CELEX: 62019CJ0934
Appeal
Economic and monetary union
Banking union
Recovery and resolution of credit institutions and investment firms
Single resolution mechanism for credit institutions and certain investment firms (SRM)
Single Resolution Board (SRB)
Resolution procedure applicable where an entity is failing or is likely to fail
Adoption of a resolution scheme in respect of Banco Popular Español SA
Sale of business tool
Write-down and conversion of capital instruments
Regulation (EU) No 806/2014
Article 20
Concept of ‘definitive valuation’
Consequences
Refusal or failure to proceed with an ex post definitive valuation
Remedies
Action for annulment

By their appeal, Algebris (UK) Ltd and Anchorage Capital Group LLC ask the Court of Justice to set aside the order of the General Court of the European Union of 10 October 2019,
Algebris (UK) and Anchorage Capital Group
v
SRB
(T‑2/19, not published, ‘the order under appeal’,
EU:T:2019:741
), by which the General Court dismissed as inadmissible their action for annulment of the alleged refusal of the Single Resolution Board (‘the SRB’ or ‘the Board’) to carry out an
ex post
definitive valuation of Banco Popular Español SA (‘Banco Popular’), of which they were allegedly informed by letter of 18 December 2018.
Legal context
Recital 64 of Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No 1093/2010 (
OJ 2014 L 225, p. 1
) states:
‘It is important that losses be recognised upon failure of the entity. The valuation of assets and liabilities of failing entities should be based on fair, prudent and realistic assumptions at the moment when the resolution tools are applied. The value of liabilities should not, however, be affected in the valuation by the entity’s financial state. It should be possible, for reasons of urgency, that the Board makes a rapid valuation of the assets or the liabilities of a failing entity. That valuation should be provisional and should apply until an independent valuation is carried out.’
Article 20 of Regulation No 806/2014, headed ‘Valuation for the purposes of resolution’, provides:
‘1.   Before deciding on resolution action or the exercise of the power to write down or convert relevant capital instruments, the Board shall ensure that a fair, prudent and realistic valuation of the assets and liabilities of an entity referred to in Article 2 is carried out by a person independent from any public authority, including the Board and the national resolution authority, and from the entity concerned.
2.   Subject to paragraph 15, where all of the requirements laid down in paragraphs 1 and 4 to 9 are met, the valuation shall be considered to be definitive.
3.   Where an independent valuation in accordance with paragraph 1 is not possible, the Board may carry out a provisional valuation of the assets and liabilities of the entity referred to in Article 2, in accordance with paragraph 10 of this Article.
4.   The objective of the valuation shall be to assess the value of the assets and liabilities of an entity referred to in Article 2 that meets the conditions for resolution of Articles 16 and 18.
5.   The purposes of the valuation shall be:
(a)
to inform the determination of whether the conditions for resolution or the conditions for the write-down or conversion of capital instruments are met;
(b)
if the conditions for resolution are met, to inform the decision on the appropriate resolution action to be taken in respect of an entity referred to in Article 2;
(c)
when the power to write down or convert relevant capital instruments is applied, to inform the decision on the extent of the cancellation or dilution of instruments of ownership, and the extent of the write-down or conversion of relevant capital instruments;
…
(g)
in all cases, to ensure that any losses on the assets of an entity referred to in Article 2 are fully recognised at the moment the resolution tools are applied or the power to write down or convert relevant capital instruments is exercised.
6.   Without prejudice to the [European] Union State aid framework, where applicable, the valuation shall be based on prudent assumptions, including as to rates of default and severity of losses. The valuation shall not assume any potential future provision of any extraordinary public financial support, any central bank emergency liquidity assistance, or any central bank liquidity assistance provided under non-standard collateralisation, tenor and interest rate terms to an entity referred to in Article 2 from the point at which resolution action is taken or the power to write down or convert relevant capital instruments is exercised. …
…
7.   The valuation shall be supplemented by the following information as appearing in the accounting books and records of an entity referred to in Article 2:
(a)
an updated balance sheet and a report on the financial position of an entity referred to in Article 2;
(b)
an analysis and an estimate of the accounting value of the assets;
(c)
the list of outstanding on-balance-sheet and off-balance-sheet liabilities shown in the books and records of an entity referred to in Article 2, with an indication of the respective credits and priority of claims referred to in Article 17.
…
9.   The valuation shall indicate the subdivision of the creditors in classes in accordance with the priority of claims referred to in Article 17 and an estimate of the treatment that each class of shareholders and creditors would have been expected to receive, if an entity referred to in Article 2 were wound up under normal insolvency proceedings. That estimate shall not affect the application of the “no creditor worse off” principle referred to in Article 15(1)(g).
10.   Where, due to urgency in the circumstances of the case, either it is not possible to comply with the requirements laid down in paragraphs 7 and 9, or paragraph 3 applies, a provisional valuation shall be carried out. The provisional valuation shall comply with the requirements laid down in paragraph 4 and, in so far as reasonably practicable in the circumstances, with the requirements laid down in paragraphs 1, 7 and 9.
The provisional valuation referred to in the first subparagraph shall include a buffer for additional losses, with appropriate justification.
11.   A valuation that does not comply with all of the requirements laid down in paragraphs 1 and 4 to 9 shall be considered to be provisional until an independent person as referred to in paragraph 1 has carried out a valuation that is fully compliant with all of the requirements laid down in those paragraphs. That
ex post
definitive valuation shall be carried out as soon as practicable. It may be carried out either separately from the valuation referred to in paragraphs 16, 17 and 18, or simultaneously with and by the same independent person as that valuation, but shall be distinct from it.
