Armenia’s Administrative Court has found in favor of Artashes Hovhannisyan, a former minority shareholder of Ameriabank, who had demanded that the bank return the five shares he owned before they were consolidated and bought back by the bank’s majority shareholders.
Hovhannisyan, who had lost a similar case against Ameriabank (The Bank) in civil court, had filed the lawsuit against Armenia’s Central Bank, Ameriabank and the Central Depository.
The plaintiff argued that he was never informed of the transaction in advance.
Hovhannisyan’s lawyers qualified the transaction as “squeezing out” the minor shareholder from the Bank, and that it contradicted the main legal act regulating the banking sector in Armenia.
In accordance with the Banking Law, the buyback of consolidated shares is prohibited.
Notwithstanding the statutory prohibition, the civil court had refused the claim. The court based its verdict on Clarification No 8 issued by the Central Bank, which additionally interprets the Banking Law permitting Ameriabank to consolidate and buy back its minority shareholders’ shares. Thus, a precedent granting a privilege to all majority shareholders of banks has been created by the Central Bank.
Clarification No 8 by the Central Bank provides, that major shareholder may take a decision on consolidation and buy back of shares, if in receipt of controlling positive position of the Central Bank. The Clarification further provides that controlling positive position should be taken “taking into account the specific facts of each case”.
After the case was exhausted in the civil courts, Artashes Hovhannisyan applied to the Administrative Court, suing Armenia’s Central Bank. (Ameriabank and the Central Depository had been listed as third parties.) Earlier, the Central Depository had verified the buy back transaction through registration.
Artashes Hovhannisyan demanded a dismissal, or to recognize as null and void, the Central Bank’s controlling positive decision issued to Ameriabank and as consequence to announce null and void the share consolidation and buy back decisions taken at the Ameriabank’s general shareholders’ extraordinary meeting. All this would result in the restoration of his property rights regarding his five common nominal shares.
The Administrative Court satisfied all the plaintiff’s claims. The court also confiscated AMD 4000 Armenian from the Central Bank to compensate Artashes Hovhannisyan for the state fee paid. The Central Bank has appealed.
Hayk Hovhannisyan: “We are facing an unprecedented situation. No court in neighboring countries has showed such a level of independence”
Artashes Hovhannisyan applied to the Administrative Court in March of 2016, after exhausting all civil court options and applying to the European Court of Human Rights (ECHR). The ECHR has confirmed registering the application,and the case is pending.
Artashes Hovhannisyan’s son and attorney Hayk Hovhannisyan says that regardless of the outcome of appeal, the current unprecedented decision of the Administrative Court increases their chances of success at the ECHR to 75%.
Hayk Hovhannisyan says the decision taken by the Administrative Court Judge Argishti Ghazaryan is an interesting development on the path of the judicial system achieving independence.
“This means that our courts have started to get rid of so called “telephone law”, when a call from higher-ups instructs a judge as to what verdict to hand down. Now, in this case, we have unprecedented situation, and as far as I have researched judicial practice of Georgia, Russia, Ukraine, Azerbaijan, no court has showed such a level of independence in our neighboring countries”, says Hovhannisyan.
He emphasizes that all the decisions of the Central Bank have been recognized as null and void, that the interests of the minority shareholder have been protected in corporative relations, and his property rights have been restored.
“I think that this is quite a positive development for Armenia in general, not only because we show the independence of the courts, but also the very fact that property rights have started to be protected. Private property and its protection are the bases of a market economy and investment attraction. Foreign and local investors look at the level of shareholder protection in the state. They research judicial practice before entering a country. They will see that we have a court independent enough to declare the Central Bank’s decisions null and void, and to restore the rights of a minor shareholder,” says Hayk Hovhannisyan.
The reason for the Administrative Court’s decision, according to Hayk Hovhannisyan, is either that administrative pressure from on high wasn’t brought to bear, the court was able to maintain its independence and voice its position, if they were. He views both scenarios are positive.
“I was almost certain that the administrative pressures would continue, administrative levers would be applied, that the telephone law inherited from our pre-soviet and soviet life would continue to be used and we wouldn’t achieve justice. But to our surprise…We jumped for joy in the courtroom when it was announced that our demands were met,” he said.
How does this verdict benefit Armenia’s economy and banking system?
Hayk Hovhannisyan says this decision of the Administrative Court is not only their victory, but that of the minor shareholders of all Armenian banks. One of the main functions of the Central Bank is to prevent and ban discrimination between shareholders.
To the question on whether you consider possibility of co-operation with major shareholders if appeal has no result and the court decision enters into force, Hovhannisyan replied: “Why not? We have always been open for negotiations the outcome of which will promote the country’s rating, will not violate major shareholders’ interests, including the interests of European Bank of Reconstruction and Development that is currently among listed shareholders of the bank, and from the other hand will not give a rise to a negative precedent.”.
Hayk Hovhannisyan adds, if the Administrative Court’s decision survives at all instances, Ameriabank will be faced with huge expenses, the latter may supposedly demand a compensation from the state, because it had executed the transaction upon permission of a state controlling body, namely the Central Bank. The supposed outcome, as per the lawyer, will not have a favorable influence on the entire Armenian economic field, from the other side, the overthrowing of the Administrative Court’s decision will jeopardize minor shareholders of all banks, and such minors are not less important for the country’s economy.
“The Administrative Court’s decision is a sprout of our independence, one of its real achievements. We must cherish and develop it. In its talks with European partners our country always can say that we have such an independent court.
This is a very significant indicator and may even strengthen Armenia’s position in the World Bank's “Doing Business” rankings. If, via the application of administrative resources, our state bodies overturn this common victory, then it may affect our country’s rating negatively,” says Hayk Hovhannisyan.
Top photo (from left): Central Bank President Artur Javadyan, Ameribank Chairman of Management Board Artak Hanesyan