In this article, Carl Baker considers the Bank of England's decision to recognise the bail-in of loans to PrivatBank, a Ukrainian bank resolved in accordance with Ukraine's resolution regime.

In December 2016 the National Bank of Ukraine declared PrivatBank, one of Ukraine's largest commercial banks, to be insolvent, triggering a bail-in by Ukrainian authorities. The bail-in affected, among other things, four English law governed loans (the "Loans") made to PrivatBank by UK SPV Credit Finance plc ("UK SPV") in the amount of U.S.$595,000,000. The Loans were part of a structured finance arrangement involving parallel issuances of English law governed Eurobonds by UK SPV in the international debt capital markets. The effect of the bail-in was that the Loans were mandatorily exchanged for newly issued shares. A short while later PrivatBank was nationalised which resulted in those newly issued shares being transferred to the state and leaving UK SPV without a source of cash to pay holders of the Eurobonds. As a result these holders faced significant losses.

In May 2021 the Bank of England announced that it had received a request from the National Bank of Ukraine asking it to "recognise" the bail-in of the Loans. Recognition by the Bank of England under Section 89H of the Banking Act 2009 would give legal effect to the Ukrainian bail-in in the UK, making it more difficult to challenge in English court proceedings. As the Bank of England explained in its press release, third-country recognition is central to effective cross-border resolutions because it enables resolution actions taken in one jurisdiction to have effect in other jurisdictions. The recognition mechanism in Section 89H is based on corresponding provisions in the EU's Bank Recovery and Resolution Directive ("BRRD"), as amended by Brexit onshoring legislation.

The Bank of England further announced that it had decided, with the approval of HM Treasury, to recognise the bail-in and The PrivatBank (Recognition of Third-Country Resolution Action) Instrument 2021 came into force on 14 May 2021. This is momentous, being the first ever third-country recognition instrument made by the Bank of England since the regime was implemented by the Bank Recovery and Resolution Order 2014.


The recognition instrument does not set out the reasoning that the Bank of England applied to the recognition decision, nor does the HM Treasury written statement by the Minister of State (Treasury) (City) made on 19 May 2021. This might be considered unfortunate for a number of reasons:

  • the recognition power which the Bank of England wields as resolution authority is immense, capable of overriding any restriction arising by virtue of contract or legislation or in any other way. Recognition impacts fundamental property rights, and considerations of procedural fairness and public interest would seem to point towards the disclosure of at least some reasoning
  • certainty and predictability are two pillars that underpin the importance of English law in the international financial markets. Without reasons it is more difficult to be certain or to predict the outcome of future recognition applications, not least because the recognition framework in Sections 89H to 89J of the Banking Act is complex and untested in English courts
  • a loose parallel may be drawn to the recognition framework under the Cross-Border Insolvency Regulations. Decisions to recognise foreign insolvency proceedings, whilst made by a judge rather than the Bank of England, are generally the subject of reasoned judgments
  • as might be expected with any large bank resolution under a new resolution regime, the PrivatBank resolution appears to have been controversial. There are media reports of litigation in Ukraine and elsewhere on the legality of actions taken by the Deposit Guarantee Fund and the National Bank of Ukraine. How this was factored into the recognition decision is unclear

Having said that, there is, of course, no common law duty to give reasons for administrative decisions. Although no "appeal process" exists for decisions to recognise third-country resolution action, judicial review would have been potentially available. The Bank of England said that it kept relevant stakeholders informed throughout the recognition process, and at the end of August 2021 PrivatBank announced that no timely request for judicial review had been made to an English court. This leaves the PrivatBank bail-in recognition standing as a watershed moment in the world of international resolution.

This article was first published in the March issue of Butterworths Journal of International Banking and Financial Law ((2022) 3 JIBFL 203)