The purposes of the
ex post
definitive valuation shall be:
(a)
to ensure that any losses on the assets of an entity referred to in Article 2 are fully recognised in the books of accounts of that entity;
(b)
to inform the decision to write back creditors’ claims or to increase the value of the consideration paid, in accordance with paragraph 12 of this Article.
12.   In the event that the
ex post
definitive valuation’s estimate of the net asset value of an entity referred to in Article 2 is higher than the provisional valuation’s estimate of the net asset value of that entity, the Board may request the national resolution authority to:
(a)
exercise its power to increase the value of the claims of creditors or owners of relevant capital instruments which have been written down under the bail-in tool;
(b)
instruct a bridge institution or asset management vehicle to make a further payment of consideration in respect of the assets, rights or liabilities to an institution under resolution, or as the case may be, in respect of the instruments of ownership to the owners of those instruments of ownership.
13.   Notwithstanding paragraph 1, a provisional valuation conducted in accordance with paragraphs 10 and 11 shall be a valid basis for the Board to decide on resolution actions, including instructing national resolution authorities to take control of a failing institution or on the exercise of the write-down or conversion power of relevant capital instruments.
14.   The Board shall establish and maintain arrangements to ensure that the assessment for the application of the bail-in tool in accordance with Article 27 and the valuation referred to in paragraphs 1 to 15 of this Article are based on information about the assets and liabilities of the institution under resolution that is as up to date and complete as is reasonably possible.
15.   The valuation shall be an integral part of the decision on the application of a resolution tool or on the exercise of a resolution power or the decision on the exercise of the write-down or conversion power of capital instruments. The valuation itself shall not be subject to a separate right of appeal but may be subject to an appeal together with the decision of the Board.
16.   For the purposes of assessing whether shareholders and creditors would have received better treatment if the institution under resolution had entered into normal insolvency proceedings, the Board shall ensure that a valuation is carried out by an independent person as referred to in paragraph 1 as soon as possible after the resolution action or actions have been effected. That valuation shall be distinct from the valuation carried out under paragraphs 1 to 15.
17.   The valuation referred to in paragraph 16 shall determine:
(a)
the treatment that shareholders and creditors, or the relevant deposit guarantee schemes, would have received if an institution under resolution with respect to which the resolution action or actions have been effected, had entered normal insolvency proceedings at the time when the decision on the resolution action was taken;
(b)
the actual treatment that shareholders and creditors have received in the resolution of an institution under resolution; and
(c)
whether there is any difference between the treatment referred to in point (a) of this paragraph and the treatment referred to in point (b) of this paragraph.
…’
Background to the dispute
The background to the dispute was set out in paragraphs 1 to 20 of the order under appeal and, for the purposes of the present proceedings, may be summarised as follows.
The appellants, Algebris (UK) and Anchorage Capital Group, are investment fund managers that held various types of capital instruments of Banco Popular when a resolution scheme was adopted in its regard on the basis of Regulation No 806/2014.
For the purpose of adopting a resolution decision, Banco Popular was valued pursuant to Article 20 of Regulation No 806/2014. To that end, two reports were drawn up initially.
The first report (‘the first valuation report’), dated 5 June 2017, was compiled by the SRB, on the basis of Article 20(5)(a) of Regulation No 806/2014, and was intended to inform the determination of whether the conditions for resolution, as defined in Article 18(1) of the regulation, were met.
The second report (‘the second valuation report’), dated 6 June 2017, was compiled by an independent expert, pursuant to Article 20(10) of the regulation. The purpose of that valuation was to assess the value of Banco Popular’s assets and liabilities, to provide an evaluation of the treatment that shareholders and creditors would have received if Banco Popular had entered into normal insolvency proceedings, and to inform the decision to be taken on the shares and instruments of ownership to be transferred and the SRB’s understanding of what constituted commercial terms for the purposes of the sale of business tool.
On 7 June 2017, the SRB adopted Decision SRB/EES/2017/08, concerning a resolution scheme in respect of Banco Popular (‘the resolution decision’). On the same day, the European Commission adopted Decision (EU) 2017/1246 endorsing the resolution scheme for Banco Popular Español S.A. (
OJ 2017 L 178, p. 15
). Also on the same day, the Fondo de Reestructuración Ordenada Bancaria (Fund for Orderly Bank Restructuring; ‘the FROB’) adopted the measures necessary to implement the resolution decision.
Article 5(1) of the resolution decision states:
‘The resolution tool to be applied to [Banco Popular] shall consist in the sale of business pursuant to Article 24 of [Regulation No 806/2014] for transferring shares to a purchaser. The write-down and conversion of capital instruments will be exercised immediately before the application of the sale of business tool.’
In Article 6 of the resolution decision, which relates to the write-down of capital instruments and the sale of business tool, paragraph 1 states that the SRB decided, in essence:
(a)
to write down the nominal amount of Banco Popular’s share capital in an amount of EUR 2098429046, which would result in the cancellation of 100% of Banco Popular’s share capital;
(b)
to convert all the principal amount of Additional Tier 1 instruments issued by Banco Popular and outstanding as at the date of the resolution decision into newly issued shares of Banco Popular, called ‘New Shares I’;
(c)
to write down to zero the nominal amount of the ‘New Shares I’, which would result in the cancellation of 100% of those shares;
(d)
to convert all the principal amount of Tier 2 instruments issued by Banco Popular and outstanding as at the date of the resolution decision into newly issued shares of Banco Popular, called ‘New Shares II’.
According to Article 6(3) of the resolution decision, those write-down and conversion measures were based on the second valuation report, corroborated by the results of an open and transparent marketing process conducted by the FROB.
