Note for banks: foreclosure of mortgaged property may require a concentration permit – KyivPost
General legal framework of the concentration
Ukraine’s antitrust laws authorize the organs of the Antimonopoly Committee of Ukraine to control the concentration of economic entities.
This includes the granting of concentration permits in cases where this is compulsory. Such cases are clearly defined by the Ukrainian law “On the protection of economic competition”.
In general, the concentration permit is required when:
- A specific transaction falls under the term “concentration” and is not covered by exclusions;
- The parties to the transaction meet the criteria of total value of assets, total sales of goods, under the law.
One of the types of concentration is acquisition of ownership of assets in the form of an integral real estate complex. The term “entire housing complex” can refer to a plant, a plant, a workshop, a silo for the storage and handling of grain, etc. The law does not limit the methods of acquiring ownership of the entire real estate complex for the purpose of concentration (purchase or any other).Thus, the need for a concentration permit may appear even in a case of foreclosure on an entire mortgaged real estate complex if all the conditions of such a mandatory clause are met.
The permit must be obtained by the person who becomes the owner. In the event of a concentration without the required authorization, such a person may be condemned by the Antimonopoly Committee to a fine of up to 5% of his income from the sale of products (goods, works, services) for the last year. declaration before the year in which the fine is imposed.
What happened to Oschadbank?
On September 16, 2021, the Antimonopoly Committee fined “Oschadbank” for failing to obtain the permit to focus on the foreclosure of the mortgaged property. The amount of such a fine was approximately 14 million Hr.
In 2017, Oschadbank seized and mortgaged a logistics center without obtaining the concentration permit. In short, the Antimonopoly Committee came to the conclusion that there was no reason for Oschadbank to avoid obtaining a permit because
- The transaction cannot fall within the scope of cases which do not fall within the scope of the concentration by virtue of the law then in force;
- The parties met the criteria of total value of assets, total sales of goods, established by law.
Thus, the Antimonopoly Committee has demonstrated the application of general rules concerning the need to obtain the authorization of concentration to banks concerning foreclosure proceedings. The Antimonopoly Committee used to ignore fines imposed on banks for seizing mortgaged property without a merger authorization. But after the Oschadbank affair, new, similar deals can potentially arise with other banks.
What should banks do?
Before appropriating any “essential” real estate following a foreclosure (for example, industrial or storage complexes), it is recommended to carefully analyze the documents and the factual context to obtain the authorization of concentration. .
In particular, the bank should check whether the particular foreclosure can be treated as a case which is not a concentration under the law or not. For example, from 2019 and from today, the law establishes that no concentration appears in the taking of ownership by the bank or other financial institution of assets in the form of a unified real estate complex ( including the entire real estate complex), shares (shares, units) of the economic entity if:
- This is provided for by the restructuring plan, approved under the Law of Ukraine “On Financial Restructuring”, in the form of foreclosure on collateral (mortgaged property) or other encumbered collateral;
- They are also sold to economic entities unrelated to the bank or to the financial institution having control relationships within two years from the date of possession.
There is another no concentration case which may be relevant for banks in the context of a seizure of shares. The law establishes that the the “non-concentration” clause applies if the purchase is made with a view to reselling the shares (shares, shares), provided that the person mentioned does not take part in the vote of the higher board of directors or of the other boards of directors of the economic entity.
In such a case, the subsequent resale must be carried out within one year from the date of purchase of the shares (shares). The Antimonopoly Committee of Ukraine may extend this period at the request of the above-mentioned persons, which contains a justification for the impossibility of subsequent resale.
In conclusion, we recommend that you analyze very carefully each situation of foreclosure on the borrower’s assets before the actual transfer of ownership.
GOLAW’s attorneys will be happy to assist you if you have any questions about a possible concentration in relation to the foreclosure of collateral.
Partner, Head of Taxation, Restructuring, Claims and Collections Practice, Lawyer