articles | 01 February 2016 | Stelios Americanos & Co LLC

MEMO AS TO THE PENDING JUDICIAL PROCEEDINGS FOR WINDING UP FBME BANK

As a way of introduction, please be informed that the Central Bank of Cyprus (‘CBC’) has revoked the licence granted to FBME Bank Ltd, Tanzania, on 8/9/2003 to operate a branch in Cyprus, as of 21/12/2015.

Prior to this development, CBC had, on 18/7/2014 taken over the management of the operations of the branch of FBME Bank Ltd in Cyprus as the Resolution Authority.

The CBC acting under the powers conferred to it by the Resolution of Credit and Other Institutions Laws 2013-2014, had also appointed a Special Administrator of the branch on 21/7/2014.

The Special Administrator, exercising the functions and powers set out in the Law, had to, inter alia, implement the resolution measures by restricting the branch’s scope of business.

A. Factual Background to the winding up application filed by the CBC, dated 22/12/2015.

On 22/12/2015, the Central Bank of Cyprus (CBC) filed an application for the winding up of FBME, and the appointment of Petros Ioannides as the Special Liquidator, based on article 33(B)(δις) of the Business Credit Institution Law 66(1)/1997. The application was set for Directions on 23/12/2015.

The lawyers representing FBME, appeared before the Court, on 23/12/2015 and stated that they have accounted knowledge of the said application and they wish to take part in the proceedings and be heard by the Court before issuing any order. One of their arguments was that the Cyprus Courts have been asked to liquidate one of the biggest credit institutions of Tanzania, without the latter being properly informed, and added that the Cyprus Courts lack the jurisdiction to issue a winding up order against FBME. Moreover, he claimed that CBC has already appointed a special Receiver, 18 months ago, therefore there is no urgency in deciding the present application. They asked for time (more than the 3 day period specified in the Law) to file their objection.

Simultaneously, lawyer representing some of the creditors of the Bank appeared before the Court and also insisted that they have the right to be heard and therefore should also be given enough time to file an objection. In addition, the lawyer representing some of the creditors, informed the Court that his clients have already filed law suits against the Bank, which are pending before the District Court of Nicosia, claiming more than 150.000.000 euro. In addition, he informed the Honorable Court that the CBC has already issued an order for the sale of the Bank, but the latter has not yet complied with the order and the depositors are being trapped for more than 1 ½ years now.

Last but not least, the lawyer representing the creditors claimed that there is nothing urgent to be taken into account by the Court, since the Bank has been under resolution for the past 18 months. 

At the same time, the lawyer for the CBC objected to the appearance of FBME claiming that the Court should not take into account the arguments put forward by the Bank, since article 33(B)(twice) provides that the procedure for the winding up of  L.C.I whose license was revoked, should be made ex-parte. He claimed that it is urgent that the 6000 secured depositors be protected. When the court order is issued, the Fund securing the deposits is immediately notified and the depositors will be able to receive the 100.000 euro within a period of 20 days.

CBC argued that the creditors should not be allowed to file an objection and should not be treated with an advantage as opposed to the rest of the Bank’s creditors, simply because they had the financial means to appoint a lawyer to represent and secure their interests.

On 29/12/2015, the Court issued its judgement and ruled that the Bank is allowed to take part in the proceedings, since the latter (even if not properly served with the said application), became aware of the proceeding filed against it.

The judge made reference to the basic principle of law, which is to hear arguments raised by all interested parties before issuing a judgment.

Moreover, he argued that the issuance of a Court order for the winding up of a Company and the appointment of a special Receiver is one of the most drastic measures. Therefore, these should not be issued on an ex parte level.

Finally, the judge, using the inherent powers inferred to him by article 9(1) of Cap. 6 and Order 48, Rule 8(3) of the Civil Procedure Rules, gave permission to the Bank and to the creditors of the Bank to file an objection and promote their arguments.

B. Procedural Background based on Art. 33 (B)(twice) of the Business Credit Institution Law 66(1)/1997:

The above mentioned article expressly states that the Central Bank can file an application to the Court and seek the issuance of an order of special liquidation and the appointment of a Special Administrator, in the following cases:

(i) Where the operating business license of a Licensed Credit Institution (hereinafter referred to as “L.C.I.”), was revoked.
(ii) Where the L.C.I. has deposits which the Protection of Bank depositors Fund can cover, according to the Resolution of Credit Institutions Law
(iii) The Special liquidation of the L.C.I. serves the public interest.

The Court issues the order for special liquidation, once it is satisfied that the above circumstances are met, and appoints a Special Administrator other than the Official Receiver, after hearing the recommendations put forward by the Central Bank.

The aforementioned Court Order is issued ex-parte and in compliance with article 9 of the Civil Procedural Law, and the Rules of Civil Procedure.

The L.C.I can file its objection and show reasons as to why the issued Court order should be cancelled within 3 days. 

C. Chronological table of the application for the winding up of FBME and the appointment of Special Administrator, Application No. 905/15

  1. Filing of the ex parte application for the winding up and the appointment of Special Administrator in FBME – 22/12/2015
  2. Set before Judge Ioannides (President of the District Court of Nicosia) – 23/12/2015
  3. Delivery of judgment as to whether the creditors and the Bank should be allowed to file their objection -29/12/2015
  4. CBC filed an application at the Supreme Court of Cyprus (12/1/2016), to be granted leave to file a certiorari against the judgment of the District Court of Nicosia, dated 29/12/2015, by which the Court allowed the Bank and certain creditors to file an objection, contrary to the provisions of the Law 66(1)/1997 – Application No. 178/2015.
  5. The Supreme Court decided that the first instance Court was correct to allow the Bank to participate in the proceedings filed against it, but should NOT have allowed the creditors of the Bank to be represented and file their objection.
  6. CBC did not promote the certiorari proceedings.
  7. On 3/2/2016, the District Court of Nicosia, decided on the issue of whether it would allow the creditors to be represented. The Court issued its judgment ex-tempore, therefore we lack the reasoning behind its decision, since this is not reported as of yet. However, the Court gave permission to the creditors/depositors of FBME to be represented in the aforementioned proceedings.
  8. The Court has set the application for Directions on Thursday 11/2/2016.

D. Options to Depositors

(i) The Court’s decision by which it allowed depositors and/or creditors of the Bank to be represented at the winding up proceedings had opened the floodgates. Depositors can now be properly represented and file an objection to the winding up of FBME.
(ii) Additionally, depositors may file civil law suits at the District Courts, claiming damages for the loss they have suffered. However, if the Court issues an order for special liquidation and for the appointment of Special Receiver, then NO civil claim may continue or even be filed against FBME (article 33 (B)δις (13) of the Business of Credit Institution Law 66(1)/97).

However, it needs to be pointed out that the Supreme Court’s judgment dated 7/6/2013 in relation to the recourses filed by the depositors against the Central Bank’s Decrees on the “Haircut” of the deposits on Laiki Bank and the Bank of Cyprus, had laid down certain ground rules relating to the damages that the Courts can award. In compliance with the Resolution of Credit and Other Institutions Laws, 2013-2014, the compensation to be awarded by the Courts are limited, since the depositors will need to prove that the loss they have suffered is greater if compared to the loss they would have suffered had the Bank been wound up rather than undergone resolution.  This situation will only be relevant and applicable, in case the application of the CBC is rejected.

To sum up, it is important to have in mind that depositors need to act fast and decide upon the best way to secure their interests.

Please contact Eve Karaviotou, eve.karaviotou@americanoslaw.com; for further information and/or clarifications.

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