In Article 6(5) of the resolution decision, the SRB also ordered that the ‘New Shares II’ were to be transferred to Banco Santander SA, free and clear of any rights or liens of any third party, in consideration for payment of the purchase price of EUR 1, and stated that the purchaser had already consented to the transfer.
On 17 August 2017, the appellants brought an action before the General Court, registered as Case T‑570/17, for annulment of the resolution decision. On the same day, they also brought an action, registered as Case T‑575/17, for annulment of Decision 2017/1246.
On 14 June 2018, the SRB received the independent expert’s final valuation report, provided for in Article 20(16) and (17) of Regulation No 806/2014 and intended to determine whether the shareholders and creditors affected by the resolution scheme in respect of Banco Popular would have received better treatment if the institution had entered into normal insolvency proceedings (‘the third valuation report’).
On 2 August 2018, the SRB sent the independent expert a letter that was worded as follows:
‘After careful assessment of the legal framework, the SRB considers that, in light of the circumstances of the resolution of [Banco Popular], it is not necessary for an
ex post
definitive [v]aluation … as referred to in Article 20(11) of [Regulation No 806/2014] to be prepared, in particular, since carrying out such valuation could not have an impact on the concluded sale of [Banco Popular] to Banco Santander that determined the market price of [Banco Popular] as an entity in an open, fair and transparent process.’
On 7 August 2018, the SRB published an announcement with regard to its ‘Notice … of 2 August 2018 regarding its preliminary decision on whether compensation need[ed] to be granted to the shareholders and creditors in respect of which the resolution actions concerning Banco Popular … ha[d] been effected and the launching of the right to be heard process (SRB/EES/2018/132)’ (
OJ 2018 C 277
I, p. 1), that notice being accompanied by the third valuation report. In the announcement it stated:
‘It follows from the [third valuation report] that there is no difference between the actual treatment of the Affected Shareholders and Creditors and the treatment that they would have received had the Institution been subject to normal insolvency proceedings at the date of resolution. In view of the above, the SRB, in the Notice, decides on a preliminary basis that it is not required to pay compensation to the Affected Shareholders and Creditors …
In order for the SRB to be able to take its final decision on whether compensation needs to be granted, the SRB invites by the Notice the Affected Shareholders and Creditors to express interest in exercising their right to be heard regarding the above preliminary decision of the SRB, by following the consultation procedure …’
On 28 September 2018, following a merger by acquisition, Banco Santander became the universal successor of Banco Popular. In that context, the FROB consented to the transfer to Banco Santander of the new shares in Banco Popular resulting from the conversion of the Tier 2 instruments.
By letter of 3 October 2018 sent to the SRB, the appellants stated that the first and second valuation reports were provisional and pointed out that, according to Article 20(11) of Regulation No 806/2014, ‘an
ex post
definitive valuation shall be carried out as soon as practicable’. They noted that the SRB had not announced when the definitive versions of those reports would be available and that they had learned through the Spanish press of a letter that the SRB had sent to the General Court stating that there would be no
ex post
definitive valuation of Banco Popular. They asked the SRB, first, to confirm that information, secondly, to publish or send them a copy of that letter and, thirdly, to indicate the reasons for the decision not to proceed with an
ex post
definitive valuation.
On 16 October 2018, the SRB published on its website the letter of 2 August 2018 referred to in paragraph 16 of the present judgment.
By letter of 25 October 2018, the SRB replied to the appellants’ letter of 3 October 2018. First, it stated that it was not in a position to comment on, publish or disclose information contained in a document that had been submitted to the General Court in the context of pending proceedings. Secondly, with regard to the appellants’ request to be provided with the SRB’s reasons for deciding not to proceed with an
ex post
definitive valuation, the SRB informed the appellants of the publication on its website of the letter of 2 August 2018 to the independent expert.
By letter of 16 November 2018 to the SRB, the appellants pointed out the content of their letter of 3 October 2018. They also challenged the content of the reply provided to them by the SRB on 25 October 2018, in particular both in so far as the SRB relied on the existence of pending proceedings in order to refuse to disclose the letter sent to the General Court or its content, in breach of the obligation to state reasons, and the fact that the SRB referred to the content of the letter of 2 August 2018. The appellants stated that, although the SRB had refused to confirm or deny expressly whether it had decided not to prepare
ex post
definitive versions of the first and second valuation reports, they regarded that letter of 2 August as further confirmation of the fact that the SRB had decided not to do so. They added that, if that was the case, it was a violation of Article 20(11) of Regulation No 806/2014. The appellants also stated that that letter could not be regarded as having been ‘published’ on the SRB website, since they could have had access to it only by using the search term ‘Deloitte’. They came to the conclusion that that letter did not satisfy the obligation to state reasons. The appellants therefore requested the SRB to confirm expressly whether it had adopted a decision not to prepare
ex post
definitive versions of those valuations reports and, if that was the case, to disclose a copy of that decision to them.
By letter dated 18 December 2018, the SRB replied to the appellants’ letter of 16 November 2018. It referred to their requests of 3 October 2018 and the reply contained in its letter of 25 October 2018. It noted that, in their letter of 16 November 2018, the appellants repeated their request that it confirm whether it had adopted a decision not to prepare
ex post
definitive versions of the first and second valuation reports. The SRB stated that its letter of 25 October 2018 clearly set out its position in that respect and that it referred to the letter addressed to the independent expert in which the reasons for its decision not to proceed with an
ex post
definitive valuation were explained.
The SRB stated that, by its letter of 25 October 2018, it had complied with its obligation to state reasons under Article 296 TFEU since it referred to the letter addressed to that expert, which itself contained the reasons for its decision not to proceed with an
ex post
definitive valuation. It noted that the appellants might disagree with those reasons, but that did not mean that its letter failed to state such reasons. Finally, it disputed the appellants’ allegations that the letter to the independent expert was not published on its website.
