Oleksii SOLOMKO, head of Enforcement Proceedings Practice, attorney
Banking system is a basis of all industrial and operational processes regardless of the level or market size of business. Even illegal business areas are not capable to function if banking system is unstable. After 24 February 2022 average people also feel they depend on normal functionality of banking system.
Despite of automatization of various operations, maintenance of all informational systems is carried out by individuals. In order to make a system functioning the employees are required to come to work. During first days after 24 February 2022 hardly 10% of bank employees showed up for work. As a result, payment system was closely to be stopped. It especially involved banking institution which operational centers were located in Kyiv (let’s remember mass panic runaway from the capital). Mass attempts to withdraw cash from banks were additional shocks for banking system, ATMs were out of use. Majority of bank offices were closed due to the fact that employees didn’t show up which caused both by migration and blocked traffic.
Absence of transaction processing officers resulted in “stuck payments” crisis. Hundreds of employers decided to make early payments of salaries (wages), financial aids, etc. to its employees. However, such transactions were delayed. Later on, even transactions for defense and humanitarian purposes (in particular, transactions to support the Armed Forces of Ukraine, to purchase medicines, foodstuffs, uniforms, ammunitions and military equipment) got also stuck.
Functioning of online banking was limited due to the jeopardy of hackers’ attacks. Lots of retailers sold goods for cash only. It turned into a real problem for refugees, who didn’t have cash. Eventually, refugees, who had to be moving only with bank cards, faced a challenge to buy food, fuel and to pay for accommodation.
ne more trouble arose because of increase of cash flow and excess of retailers’ and fuel stations’ cash limits. Conducting cash handling services was almost stopped, and some trading enterprises anticipated looting events due to weakening of law-enforcement system. Consequently, some enterprises were trading for cash only, and others were accepting only cashless transfers.
Citizens being “lucky” to have the status of debtor in enforcement proceedings were essentially affected with this problem. The present upgraded enforcement system in Ukraine provides, in the first place, freeze of assets as well as seizure of bank accounts. Since the body search of person is not permitted within enforcement proceedings, cash payments are popular for both elderly people and in business environment.
Based on preliminary assessments, there might be over 10 million of such debtors in Ukraine. Most of them are rather “technical” debtors than “perverse” ones. In particular, there can be a situation that debtor pays up the total amount of fine for traffic violation or full amount due to his creditor, but fails to pay enforcement fees and costs. The expiration of the term for exaction of enforcement fees and costs has no effect to a person’s status as a debtor. The point is that all restrictions regarding such person remain in force, including restrictions as to usage of bank accounts. Even if a person decides to pay up enforcement fees and costs, it is not easy to do since the person will have to initiate complicated and ambiguous procedure. Therefore, not many people seek this adventure. Such “debtors” are vulnerable to freeze of their money on bank accounts. Any funds transferred to their bank accounts by relatives, friends or state authorities remain blocked. In situation of transition through the territory of Ukraine or departure from Ukraine the debtor’s resources to provide for a family significantly decrease.
Opening new bank accounts (not yet arrested) may be used as an alternative way to solve the problem. Such a possibility became available due to the fact that access to the Unified Register of Debtors was denied as of 24 February 2022 (if a person is included to the debtors’ register, a bank is not allowed to open new account). But a bank account can be opened conditioned that a person visits bank office and a responsible bank officer is present at work. The problem is particularly topical for entities which applied for opening special accounts to conduct activity related to defense or humanitarian supplies.
The state has partially solved this problem by means of granting permit to deblock accounts of individuals provided that the amount of a debt does not exceed 100 thousand hryvnas. Initially such permit was granted by the Cabinet of Ministers of Ukraine, later on – by the specific law.
It is worth to be mentioned, that mass microcredits recently were considered as essential financial supports for Ukrainian people. Notwithstanding the fact that receiving microcredits could result in debtor’s financial “slavery”, it fulfilled definite social function. As a matter of fact, provision of loan services (along with cash services and bank accounts maintenance) is the main purpose of banking system, and remains primary source of banks’ income.
Unfortunately, after 24 February 2022 banks almost stopped offering loans. Hence, banking system is getting ready to continuous stage of survival. For example, what is the evaluation of losses caused by granting loans that will never be returned? The same is for entities/enterprises ruined/demolished or terminated their activity due to the war, for demolished/damaged mortgage property, for loss of income of tens of thousands of individuals. Even renewal of normal functioning of the State Enforcement Service offices and private enforcement officers could not fix problem of non-returned loans since force-majeure circumstances, declared by the Chamber of Commerce and Industry, confirms unavailability of fulfilment obligations during war-time.
Moreover, functioning of state and private enforcement officers needs essential settlement. Formally, their activity has not been restricted or blocked. However, the main operating system – Automatic System of Enforcement Proceedings (ASEP) was disabled by the State Enterprise “National Informational System” after war began. At the moment, the access to the system is restored only for the state enforcement officers. Hence, private enforcement officers have to work according to the following procedure: to issue all enforcement documents apart from the system with the purpose to make respective entries to the database after access to ASEP is granted. It means that the state loses control over private enforcement officers’ activity, which leads to possibility of issuance of fake enforcement documents on behalf of private enforcement officers. One more concern is that backdated fake documents could be issued on behalf of state enforcement officers who carried out their activity in temporarily occupied territories and have stayed there.
If the state has made a decision that enforcement officers are to continue exaction of debts during the war-time, the high-level supervision over their activities should be ensured. In the existing circumstances, well-timed recording of all enforcement proceedings via ASEP with possibility to be quickly and effectively checked is the only way to make it work. Otherwise, any fraud or illegal enforcement actions are beyond of the state supervision.
It is also obvious, that the state should grant “debt vacations” after the war. If no, we can expect numerous bankruptcies, which unlikely will encourage debts recovery.