FBME Bank Liquidation Approved

30 June 2023 – FBME Bank Liquidation Approved

In July 2014, FBME Bank entered into special administration following allegations of wrongdoing. Restrictions were placed on incoming and outgoing payments. This was despite the fact that the resolution authority exceeded its authority by proposing the sale of the bank. Account holders of the branch in Cyprus were able to withdraw limited amounts daily from their Euro accounts until December 2015. At the end of 2015, the license of the Cyprus branch was revoked, and in April 2016, the Deposit Guarantee Scheme (DGS) was activated. A maximum of € 100.000 was repaid to eligible account holders under the DGS. In April 2018, the scheme was closed and followed by a request of the Central Bank of Cyprus to liquidate the branch under Application no. 123/2019.

The inexhaustible efforts of the shareholders to preserve their reputation and protect their property rights were at no avail and the District Court in Nicosia approved the liquidation of the Cyprus branch of FBME bank. Almost nine years after the US-based Financial Crimes Enforcement Network (FinCEN) designated FBME Bank as a Primary Institute of Money Laundering Concern, and the authorities in Cyprus and Tanzania subsequently placed the bank under special administration, there is light at the end of the tunnel for the 6.500 account holders of the bank. In his order of the 29th of June 2023 the judge confirmed:

  • The liquidation of the branch of FBME Bank in Cyprus;
  • The appointment of BDO Cyprus and Petros Ioannidis as the official liquidator of the branch.

The Liquidation Agreement

There is a conflict of laws between the legal frameworks in Tanzania and Cyprus. Therefore, the liquidation of the headquarters in Tanzania and the liquidation of the branch in Cyprus are subject to their respective national frameworks for winding up banks and financial institutions, and foreign companies.

As a result of jurisdiction-specific rules, difficulties arise in distributing assets between the headquarters and the branch. Once the secured and other preferential creditors have been fully repaid, the asset collections are allocated for further distribution to the general pool of unsecured creditors and account holders via the applicable requirements in Tanzania and Cyprus. For a claim to be repaid, a claim form must be filed with the liquidator within the statutory timeframe. The liquidator must then verify, confirm, and award the claim. It is important to note that the liquidator also has the right to reject a claim.

Rights and Protections for Account Holders

Creditors in bank liquidation must realize that, after the DGS payout, account holders essentially become unsecured creditors for any amount above the insured limit. In the hierarchy of creditors, unsecured creditors rank lower, meaning they are among the last to be paid out, after secured creditors and preferential creditors such as employees and tax authorities. While this position does not guarantee full recovery of the remaining funds, it assures that the depositor has a legal claim in the liquidation proceedings. However, recovery as an unsecured creditor is subject to the availability of funds after settling higher priority claims. The liquidator of the bank is responsible for reimbursing the bank creditors.

The liquidator,  an officially appointed representative, steps in to assume control of the operations and assets of the bank. As an agent of the company, liquidators owe their duties to the company rather than individual creditors. This means that bank management is replaced, shareholders are restricted in their voting rights and account holders and other creditors rely on their contractual arrangement with the bank.

The primary duty of the liquidator is to collate and convert the assets of the bank into liquidity to reimburse creditors. During the liquidation process, the rights of foreign account holders are carefully considered. While it is the responsibility of the liquidator to distribute the assets to all creditors based on the priority of claims, the liquidator also ensures that the rights and claims of all creditors are adequately assessed and validated. It is the duty of the liquidator to guarantee that all legal procedures are followed, that creditors are paid in accordance with the statutory hierarchy, and that the dissolution of the bank is carried out in a fair and transparent manner.

Claim Filing Procedures

To ensure that the correct amounts are paid to the correct creditors, the liquidator will ask claimants to submit a claim form and provide a repayment instruction. This claim form is completed by the creditor and supported by proof of debt and further claim evidence. A strict deadline is imposed for filing the claim form to ensure creditors are paid within a timely manner.

As claim forms are requested from creditors, the liquidator begins collecting and realizing the assets of the bank. Bank assets are primarily held under contractual agreements with third parties and other financial institutions abroad. Cross-border elements complicate the recovery process and may justify legal action. As a result, a large number of foreign asset holders make it unlikely that creditors will receive an immediate and full repayment during liquidation. They are often subject to several smaller payments over a longer period to fulfil their outstanding claim.