The proceedings before the General Court and the order under appeal
By application lodged at the Registry of the General Court on 4 January 2019, the appellants brought an action for annulment of the ‘decision of the SRB, notified by the first letter of 18 December 2018, not to proceed with an
ex post
definitive valuation of Banco Popular’.
By the order under appeal, the General Court dismissed the action as inadmissible on the ground that the appellants did not have standing to bring proceedings: the SRB’s decision not to proceed with an
ex post
definitive valuation of Banco Popular was not of direct concern to them, since that decision did not produce legal effects capable of affecting their legal situation.
To that end, the General Court found, first of all, that, in the light of the plea of inadmissibility put forward by the SRB alleging that the appellants lacked standing to bring proceedings, it was necessary to begin by examining whether the appellants’ legal situation was affected by the decision not to proceed with an
ex post
definitive valuation of Banco Popular and by the possibility of compensation resulting from that decision.
After setting out the wording of Article 20(11) and (12) of Regulation No 806/2014, the General Court observed that the
ex post
definitive valuation had two objectives. It stated that the appellants did not submit that the first objective, referred to in Article 20(11)(a) of Regulation No 806/2014 and intended to ensure that any losses on the assets of an entity referred to in Article 2 of that regulation are fully recognised in the books of accounts of that entity, applied in the circumstances of the case.
It explained that, in accordance with the resolution decision, following the exercise of the power to write down and convert Banco Popular’s capital instruments, all Banco Popular’s shares had been transferred to Banco Santander pursuant to the sale of business tool. It deduced therefrom that it was for Banco Santander to ensure that any losses incurred were reflected in the accounts when consolidating Banco Popular’s assets and liabilities.
As regards the second objective, referred to in Article 20(11)(b) of Regulation No 806/2014 and consisting in informing the decision to write back creditors’ claims or to increase the value of the consideration paid, the General Court pointed out that that provision had to be read in the light of Article 20(12) of the regulation, according to which, if, following the
ex post
definitive valuation, the estimate resulting from that valuation is higher than the estimate resulting from the provisional valuation, the SRB may request the national resolution authority either to increase the value of the claims of creditors or owners of relevant capital instruments which have been written down under the bail-in tool or to instruct a bridge institution or asset management vehicle to make a further payment of consideration to an institution under resolution.
While the latter provision expressly refers to the situations in which compensation, by an increase in the value of the claims or the payment of additional consideration, may be granted following an
ex post
definitive valuation, that is to say, only where the resolution scheme applied to the entity is either the bail-in tool provided for in Article 27 of Regulation No 806/2014, the bridge institution tool referred to in Article 25 of that regulation or the asset separation tool under Article 26 of that regulation, the General Court observed that those resolution tools had not been applied in the circumstances of this case since the resolution tool adopted in respect of Banco Popular was the sale of business tool, under Article 24 of Regulation No 806/2014, and that the application of that tool had led to the sale of the entirety of Banco Popular to Banco Santander.
The General Court therefore found that the sale of business tool applied to Banco Popular was not one of the situations referred to in Article 20(12) of Regulation No 806/2014 in which compensation could be paid following an
ex post
definitive valuation and, in addition, that that provision did not allow compensation for former shareholders and creditors of an entity whose capital instruments had been fully converted, written down and transferred to a third party.
The General Court then rejected the appellants’ argument that the absence of an
ex post
definitive valuation was capable of affecting the situation of the funds they represent because the consequence of its absence was that there was no consideration of the write-back of the value of their Additional Tier 1 and Tier 2 instruments and/or an increase in the consideration paid by Banco Santander.
It took the view that, by that argument, the appellants were submitting in essence that, if an
ex post
definitive valuation of Banco Popular were carried out, they could claim a write-back of their claims or an increase in the value of the consideration paid by Banco Santander and stated that such an argument could not succeed since, in the resolution of Banco Popular, the Additional Tier 1 instruments had been converted into shares, fully written down and cancelled and the Tier 2 instruments had been converted, written down and fully transferred to Banco Santander. It concluded from this that Banco Popular’s previous shareholders had lost their status as shareholders as a result of the adoption of the resolution decision.
The General Court therefore held that, following the exercise of the power to write down and convert Banco Popular’s capital instruments and the subsequent transfer of all the shares resulting from that exercise to Banco Santander, the appellants no longer held capital instruments that could be the subject of compensation on the basis of Article 20(12) of Regulation No 806/2014, and that the appellants therefore could not claim that the SRB’s decision not to proceed with an
ex post
definitive valuation of Banco Popular was of direct concern to them since they could not obtain any compensation on the basis of that provision. It drew the conclusion that the SRB’s decision not to proceed with an
ex post
definitive valuation of Banco Popular did not produce any binding legal effects capable of affecting the appellants’ legal situation.
For the purpose of rejecting the appellants’ arguments, the General Court stated that a distinction had to be made between the third valuation report, provided for in Article 20(16) of Regulation No 806/2014, and the
ex post
definitive valuation, referred to in Article 20(11) of that regulation, since the objective of the third valuation report was to determine whether shareholders and creditors would have received better treatment if the institution under resolution had entered into normal insolvency proceedings and, possibly, to grant them compensation. The General Court held that, whilst the appellants would potentially be entitled to compensation on the basis of the third valuation report, they could not claim compensation by reason of the
ex post
definitive valuation.
The General Court therefore held that the SRB’s decision not to proceed with an
ex post
definitive valuation of Banco Popular was not of direct concern to the appellants, since that decision did not produce legal effects capable of affecting their legal situation.
