Warka suitor a better bet than AsiaCell suit

A posting on the ISX website last week has revealed new details about a suit filed against Warka Bank by AsiaCell. Apparently the mobile phone operator has been unable to withdraw IQD 29.3 billion in deposits and is suing for the return of these funds under the bankruptcy provisions of the Commercial Code. (English and Arabic versions of the announcement are available at http://www.iraq-businessnews.com/2011/04/05/asiacell-to-bankrupt-warka-bank/.)

It’s not clear if Warka has any legitimate grounds for refusing AsiaCell’s withdrawal request but it’s easy to see that it might have trouble coming up with the necessary cash. The bank’s last balance sheet, for the end of 3Q 2010, showed total cash assets of only IQD 66.8 bn, down from IQD 141.1 bn at the end of 2009 and IQD 503.2 bn for 3Q 2009. And while the bank also had IQD 554.5 bn in short-term loans on its book, it’s unclear how easy these would be to liquidate.

On the other hand, however, there is no guarantee that AsiaCell’s suit will be successful. Warka has appealed the case on the grounds that failure to return deposits is not grounds for bankruptcy because they don’t count as debt for purposes of the Commercial Code. It’s hard to say what the higher court will make of this argument but it seems reasonable in principle.

In fact, it’s hard to see why the Commercial Code, rather than the Banking Law, is applicable in this case. According to Article 72 of the latter, “petitions for opening bankruptcy proceedings against a bank shall be submitted in writing to the Financial Services Tribunal.” In the event that a bank is declared bankrupt, the Tribunal is supposed to appoint a receiver to carry out a liquidation under the central bank’s supervision.

Perhaps herein lies the rub. It seems unlikely that the CBI has the administrative capacity to oversee such a process. The central bank would doubtless prefer to postpone taking action in the hopes that a foreign financial institution can be found to take up the remaining shares from Warka’s unsuccessful rights issue. This would not only provide the cash needed to pay off depositors like AsiaCell but also restore confidence in the bank, thereby reducing the demand for withdrawals.

While rumors about potential acquirers have been around for more than a year, nothing has been made public about any negotiations so far. In the absence of an effective legal remedy, however, such a takeover may be AsiaCell’s best chance of getting its money back.

6 Responses to Warka suitor a better bet than AsiaCell suit

  1. junior April 18, 2011 at 9:47 am #

    is there any truth that they are going to rv the dinars any time soon ????

  2. Stew April 18, 2011 at 1:24 pm #

    Was there any truth to the other 300 times these same people have claimed the same thing.

  3. Geo. October 14, 2012 at 9:44 pm #

    When will we find out about the inspection of Warka bank books,been waiting for a long time now and being a share holder i am very interested.

  4. Geo. October 14, 2012 at 9:44 pm #

    When will we find out about the inspection of Warka bank books,been waiting for a long time now and being a share holder i am very interested.

  5. Geo. October 14, 2012 at 9:45 pm #

    When will we find out about the inspection of Warka bank books,been waiting for a long time now and being a share holder i am very interested.

  6. DeWeaver November 20, 2012 at 1:39 pm #

    Hi George:

    At the beginning of October the ISX posted a letter from the Securities Commission (ISC) to the central bank (CBI) on this issue and the CBI’s reply. The ISC had the same question you’re asking but the CBI didn’t really answer it. They simply said that the committee had begun its work in March, would serve for an 18 month term, and that this term could be extended.

    This is the last real news I have seen on this subject. Apparently even the ISC can’t get a straight answer.

    Mark