Claim and creditor verification results in eligibility or disqualification for repayment. The statutory scheme determines the creditor hierarchy where bank account holders are considered unsecured creditors. After secured creditors and charge holders are paid in full, they receive an equal distribution (pari passu) based on their position in the hierarchy.

Priority of Claims and the Creditor Hierarchy

When a bank fails and is liquidated, the priority of claims and creditor hierarchy determine the order in which creditors are paid. A secured creditor has specific assets pledged to them, such as (secured) bonds or a mortgage. Other preferential creditors include the deposit protection scheme, bank employees and the liquidator. Following this, unsecured creditors, such as depositors, general creditors, and subordinated debt holders, are next in line. It is usually equity holders or stockholders who are the last to be considered and they are typically the ones who recover the least, if anything at all.

Essentially, the purpose of this order is to ensure that a fair and equitable distribution of a bank’s remaining assets is achieved, prioritizing those assets with the highest risk of loss. Due to the risk they assume in lending against specific assets, secured creditors have the first claim. Alternatively, equity holders are considered to have accepted a higher level of risk in exchange for potentially higher returns, so they rank last.

In the matter of the FBME Bank liquidation the priority of claims is divided into three main categories:

  • Secured and preferential claims: employment contracts of FBME staff, creditors and depositors with special legal status, preferential creditors, liquidation expenses, and DGS prepayments.
  • Unsecured claims: account holders and subordinated investors in FBME investment products.
  • Shareholder rights: Shareholders, also known as equity holders, are residual claimants and stand last in the hierarchy of claims. After all other claims by secured and unsecured creditors have been satisfied, any remaining assets or funds are then distributed to shareholders.

It is imperative that to secure repayment, the debt is due and undisputed. As a result, the liquidator must carefully examine the claim forms submitted by creditors. The liquidator pays secured and preferential claims first and in full out of the first collections. The remaining estate of the bank forms a general pool of funds available for distribution to unsecured creditors and, if possible, eventually to shareholders.

Further Information

Your money matters. Don’t let administrative hurdles and bureaucracy negatively impact your claim filing process and repayment potential. A detailed and comprehensive introduction to bank liquidation can be found in this article.

As history has shown, FBME fund recovery options are limited and time sensitive. Bank checks were withdrawn from Euro accounts in Cyprus on a daily basis from 10.000 Euros per day in 2014, gradually lowered to only 200 Euros per day at the end of the scheme in 2015. Those creditors who did not request checks from their accounts (in time) or who were not eligible to do so, missed out on this opportunity. During the next significant repayment event in Cyprus, only 22% of account holders filed claims for deposit insurance. Consequently, the Deposit Guarantee Scheme paid out 83 million euros to 1.481 eligible account holders between 2016 and 2018.

The fact that such opportunities for repayment were missed by many account holders is regrettable. It also reveals that timeframes and procedures are critical to a successful recovery. To summarize, participation in the liquidation of the bank is probably your final chance to recover any of your money. This, once again, requires compliance with the legal requirements that will be disclosed by the liquidator in the near future.

During bank liquidation, time is of the essence, and with each passing day, your opportunity to start the claim filing process diminishes. Especially since meeting the administrative prerequisites can take a considerable amount of time for international creditors and their (offshore) companies. As a general rule, one must realize that claimants do not have a second chance in the broader scheme of bank resolution. So…

  • Are you unsure of where to begin?
  • Do you find the administrative processes to be a daunting task?
  • Do you feel that the bank or regulator has treated you unfairly?
  • Are there any other factors preventing you from progressing?

Rest assured, we are here to do the heavy lifting for you, taking on most of the work involved. Our Done-With-You Service Pack eases your burden. To learn more, you can contact us by:

  • Phone: 00357 25 057 544 or 001 646 513 2855
  • Email: [email protected]
  • Contact Form: complete the form below to arrange a private consultation.

Non-resident individuals, offshore companies and international corporations who struggle to navigate foreign regulations are the most benefited by our services. Since we are limited in the number of customers we can assist, we focus our efforts on this group of bank creditors. Therefore, if you are an international client of FBME Bank and wish to explore your recovery options, please do not hesitate to contact us.