The Central Bank of Azerbaijan has recently revoked the licenses of Amrahbank, Atabank, NBC Bank and AG Bank and upon court decision the liquidator was appointed. In this Article, we will summarize main points of liquidation procedures and the process of repayments for creditor claims in Azerbaijan which we are often asked.
Under the Law of Banks, where banks are insolvent, the Central Bank of Azerbaijan may appoint temporary administrators to deal with the financial distress or insolvency. When the temporary administrator is appointed, all the powers of the bank’s management, the powers of the shareholders cease and pass to the temporary administrator.
After inspection and where possible rescue measures fail, the temporary administrator may render a decision about the liquidation of the insolvent bank.
To start liquidation of the bank, the financial supervisory authority which is the Central Bank of Azerbaijan currently, after revoking license submits an application before the court for officially declaring the bank as bankrupt and commencing the liquidation processes. Within 7 days, the court shall approve or reject the application of the financial supervisory authority. Upon approval of application by the court, the bank is declared bankrupt, the liquidator is appointed and the formal liquidation processes are commenced. This decision of the court is immediately enforceable.
By law, the Azerbaijan Deposit Insurance Fund shall be appointed as the liquidator of the banks. The Deposit Insurance Fund may further authorize third parties for organizing and conducting the liquidation.
It must be noted that no debts, funds or deposits of legal entities (including foreign and local companies) are secured by law. However, the funds and deposits of private individuals may fall under secured deposits where such individuals may claim refund from the Azerbaijan Deposit Insurance Fund.
Creditors of banks shall register their claims within 60 days form the publication date of the first notice on the bankruptcy of the bank approved by the court.
Under the ordinary procedure, creditor claims shall be paid in the following order:
The law specifies an exception to the above order and procedure embodied in the principle of “Finality of irrevocable payment orders”. Under the provision of finality of payment orders entered into payment systems, any payment instruction (payment order) which is irrevocable and already entered into the payment systems of the bank shall be processed and paid in an extra-ordinary manner without waiting for creditor claims to be recorded, and notwithstanding, the order for the repayment of the creditor claims set by the law. Therefore, it must be checked and clarified whether any pending debt or payment instruction falls under this category or not.
Claims of creditors stemming from secured transactions are paid off the proceeds obtained from the sale of the relevant security in an extraordinary manner. Where the proceeds from such sale are not sufficient enough to repay for the claim, the remaining amount shall be registered as creditor claim in an ordinary manner and in the order as noted above.
It must be noted that once all of the claims within a specific category are repaid, the claims of the next category creditors are to be paid. Where the funds are unsatisfactory for the repayment of creditor claims within a certain group, the claims shall be paid proportionately. The table of payments for creditor claims is approved by the court and is final – hence, no appeal is allowed from such payment tables.
Therefore, it is important to submit all claims, arguments and evidence, as well as objections to the table of payments to the liquidator and during the court procedures until these are approved.
If the claims of the creditors are refused by the liquidator, the court sets a hearing date for the clarification and reasoning of refusals within 60 days. The court sends a notice to each creditor regarding each claim only once. If the creditor has not participated at the court hearings of the refused claims, the claim shall be considered as refused by the court, provided that no reasonable excuse hinders the creditor’s representative from the participation. The claims approved by the court are considered as final.
Another important point is regarding the time-bar specified for the appeals from the court’s decision on rejecting the claims of the creditor. The Law on Banks has limited the period for appeals with 2 weeks from the date of notice on the court’s decision. The appeal shall not suspend the legal effect of the court’s decision. Such appeals are heard and decided upon within 7 days.
The entire process of liquidation shall be followed as per the Liquidation Plan approved by the court. The liquidation plan encompasses assets, liabilities approved and rejected claims, estimate income and expenses, state of fixed assets and sales plan of such assets, any loss incurred due to illegal actions of bank’s administrators, current report on the banks’ liabilities and planned payments to the creditors within the following quarter. The Liquidation Plan is updated every 3 months and it shall be submitted to the approved creditors.
Creditors may be represented by authorized attorneys during the liquidation procedures for defending their interests and rights. Upon the request of the liquidator approved by the Central Bank, the court may decide upon setting creditors’ general assembly and/or creditors’ committee where these are deemed as desirable for defending the interests of the creditor groups.
Considering all these, we suggest active participation at the creditor assembly or committees for defending legitimate interests of the creditor in obtaining refunds or certain set-offs during liquidation procedures.
Nothing in this article shall be considered as legal advice. CLC does not bear any liability for any action or inaction with reference to the information specified herein.
By recent decision of the Central Bank of Azerbaijan, the licenses of Amrahbank, Atabank, NBC Bank and AG Bank have been revoked and liquidator appointed.
For legal consultancy and support during the insolvency, bankruptcy and liquidation of banks in Azerbaijan, as well as, representing creditors during the entire liquidation and for the purposes of obtaining refunds and compensation, please contact us. Our legal team with extended experience in banking industry would immediately be ready to assist.