The Antimonopoly Committee of Ukraine (the AMCU), by its decision of 16 September 2021, imposed a fine of almost UAH 14 million (approx. EUR 0.5 million) on the State Savings Bank of Ukraine (the Oschadbank) for concentration without the clearance of the AMCU.
According to the official report of the AMCU, the violation committed by the Oschadbank lies in acquiring the integral property complex without prior obtaining the AMCU clearance, which is mandatory under Ukrainian law. Namely, in 2017, the Oschadbank foreclosed a mortgage consisting of a complex of buildings for storage and manufacturing of food products (logistics centre “Arctic”), owned by the borrower, due to the failure of the latter to fulfil obligations under the loan agreement.
The AMCU noted that the Oschadbank could have avoided such significant sanctions if it had obtained the AMCU’s clearance for the concentration in time, and that the law does not set aside the exemptions for banks to obtain a concentration clearance, except as provided for in article 22 (5) of the Law of Ukraine on Protection of Economic Competition.
Indeed, in 2019, due to the continually increasing number of acquisitions by banks (and other financial institutions) of integral property complexes and corporate rights through foreclosures of mortgages, the Law of Ukraine on Protection of Economic Competition was amended with provisions exempting such acquisitions from the list of cases defined by law as concentrations.
However, according to the wording of the law, such exceptions apply provided:
Certainly, in most cases banks foreclose a mortgage not to use it further to provide banking services, but to ensure the safety, integrity and value of the property. Thus, it is obvious that the acquisition by the bank of logistics centre was a measure necessary to avoid the risk of losing a mortgage not sold in the enforcement proceedings. Later, in 2018, Oschadbank sold the mortgage to the unconnected company at auction, as many other banks do as there is no need for them to exercise lasting control over such property.
However, if a bank acquires such property but fails to provide the restructuring plan, the exceptions set by the law do not cover such cases. Then, should the financial data of a borrower and the bank exceed the thresholds set by the law, the AMCU is entitled to impose fines for concentration without the clearance.
This is the first AMCU decision imposing a fine on a bank for concentration without the clearance via foreclosure on mortgage. Undoubtedly, there are various issues on qualification of the potential violation, and the defence arguments in such cases depend on the particular facts of the case. Nevertheless, the determining factor is that the AMCU by its decision has confirmed the conservative application of the law with respect to the liability of banks for the acquisition of property by foreclosure on a pledge (mortgage).
Thus, the AMCU opens a new practice area, and in the near future we should expect new cases and fines against banks.
As a reminder, a failure to clear a notifiable concentration entails a fine of up to 5 per cent. of the income (revenue) of the business undertaking for the financial year preceding the year in which the fine is imposed.
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