeds from the transaction will be used for the early repayment of obligations to Vnesheconombank Bank of Russia on the bond issue. It is reported that a merger of Globex and Svyaz-Bank, already owned by the DIA’s Russian Capital Bank, is one of the possible options to develop the banking subsidiaries of DIA as part of a consolidation of the banking sector.
Bank of Russia revokes four bank licenses
On 15 January 2016, the Bank of Russia revoked the license for banking operations by KB Ergobank LLC (registration number 2856). On 21 January 2016, Turbobank Bank JSC (registration number 3203, St. Petersburg), and CB Miraf-Bank JSC (registration number 2244, Omsk) lost their operating licenses. Vneshprombank LLC, which is one of the top 50 Russian banks, also has had its operating license revoked.
GPO negatively assesses DIA activities in the Probusinessbank bankruptcy
The General Prosecutor Office has negatively assessed the activities of employees of the Deposit Insurance Agency (DIA) in the bankruptcy of Probusinessbank, in response to a collective application of more than 200 Probusinessbank customers. As a result, some of the bank's employees have been held to be administratively liable.
Rostec to increase the capital of Novikombank
Sergy Chemezov, who is the head of the state corporation Rostec, has announced his intention to recapitalize the Rostec-controlled Novikombank. At least RUB 6 billion are estimated as needed until the third quarter of 2016.
The Bank of Russia currently is inspecting Novikombank, aiming at a reevaluation of the bank's assets in the light of the new economic realities, as well as to improve the coordination of the recovery plan.
Arbitrage
Subordinated loans cases of Tavrichesky Bank
The Thirteenth Arbitration Appeal Court has upheld the precedent-setting decision of the Arbitration Court of the St. Petersburg and Leningrad Region on the recognition of the unilateral refusal of the interim administration of the Tavrichesky Bank to perform a subordinated loan agreement.
Earlier, the Arbitration Court of the St. Petersburg and Leningrad Region made two apparently contradictory decisions on claims by the ORIMI company and the St. Petersburg Investment Company (SPIC) that Tavrichesky had acted illegally when it refused to perform the subordinated loans. The Thirteenth Arbitration Court of Appeals considered SPIC’s appeal of the lower arbitration court’s dismissal of its lawsuit in one of the cases. On 28 January 2016 the Thirteenth Arbitration Court of Appeal found no grounds to cancel the decision of the Arbitration Court of St. Petersburg and Leningrad region.
In the other case, the Arbitration Court of St. Petersburg and the Leningrad Region supported OMRIMI’s claim against the bank; and the appeal by Tavrichevshy Bank is now before the Thirteenth Arbitration Count of Appeal.
Moscow Arbitration Court declares seven banks bankrupt
The Moscow Arbitration Court has upheld the application by the Central Bank of Russia to recognize seven banks as bankrupt: JUST Bank OOO, Investrastbank JSC, Bank Benefit Bank JSC, The Messenger Bank JSC, Commercial Antalbank Bank, Ltd., JSC, CB Mezhregionbank, and Bank Note PJSC.
Moscow Arbitration Court sets the adjudication dates for the bankruptcies of three banks
The Moscow Arbitration Court has set 18 February 2016 as the date for consideration of the validity of the statement by the Central Bank of the Russia on the bankruptcy of Deal-Bank.
The applications of the Russian Central Bank for the bankruptcy of Renaissance Commercial Bank LLC, and of Baltic Bank PJSC, will be considered on 24 February 2016.
Bank of Russia applies to the Moscow Arbitration Court for the bankruptcy of KB Ergobank and KBR Bank
On 15 January 2016, the Bank of Russia revoked the operating license of KB Ergobank LLC. The license of KBR Bank LLC was revoked on 14 December 2015.