Legal nature of subordinated debt of financial institutions in Ukraine

Abstract

In the article, the author argues that from the point of view of private law, the relationship that arises between the debtor (financial institution) and the creditor in attracting funds on terms of subordinated debt, is an economic relationship for attracting, respectively, loan, loan, bank deposit, which is performed on the terms of subordinated debt. Liabilities arising from borrowing on a subordinated debt basis are long-term, unsecured, repayable, and that change the order of creditors' claims to be applied in the event of the debtor's liquidation or bankruptcy. The existence of public-law rules governing the attraction of funds on subordinated debt does not affect the legal nature of the said transactions. Therefore, the failure of a debtor to comply with a transaction with the requirements of public law to attract funds on the basis of subordinated debt does not affect its validity. The funds attracted by the debtor bank acquire the status of subordinated debt, subject to obtaining the permission of the National Bank of Ukraine to take into account the borrowed funds on terms of subordinated debt to the capital of the bank. In the absence or revocation of the said permit, there is no reason to include such funds in the equity of the debtor bank and to assign the claims of the lender to such transaction in the event of liquidation or bankruptcy of the debtor bank to the queue established by law to satisfy the claims of creditors on subordinated debt. The article gives a comparative description of subordinated debt and hybrid capital instruments as components of the bank's additional capital, and offers suggestions for improvement of the current legislation of Ukraine.