Forms of order sought
The appellants claim that the Court should:
–
set aside the operative part of the order under appeal;
–
order the SRB to pay the costs, including the appellants’ costs at first instance; and
–
order that they have standing to bring proceedings at first instance.
The SRB contends that the Court should:
–
dismiss the appeal as inadmissible and, in any event, unfounded;
–
in the alternative, refer the case back to the General Court;
–
in the further alternative, if the Court of Justice gives final judgment, dismiss the action at first instance; and
–
order the appellants to bear the costs of the present proceedings and of the proceedings before the General Court or, in the alternative, reserve the costs of the appeal.
The appeal
The appellants put forward two grounds in support of their appeal. By the first ground of appeal, they submit that the General Court committed an error of law, by failing to take into consideration the implications of the first two sentences of Article 20(11) of Regulation No 806/2014, and an infringement of the right to property. By the second ground of appeal, they contend that the General Court misinterpreted Article 20(12)(a) of that regulation and infringed the principle of non-discrimination.
Admissibility of the appeal
In the SRB’s submission, the appeal is inadmissible under Article 170(1) of the Rules of Procedure of the Court of Justice, in that it is founded on new pleas in law. The SRB also expresses doubts as to the appellants’ ability to act on behalf of the funds that they claim to represent.
Those arguments cannot succeed.
First, it should be recalled that it is apparent from Article 58 of the Statute of the Court of Justice of the European Union that the grounds of appeal must be based on arguments made in the proceedings before the General Court. Moreover, according to Article 170(1) of the Rules of Procedure, the subject matter of the proceedings before the General Court may not be changed in the appeal. Thus, the jurisdiction of the Court of Justice in an appeal is confined to a review of the findings of law on the pleas and arguments debated before the General Court (order of 21 July 2020, Abaco Energy and Others v Commission,
C‑436/19 P
, not published,
EU:C:2020:606
, paragraph
and the case-law cited).
Contrary to the SRB’s assertions, the appellants, by their two grounds of appeal, contest the General Court’s interpretation or application of EU law in that they consider that an
ex post
definitive valuation was mandatory and that the SRB’s refusal to proceed with such a valuation produced legal effects changing their respective legal situations as fund managers holding bonds issued by Banco Popular.
The question of the alleged infringement of the right to property and that of the alleged failure to observe the principle of equal treatment are only corollaries of the criticism of the General Court’s interpretation and, therefore, of those two grounds of appeal. Accordingly, those grounds of appeal are not new pleas in law (see, to that effect, judgment of 28 July 2016, Tomana and Others v Council and Commission,
C‑330/15 P
, not published,
EU:C:2016:601
, paragraph
).
Secondly, the SRB’s raising of the question whether the appellants are acting legitimately on behalf of the funds is not coupled with concrete particulars capable of casting doubt on the capacity asserted by the appellants.
The appeal is therefore admissible.
The grounds of appeal
The two grounds of appeal should be examined together in so far as the appellants submit that the General Court committed an error of law by failing to take into consideration the implications of the first two sentences of Article 20(11) of Regulation No 806/2014 and misinterpreted Article 20(12)(a) of that regulation. Indeed, in the order under appeal, the General Court correctly considered that those provisions were closely linked. The question of the alleged infringement of Article 17 of the Charter of Fundamental Rights of the European Union and of the principle of equal treatment should then be dealt with if appropriate.
Arguments of the parties
In the first ground of appeal, the appellants state that the General Court committed an error of law by failing to consider the important implications of Article 20(11) of Regulation No 806/2014. Although the General Court set out that provision in full, it made no further mention of its first two sentences and considered exclusively the meaning of subparagraphs (a) and (b) thereof. The first two sentences state in clear and express terms that any provisional valuation must be followed by an
ex post
definitive valuation ‘as soon as practicable’. That is an absolute legal requirement, which is not conditional on the finding of particular circumstances, such as the use of particular resolution tools, or on the purposes referred to in subparagraphs (a) and (b). Thus, the plain meaning of Article 20(11) is that an
ex post
definitive valuation is required in all circumstances in which the SRB has relied on a provisional valuation due to urgency.
That mandatory obligation is logical given the important exceptions that are provided for in the context of provisional valuation reports and the draconian and very wide expropriation powers conferred upon the SRB by Regulation No 806/2014. Under Article 20(10) of that regulation, the SRB thus need not comply with the requirements laid down in Article 20(7) and (9) thereof in cases of urgency and needs to comply with the requirements of Article 20(1), which lays down the obligation to have a fair, prudent and realistic valuation carried out by a person independent of any public authority, only in so far as reasonably practicable in the circumstances.
Article 20(7) of Regulation No 806/2014 is also very important as regards valuations because it lays down the requirement that the valuation must be supplemented by an updated balance sheet and a report on the financial position of the entity concerned, by an analysis and an estimate of the accounting value of its assets, and by the list of outstanding on-balance-sheet and off-balance-sheet liabilities shown in the books and records of that entity, with an indication of the respective credits and priority of claims. Moreover, as a provisional valuation is required to include a buffer for additional losses, in accordance with the second subparagraph of Article 20(10) of Regulation No 806/2014, a provisional valuation will differ from, and probably be lower than, a definitive valuation in any event.
In the second valuation report, the independent expert itself requested the SRB to be wary in respect of its use, while indicating clearly its deficiencies, given that it had been prepared in only two weeks, instead of the six weeks originally agreed, without access to certain critical information and without the ability to discuss the report’s conclusions with management, auditors, supervisors and others familiar with Banco Popular.
The conditions laid down in Article 20(1) to (9) of Regulation No 806/2014 have been imposed on the SRB in order for it to ensure that the valuations carried out are sufficiently robust and that the right to property is respected. That is why derogations from compliance with those conditions are permitted only in cases of urgency. If the valuation reports are not followed as soon as practicable by an
ex post
definitive valuation, they remain provisional and make a mockery of those conditions, in particular the condition requiring a fair, prudent and realistic valuation to be carried out by an independent person.
