Nemea owners win access to shuttered bank’s records and IT systems

The Financial Services Tribunal has upheld a request by the directors of the shuttered Nemea Bank for access to the bank’s records, documentation and IT systems in order to prepare their case.

The online-only bank went into administration in 2016 when the European Central Bank instructed the MFSA to place the bank’s assets under controllership.

In one of several cases filed by Nemea Bank in the wake of this decision, its directors Heikki Niemelä and Mika Lehto, had filed an application before the Financial Services Tribunal in November 2019, asking for access to the bank’s documentation, including financial, accounting and regulatory records, as well as to the financial resources to pay for legal advice and representation.

Former prime minister Lawrence Gonzi was one of the banks’ board members.

Nemea had €68 million in assets, composed mainly of €30 million in loans and advances to customers and €22 million in loans and advances to banks when it was taken under control. According to the unaudited financial position in March 2016, the bank owed €61 million to customers.

Niemelä and Lehto asked the Tribunal to revoke and reverse decisions by the MFSA, which imposed the obligation to inject €3 million in fresh capital into the bank, as well as prohibiting the withdrawal of any deposits held with the bank by shareholders, board members and senior management and limiting customer withdrawals to €250 per day. In addition, a competent person was appointed to administer the bank.

The bank had filed an application asking for a stay of proceedings until its directors were granted access to the information, but this was subsequently rejected in October 2019.

The two remaining directors of the bank, who are also the ultimate beneficial owners, said they were being constrained to defend the interests of the bank “purely on the basis of the information which they had as individuals prior to the appointment of the competent person… without any access to information which is now not in their possession and having to rely on their own personal resources, including for the funding of appropriate on-going legal representation.”

The MFSA, however countered these arguments, claiming that the bank’s real intention “is to delay these proceedings and deviate them from the appellants’ original request…”

Upholding their request would effectively divest the competent person of all the powers and functions vested in him at law, argued the authority, adding that granting the directors access to the financial resources of the bank would continue to deplete the already limited resources available to pay out creditors.

The Tribunal, presided by chairman Pierre Lofaro together with members Joseph Azzopardi and Ivan Sammut, ruled that the crux of the matter is whether or not previous court decisions would be in effect “meaningless and toothless if the bank’s request is not acceded to.”

If impaired from submitting and effectively substantiating its arguments, the bank would be reduced to “little more than… a spectator” in the proceedings it filed. “If the Tribunal accepts the Authority’s stance in toto it would in effect suffocate the Bank and tie its hands, leaving it with very limited space within which to manoeuvre.”

The Tribunal said it would continue to monitor the parties’ behaviour in the proceedings to avoid vexatious delays, ruling that it could not envisage how upholding the bank’s request -limitedly to these proceedings – would suspend or divest the competent person of his legal functions.

Therefore, the Tribunal acceded to the bank’s request and ordered the authority to restore the effective representation of the bank – only in these proceedings – by its directors Niemelä and Lehto, including by allowing them access to the bank, its information, documentation, filed, IT systems as long these are relevant to the bank’s appeal.