Public funding of failing banks in the European Union (LBF vol. 19) 2020/4.9.2.2:4.9.2.2 Legal proceedings before the EU courts

Public funding of failing banks in the European Union (LBF vol. 19) 2020/4.9.2.2

4.9.2.2 Legal proceedings before the EU courts

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Proceedings may be brought before the EU Courts in accordance with Article 263 TFEU contesting a decision taken by the Appeal Panel or, where there is no right of appeal to the Appeal Panel, by the SRB.1

Decisions from the Commission (endorsing the resolution scheme adopted by the SRB) and the Council (to object to the resolution scheme) are also subject to judicial review under Article 263 TFEU, unless they would not qualify as a ‘reviewable act’.2

Decisions of the SRB that are not subject to review by the Appeal Panel include, inter alia, the decision to adopt a resolution scheme, the decision not to put a bank in resolution and the decision on compensation of shareholders and creditors in respect of which resolution actions have been effected.

In the case of Banco Popular, the SRB has decided on a preliminary basis that no compensation is required.3 In order for the SRB to be able to take its final decision on whether compensation needs to be granted, the SRB has invited the affected shareholders and creditors to express interest in exercising their right to be heard regarding the preliminary decision of the SRB. At the time of writing this dissertation, no final decision had yet been published.

As discussed in section 3.9.2, under Article 263 TFEU, there are four requirements for actions of annulment:

1.

The act must be reviewable.

2.

The challenge must be made within the specified time limit.

3.

The individual must have an interest in seeing the contested measure annulled.

4.

The individual must have locus standi.

At the time of writing this dissertation, the EU Courts had not yet decided in relation to actions against decisions of the SRB. It is therefore to be seen which decisions of the SRB will be regarded by the EU Courts as reviewable acts and which individuals will have an interest and locus standi.4

It can already be indicated that the SRB, being an EU agency, enjoys in principle a certain degree of discretion. Review by the EU Courts is then limited, according to settled case law, to verifying whether procedural rules and the duty to state reasons have been complied with, whether the facts have been accurately stated and whether there has been a manifest error of assessment or a misuse of powers.5

In addition, the resolution scheme adopted by the SRB is addressed to the national resolution authorities.6 The bank that is put in resolution, its shareholders, creditors and counterparties are therefore considered third parties. This means that they only have the possibility to challenge the resolution scheme, if they meet the requirements of Article 263(4) TFEU, that is to say, the decision is of direct and individual concern to them as further detailed in the Plaumann case.7 Schillig argues that a bank put in resolution meets the requirements of Article 263(4) TFEU in relation to a resolution scheme adopted by the SRB, since this refers to this particular bank and determines the resolution tools to be applied to this bank.8 In addition, it could be argued that these requirements are also met in relation to shareholders, creditors or counterparties of this bank, when they are directly affected by the application of a resolution tool.9

Legal proceedings brought by banks

Actions have been brought by banks before the EU Courts against the SRB, mainly in relation to the payment of ex ante contributions to the SRF.10 In addition, ABLV Bank brought an action against the decision of the SRB to not adopt resolution measures.11

Legal proceedings brought by shareholders, creditors or counter parties

The decision of the SRB as a result of which Banco Popular has been taken over by Santander for EUR 1, after equity and subordinated debt was written down and converted, as well as the Commission decision endorsing this decision have been the reason for numerous actions brought before the EU Courts. Arguments used in the cases range from that the bank was not failing or likely to fail and other private sector measures could have averted the need for resolution to infringement of right to property and the right to an effective legal remedy. In most cases the applicants request annulment of the relevant decisions. In several cases, there is an additional request for compensation of damages. Finally, a number of applicants request the annulment of provisions of the SRMR.12

In addition to reviewing the legality of and annulling decisions adopted by the SRB, the EU Courts also have jurisdiction to:

(i)

review an action brought against the SRB for failure to act, in accordance with Article 265 TFEU by Member States, EU institutions, as well as any natural or legal person;

(ii)

give preliminary rulings on request of national judicial authorities on the validity and interpretation of acts of the SRB in accordance with Article 267 TFEU; and

(iii)

determine the non-contractual liability of the SRB in accordance with Article 268 TFEU.

Request for preliminary ruling

The Italian Tribunale Amministrativo Regionale per il Lazio requested a preliminary ruling in the case of Iccrea Banca versus the Banca d’Italia in respect of the contributions that banks are required to pay to the SRF and the national resolution funds. This case has been discussed in section 4.9.1.4.

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