The General Court’s reasoning, consisting in approaching Article 20(11) of Regulation No 806/2014 as if it had to be interpreted by reference to subparagraphs (a) and (b) thereof and Article 20(12) of the regulation, affects not only the issue of when compensation should be granted but also the question of when an
ex post
definitive valuation is required.
In essence, the General Court infers therefrom that expropriated parties like the appellants have standing to challenge the failure to undertake an
ex post
definitive valuation only where they can obtain compensation under Article 20(11)(b) of Regulation No 806/2014 and that compensation is due under that provision only where the resolution scheme applied consisted in having recourse to the bail-in tool under Article 27 of the regulation, the bridge institution tool under Article 25 of the regulation or the asset separation tool under Article 26 of the regulation.
This would mean that the shareholders and creditors have no standing to bring proceedings and, in circumstances such as those here, it is difficult to conceive of any party other than expropriated shareholders and creditors who would have standing to challenge the failure to carry out an
ex post
definitive valuation. The General Court’s interpretation thus permits the SRB to rely on the first and second valuation reports, which are provisional, deeply flawed and highly unreliable.
The appellants also dispute reasoning that consists in stating that expropriated creditors can be compensated by means of an action for annulment or damages against the erroneous resolution decision brought on the basis of the fact that the first and second valuation reports are flawed. The EU legislature has laid down a safety mechanism in that regard, namely the obligation to carry out an
ex post
definitive valuation under Article 20(11) of Regulation No 806/2014, which is more suited to determining the amount of compensation due in these circumstances because the independent valuer will have access to all relevant underlying data, which will probably not be true of the creditors in the context of an action such as that referred to above.
If an
ex post
definitive valuation were carried out, it would very likely confirm that Banco Popular had been valued incorrectly and that the write-down of the bonds held by the appellants had been either not necessary or too extensive, which would have resulted, at the very least, in a resolution mechanism that required a sale on very different terms.
If, subsequent to that
ex post
definitive valuation, the SRB were to decide not to compensate the appellants through a write-back of their bonds, the SRB’s decision, and, potentially, the definitive valuation under Article 20(15) of Regulation No 806/2014, could, in any event, be challenged by bringing an action for annulment, an action for failure to act or an action to establish non-contractual liability under Article 340 TFEU.
The loss of these real opportunities directly affects the legal position of the appellants, which are therefore directly concerned by the decision whose annulment they seek.
In their reply, first, the appellants contest the SRB’s interpretation of the function of the buffer for additional losses. Secondly, they submit that the SRB’s reasoning that an
ex post
definitive valuation report is not required because the appellants have available to them the sale price obtained following a lawfully conducted tender procedure is circular, as the value stated in the second valuation report directly influenced the sale price in question.
In the second ground of appeal, the appellants submit that the General Court, in any event, was wrong to conclude that the decision whose annulment they seek was not of direct concern to them.
The General Court set out two arguments in support of that conclusion, both of which derive from misinterpretation of Regulation No 806/2014, the first being that Article 20(12) of that regulation applies only where the SRB applies the bail-in tool, the bridge institution tool or the asset separation tool, none of which were used in this case, and the second relating to the absence under Article 20(12) of compensation for former shareholders and creditors of an entity whose capital instruments have been fully converted, written down and transferred to a third party.
First, Article 20(12)(a) of Regulation No 806/2014 expressly refers to ‘owners of relevant capital instruments which have been written down under the bail-in tool’. Relevant capital instruments are defined in the regulation as being bonds such as those held by the appellants. There can therefore be no dispute that that provision applies to them. The General Court failed to have regard to this point and failed to take any account of the meaning of the words ‘relevant capital instruments’ in the order under appeal.
It is true that, in this case, the bail-in tool was not used. However, the reference to it in Article 20(12)(a) of Regulation No 806/2014 must be read together with the reference to the write-down of relevant capital instruments. That provision cannot be interpreted formalistically so as to apply only to write-downs resulting from application of the bail-in tool, but must include cases in which relevant capital instruments are written down by 100%, as here, whether they have been written down under Article 22(1) of that regulation or under the bail-in tool.
Secondly, there is nothing to support the General Court’s interpretation that compensation is not available to the appellants under Article 20(12) of Regulation No 806/2014 on account of the fact that their capital instruments were fully converted, written down and transferred to a third party, that is to say, to Banco Santander for the sum of EUR 1.
The order under appeal states in that regard that the appellants no longer hold capital instruments of Banco Popular that can be the subject of compensation, although that provision contains no exception in relation to the claims of creditors or owners where the write-down was followed by the sale of the business.
There is no reason why creditors and owners of relevant capital instruments which were written down and subsequently transferred under the sale of business tool should not be able to obtain compensation where such action was based on a flawed provisional valuation of the bank’s net assets and liabilities. They will be affected to the same extent as, if not to a greater extent than, those who retain ownership of the relevant instruments. It follows that the appellants are directly concerned by virtue of the express wording of Article 20(12)(a) of Regulation No 806/2014.
Despite the fact that the General Court did not examine the questions of direct concern and of an interest in bringing proceedings in the order under appeal, the appellants submit that the Court of Justice should nevertheless consider the appellants’ arguments in that regard, in the interests of judicial economy.
They consider themselves to be individually concerned by the decision whose annulment they seek as they form part of a small number of identifiable investors that held the bonds issued by Banco Popular which were expropriated by the SRB.
