CJEU: Increase in the share capital of a bank where there is a serious disturbance of the financial system of a Member State

9 Nov 2016 11:35 AM

EU law does not preclude an increase in the share capital of a bank without the agreement of the general meeting of the shareholders in a situation where there is a serious disturbance of the economy and the financial system of a Member State. 

The interests of shareholders and creditors cannot be held to prevail in all circumstances over the general interest of the stability of the financial system

The economic crisis faced by Ireland in 2008 had serious effects on the financial stability both of the Irish banks and of Ireland. In December 2010, Ireland and the Commission concluded an agreement with respect to an economic and financial adjustment programme. By an Implementing Decision of 7 December 2010, 1 the EU made available to Ireland financial assistance as consideration for which Ireland undertook to restructure and recapitalise the banking sector by 31 July 2011.

In accordance with those undertakings, Ireland took steps to recapitalise the national banks, including ILP, a credit institution operating in Ireland. The Irish Minister for Finance submitted to the shareholders of ILPGH (a company owning ILP’s entire share capital) a proposal designed to achieve the recapitalisation of ILP. That proposal was rejected by the general meeting of ILPGH on 20 July 2011.

In order to recapitalise ILP notwithstanding that refusal, the Minister obtained from the courts a Direction Order requiring ILPGH to issue, in return for a capital injection of €2.7 billion, new shares to the Minister. The Minister therefore obtained, without any decision having been made by the general meeting of shareholders of ILPGH, 99.2% of the shares of that company.

Members and shareholders of ILPGH then brought an application before the High Court, Ireland, for the setting aside of the Direction Order. In their opinion, the increase in share capital resulting from that order is incompatible with an EU directive,2 since it was effected without the approval of the general meeting of ILPGH.

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