3.8.2.2 Compatibility with the Second Company Law Directive

In the case of Permanent TSB, formerly known as Irish Life and Permanent Group, the Irish Minister for Finance submitted to the shareholders of the holding company of Permanent TSB (ILPGH) a proposal designed to facilitate the recapitalisation of Permanent TSB by means of, inter alia, a capital injection of EUR 2.7 billion. That proposal was rejected by the extraordinary general meeting of ILPGH held on 20 July 2011, which meeting mandated the directors of that company to examine other recapitalisation options. The Minister subsequently prepared a Proposed Direction Order, which he submitted to the High Court. The Direction Order was adopted by the High Court in the terms sought, directing ILPGH to issue, in return for the capital injection of EUR 2.7 billion, new shares to the Minister at a share price dictated by him, that is at a price 10% below the quoted share price of 23 June 2011. Consequently, the Minister obtained, without any decision having been made by the general meeting of shareholders of ILPGH 99.2% of the shares of that company. In addition, the delisting of the company on the Irish and London Stock Exchanges was ordered.

Members and shareholders of ILPGH started proceedings before the High Court of Ireland. They claimed that the increase in share capital resulting from the Direction Order was incompatible with Articles 8, 25 and 29 of the Second Company Law Directive, since it was effected without the approval of the general meeting of ILPGH. As regards the Direction Order, it was clear that the effect of that order was that shares in ILPGH were issued at a price lower than their nominal value and that the share capital of that company was increased, while the pre-emptive right to subscribe was denied, without the agreement of the general meeting of that company. In a judgment of 8 November 2016, following a request for a preliminary ruling, the ECJ assessed that the protection conferred by the Second Company Law Directive on the shareholders and creditors of a public limited liability company, with respect to its share capital, does not extend to a national measure of that kind that is adopted in a situation where there is a serious disturbance of the economy and financial system of a Member State and that is designed to overcome a systemic threat to the financial stability of the European Union, due to a capital shortfall in the company concerned. Although the ECJ recognised that there is a clear public interest in ensuring, throughout the European Union, a strong and consistent protection of shareholders and creditors, it assessed that such an interest cannot be held to prevail in all circumstances over the public interest in ensuring the stability of the financial system established by those amendments. The Second Company Law Directive must therefore be interpreted as not precluding a measure, such as the Direction Order, adopted in a situation where there is a serious disturbance of the economy and the financial system of a Member State threatening the financial stability of the European Union.4

Also, in the case of the restructuring of a number of Slovenian banks, the applicability of the Second Company Law Directive was discussed by the ECJ in a reference for a preliminary ruling. More particular, it concerned the provisions of the Second Company Law Directive that provide that any increase or reduction in the capital of a public limited liability company must be subject to a decision by the general meeting of the company. The ECJ considered that the Second Company Law Directive does not preclude measures relating to share capital being adopted, in certain specific circumstances, such as those mentioned in the 2013 Banking Communication, without the approval of the company general meeting. It also considered that the 2013 Banking Communication contains no specific provision on the legal procedures whereby the burden-sharing measures set out in points 40 to 46 of that communication are to be implemented. It is therefore up to the Member States whether they find it necessary, in a particular situation, to adopt burden-sharing measures without the agreement of the general meeting of the company.5