In the present case, the first and second valuation reports, although highly unreliable, formed the basis of the SRB’s decision to write down the appellants’ investments in the capital of Banco Popular. Therefore, the SRB’s decision not to carry out an
ex post
definitive valuation, demonstrating that the SRB acted unlawfully in writing down the appellants’ assets, is of individual concern to the appellants.
Contrary to the SRB’s contentions at first instance, according to which this type of bond is widely traded around the globe, preventing their holders from being identified and counted up, the bonds expropriated by the SRB in the resolution decision were identified by issue number and value in that decision, so that the number of them was known on the resolution date, 7 June 2017.
Likewise, the appellants maintain that they have a legal interest in the annulment sought, which, if it were ordered, would doubtless procure them an advantage. In the event of annulment, the SRB would be required to carry out an
ex post
definitive valuation which would probably establish that Banco Popular was worth more than EUR 2 billion. That would thus require the SRB to consider the write-back of the value of the appellants’ bonds. Moreover, the appellants, as prominent investors in the banks subject to the single supervisory mechanism, also have a distinct interest in preventing future breaches of the SRB under Regulation No 806/2014.
The SRB contests both the admissibility of the first and second grounds of appeal, on the basis of the same arguments as those already put forward in support of the inadmissibility of the appeal as a whole, and the merits of those grounds of appeal.
Findings of the Court
It is necessary at the outset to reject the SRB’s arguments relating to the inadmissibility of each of the grounds of appeal, for the reasons already set out in paragraphs 43 to 46 of the present judgment in respect of the appeal as a whole, that is to say, that the question of the alleged infringement of the right to property and that of the alleged failure to observe the principle of equal treatment are only corollaries of the interpretation for which the General Court is criticised and therefore do not change the subject matter of the proceedings before the General Court.
As to the merits, it should be noted at the outset that, in the present case, the SRB, faced with a rapid deterioration in Banco Popular’s financial situation, in particular a lack of liquidity, decided that the appropriate resolution tool would be the sale of business tool, as provided for in Article 24 of Regulation No 806/2014, rather than a bail-in, which it viewed as being insufficient. While having recourse to that resolution tool, the SRB made use of its power under Article 21 of Regulation No 806/2014 to write down and convert relevant capital instruments.
As stated in paragraphs 7 and 8 of the present judgment, the first valuation report, compiled by the SRB, was intended to inform the determination of whether the conditions for resolution were met, while the second valuation report, drawn up by an independent expert appointed by the SRB, was to assess the value of Banco Popular’s assets and liabilities, provide an evaluation of the treatment that shareholders and creditors would have received if Banco Popular had entered into normal insolvency proceedings, and inform the decision to be taken on the shares and instruments of ownership to be transferred and the SRB’s understanding of what constituted commercial terms for the purposes of the sale of business tool. The third valuation report, also drawn up by the independent expert, was intended to determine whether the shareholders and creditors affected by the resolution scheme in respect of Banco Popular would have received better treatment if the institution had entered into normal insolvency proceedings.
The SRB took the view that in this instance it was not necessary either to prepare an
ex post
version of the first valuation report or to have the second valuation report followed by an
ex post
definitive valuation. It made that analysis known to the appellants, which had questioned it in that regard, by disclosing to them the letter of 2 August 2018 that it had sent to the independent expert. The appellants requested clarifications from the SRB, with which they were provided by letter of 18 December 2018. It is against that letter that the action at first instance was brought.
Since both grounds of appeal are founded on the contention that the SRB infringed Article 20 of Regulation No 806/2014, it is appropriate to provide an interpretation of the wording of that provision, in the light of recital 64 of the regulation.
It is apparent from recital 64 that a distinction should be drawn between valuation of the assets and liabilities of failing entities as carried out by the SRB for reasons of urgency, which is provisional, and that carried out independently, which in principle brings an end to that provisional nature.
As regards types of valuation, Article 20(11) and (16) of Regulation No 806/2014 expressly provides for two such types, namely (i) the valuation ‘carried out under paragraphs 1 to 15’ and (ii) the valuation ‘referred to in paragraphs 16, 17 and 18’. According to Article 20(11) and (16), those valuations are to be and must remain distinct and are to be carried out by an independent person, but may nevertheless be carried out either separately or by the same independent person simultaneously.
It follows that, in the present case, both the first and second valuation reports and any
ex post
definitive valuation belong to the first type of valuation since they fall under Article 20(1) to (15) of Regulation No 806/2014, while the third valuation report, falling under Article 20(16) to (18), belongs to the second type of valuation.
It is true that the existence of a definitive valuation other than the
ex post
definitive valuation – which is implied by the addition, in Article 20(11)
in limine
of Regulation No 806/2014, of the words ‘
ex post
’ to ‘definitive valuation’, in contrast to a definitive valuation carried out ‘
ex ante
’ – may have an effect on the possibility for the SRB to refuse to proceed with an
ex post
definitive valuation since a definitive valuation would itself serve as the basis for the decision to apply a resolution tool or exercise a resolution power or the decision to exercise the power to write down or convert capital instruments, and would thus be open to challenge through those decisions, in accordance with Article 20(15) of Regulation No 806/2014.
That interpretation is also supported by Article 20(2) of Regulation No 806/2014, according to which, subject to Article 20(15), that is to say, the possibility of contesting the valuation indirectly through the decisions referred to in paragraph 83 of the present judgment, ‘the valuation shall be considered to be definitive’ where ‘all of the requirements laid down in paragraphs 1 and 4 to 9 are met’. Those requirements include, in Article 20(1) of the regulation, the requirement that the valuation be carried out by a person who is independent, including in relation to the SRB and the national resolution authority, as well as in relation to the entity concerned.
It should be noted, as an incidental point, that this means not only that the first valuation report, compiled by the SRB (see paragraph 7 of the present judgment), was in fact provisional in nature, but also that, even if the SRB had prepared an
ex post
version of that first report, an action which the appellants considered to be necessary (see paragraphs 19 and 23 of the present judgment), such a version would not have constituted a definitive valuation since it would not have been drawn up by an independent person. As the Advocate General has stated in point 70 of her Opinion, since the first valuation report was prepared by the SRB in the present case, there are no doubts as to its provisional nature. In the present case, only the second valuation report, which fulfils that condition, is therefore capable of being regarded as constituting a ‘definitive valuation’, within the meaning of Article 20 of Regulation No 806/2014.
However, it must be stated, without it being necessary to rule on that last question or on the change in the SRB’s position in that regard, that the General Court was right in holding that, in any event, an
ex post
valuation would not have had any effect on the appellants’ legal position in the circumstances of the present case, with the result that the letter of 18 December 2018 indicating to them the reasons why the SRB was not intending to proceed with such a valuation likewise did not produce legal effects capable of affecting their situation.
As the Advocate General has observed in point 85 of her Opinion, where, as in the present case, an action for annulment is brought by a non-privileged applicant against a measure that has not been addressed to it, the requirement that the binding legal effects of the measure being challenged must be capable of affecting the interests of the applicant by bringing about a distinct change in its legal position overlaps with the conditions laid down in the fourth paragraph of Article 263 TFEU (judgment of 13 October 2011, Deutsche Post and Germany v Commission,
C‑463/10 P and C‑475/10 P
,
EU:C:2011:656
, paragraph
).
The SRB’s answer to the appellants as to why it did not intend to have an
ex post
definitive valuation drawn up in the present case is based on the purposes of such a valuation.
While it is true, as the appellants argue, that the wording of Article 20(11)
in limine
of Regulation No 806/2014 appears to make the carrying out of an
ex post
definitive valuation necessary when the SRB has only a provisional valuation at its disposal, in particular owing to the use of the present indicative in the words ‘
est effectué
’ [‘shall be carried out’ in the English version], which usually has a mandatory quality (see, to that effect, judgment of 3 March 2020, X (European arrest warrant – Double criminality),
C‑717/18
,
EU:C:2020:142
, paragraph
), and to the reference to ‘as soon as practicable’, the fact remains that the General Court was justified in pointing out that omitting to draw up such a report had no effect on the appellants’ legal situation, particularly in the light of the two purposes of the
ex post
definitive valuation, as set out in Article 20(11) of Regulation No 806/2014.
In that regard, the rationale of Article 20(11) of Regulation No 806/2014, expressed in the second subparagraph of that provision, is apparent from its two specific purposes, namely ‘to ensure that any losses on the assets of an entity referred to in Article 2 are fully recognised in the books of accounts of that entity’ and ‘to inform the decision to write back creditors’ claims or to increase the value of the consideration paid, in accordance with paragraph 12 of [Article 20]’. Even though the wording of that second purpose includes a fairly broad description of the conditions which are to lead to the drawing up of an
ex post
definitive valuation, it must be noted, as the General Court rightly observed in the order under appeal, that that purpose refers expressly to Article 20(12) of the regulation, from which it follows that it applies only to specific situations, namely those in which the SRB had recourse to the bail-in tool, the bridge institution tool or an asset management vehicle.
In view of the particular features of the present case, the drawing up of an
ex post
definitive version of the second valuation report, even if that was mandatory, would not, in any event, have corresponded to either of those two purposes. As the General Court pointed out in paragraph 43 of the order under appeal, the appellants did not submit that the purpose referred to in Article 20(11)(a) of Regulation No 806/2014 would apply in the circumstances of the present case. Nor does the purpose referred to in Article 20(11)(b) apply, because, as the General Court rightly pointed out in paragraphs 48 and 49 of the order under appeal, the resolution tool adopted in respect of Banco Popular was the sale of business tool, under Article 24 of Regulation No 806/2014.
The application of the sale of business tool is not one of the situations provided for in Article 20(12) of that regulation in which compensation may be paid following an
ex post
definitive valuation.
Lastly, in a case such as the present one, where the second valuation report is followed by the use of the sale of business tool, the result specified in that report is, in any event, either corroborated or invalidated by the sale price obtained at the end of a lawfully conducted tender procedure. The right price therefore corresponds quite simply to the actual market price, as determined. The sale of business tool thus, de facto, settles any debate on the potential economic value of the assets of the transferred institution. Consequently, at least in the circumstances of the present case, an
ex post
definitive valuation could only have recorded that market value and therefore it would have had no effect at all on the appellants.
It follows from all the foregoing considerations that the appeal must be dismissed, without it being necessary to examine the remainder of the arguments in the grounds of appeal, which, as pointed out in paragraph 45 of the present judgment, are after all only a corollary of the criticism of the General Court’s interpretation.
Costs
Under Article 184(2) of the Rules of Procedure, where the appeal is unfounded, the Court is to make a decision as to the costs. Under Article 138(1) of the Rules of Procedure, which is applicable to appeal proceedings by virtue of Article 184(1) thereof, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings.
Since the SRB has applied for costs and the appellants have been unsuccessful, the appellants must be ordered to bear their own costs and to pay those incurred by the SRB.

On those grounds, the Court (Third Chamber) hereby:

1.
Dismisses the appeal;

2.
Orders Algebris (UK) Ltd and Anchorage Capital Group LLC to pay the costs.

Prechal
Passer
Biltgen
Rossi
Wahl
Delivered in open court in Luxembourg on 21 December 2021.
A. Calot Escobar
Registrar
K. Lenaerts
President
(
*1
)	Language of the case: English.