TrustHLT/LaCour huggingface dataset:
AP1 (Applicant): We do not deny that the integration act could have also infringed the banks.
AP1 (Applicant): However, contrary to the government's arguments, we submit that it was not an error that we are here on behalf of the shareholders.
AP1 (Applicant): The banks and the shareholders deliberated who should come to this court.
AP1 (Applicant): We also understand that coming on behalf of the shareholders inevitably means that the scope of this action is more limited than if we were representing the banks, simply because of the fact that the rights restricted on behalf of the shareholders are much more limited, these are simply the rights to vote and the right to sell the shares, than the rights of the banks, which are much more lengthy as the act introduced several infringements relating to the banks, which are, as we are representing now, the applicants, not the subject matter of this procedure.
AP1 (Applicant): The reason that we are here on behalf of the shareholders is the fact that the banks and the shareholders decided that due to the pressure from the integration institutions, the risk that an application from the banks will later need to be withdrawn or will be withdrawn by someone is much less if we represent the shareholders and not the banks, simply because of the numbers.
AP1 (Applicant): In case of the banks, withdrawal would have simply meant a declaration from one single manager of the bank, whereas in case of the applicants, it would require convincing or pressuring over 200 individual applicants to withdraw their application to this court.
AP1 (Applicant): The fact that there had been pressure from the integration institution is clearly supported by the fact that when we came here originally, there were more applicants in this case who finally decided to withdraw their applications after lengthy discussions with the integration institutions.
AP1 (Applicant): We understand that these support the argument that it was not, it would not have been reasonable to come on behalf of the banks because there would have been an actual and real threat that these applications would later be withdrawn, and then this court would not be in a position to show that such an infringement of shareholder rights and such a brutal intervention in the life of private entities is not allowed under the Convention.
AP1 (Applicant): Now in relation to Mr. Chantoury's second question, this question was raised to the
AP1 (Applicant): government, but still I would take the opportunity to try to answer it.
AP1 (Applicant): The question was, if you understood it correctly, whether it was possible in practice to leave the integration.
AP1 (Applicant): It is true that there was one bank, to our understanding there was only one bank who finally managed to exit the integration.
AP1 (Applicant): This is the bank that was referred to by the government as D-Bank, and the government argues that the exit was a reasonable alternative with this example.
AP1 (Applicant): Now before responding to this argument, let me reiterate that in order to exit, the applicants would have had to pay an additional almost 4 billion forint, which was simply impossible taking into account the shareholders of the bank.
AP1 (Applicant): This basically would have meant that simply from a financial point of view, that a new bank needs to be established.
AP1 (Applicant): Now answering the specific question relating to D-Bank, it is important to understand that D-Bank was a member of a corporate group, the central entity of which, as it subsequently was found in 2015, committed severe crimes, leading to client's losses exceeding 100 billion forints, as the client funds disappeared.
AP1 (Applicant): Under such circumstances, it is maybe less surprising that their shareholders were able to provide the necessary funds, the necessary capital for the exit.
AP1 (Applicant): However, in case of companies operating in line with the laws, fulfilling this condition was simply not feasible, especially for private individual owners who collected the funds necessary for transformation into banks over 50 years.
AP1 (Applicant): Now answering the question raised by Mr. President and also answering the question of Mr. Dedov,
AP1 (Applicant): it may be useful to repeat how the rights of the shareholders were infringed.
AP1 (Applicant): It is true that the General Meetings is the supreme body of the company where the shareholders exercise their collective rights to control the company.
AP1 (Applicant): However, as I explained previously, the General Meeting is also the place where the individual shareholders meet, where they exercise their individual rights.
AP1 (Applicant): The Court previously reiterated in its judgment in the present case that a share is a complex object certifying that the holder possesses a share in the company together with corresponding rights including, and I quote, especially voting rights and the right to influence the company's conduct and policy.
AP1 (Applicant): These are the rights, the infringement of which we argue.
AP1 (Applicant): The right to influence the conduct of the company is not equal to the individual right of a majority shareholder to control the company.
AP1 (Applicant): The individual right to control is related to the amount of influence a shareholder has.
AP1 (Applicant): By contrast, the right to influence the conduct of a company refers to the substance of voting right of each and every shareholder regardless of the number of votes they can cast.
AP1 (Applicant): The right to vote ensures that the shareholder has the potential to influence the operation of the company and we argue that the Integration Act violated these rights.
AP1 (Applicant): In relation to Mr. President's second question, we confirm that the dividends indeed were
AP1 (Applicant): paid.
AP1 (Applicant): However, we also argue that this is not the issue here.
AP1 (Applicant): The government wrongly argues that the measures are the subject matter of the present case and we also argue that the judgment of the chamber was also misleading in this respect when it argues that only the measures actually suspending the voting rights of the shareholders or blocking the payment of dividends to the shareholders might violate the rights of the shareholders and these measures could have been taken only in exceptional cases.
AP1 (Applicant): The judgment argued that the applicants should have demonstrated that they were in fact likely to run the risk of being affected of such measures.
AP1 (Applicant): Our claim is based on the fact that before the Integration Act entered into force, the shareholders had the right to freely decide issues reserved to the general meetings of the banks and the Integration Act restricted this right by subjecting the decisions of the shareholders to the integration institutions.
AP1 (Applicant): For assessing this claim, it is irrelevant whether the integration institutions actually exercise their right to veto or not.
AP1 (Applicant): We argue that we are not potential victims but actual victims of the legislation and we also argue that this case is not an actio popularis.
AP1 (Applicant): To support this, I refer to the established case law of this Court which argues that it is open to a person to contend that a law violates his or her rights in the absence of an individual measure or of implementation.
AP1 (Applicant): We argue that the Integration Act itself created a result where the right to vote was left without any meaningful content which inevitably led to the fact that the right to sell was also infringed simply due to the fact that the shares no longer had any value.
AP1 (Applicant): In relation to the government's argument, I think it is also important to mention that the government in its observation and also partly in its speech now argued that the Integration Act was not used as a tool to replace the original owners of the integration and we are only complaining here because we did not receive shares in the savings bank.
AP1 (Applicant): This is a complete misunderstanding or misinterpretation of our arguments.
AP1 (Applicant): We argue that due to the fact that the government acquired majority ownership in the savings bank and then reprivatised it later in a way that in effect led to the result that only three owners have dominant position in the sector simply meant that everyone else who previously had ownership in this sector and who were able to control the savings cooperatives and the complete sector no longer had such a right.
AP1 (Applicant): It is clear from corporate documents, regulatory decisions and newspaper articles that the three investors who have dominant shareholdings now in the sector is Mr. Mészáros, Mr. Vida
AP1 (Applicant): and Mr. Gál, although I assume that these names may not reveal much to the court, it
AP1 (Applicant): may be useful to provide some background.
AP1 (Applicant): When we discuss economic matters in Hungary, one needs to take into account the new economic structure introduced by the Prime Minister.
AP1 (Applicant): As an analysis published by the Central European University Press, Central European University itself being a victim of this new era formulated it, the new economic system involves using state power to capture oligarchs and markets.
AP1 (Applicant): Mr. Mészáros, who according to Forbes accumulated $1 billion from state-related investments,
AP1 (Applicant): is the most prominent figure mentioned when analysing this new economic political system.
AP1 (Applicant): Mr. Gál is closely linked to Mr. Mészáros, just to give one example he is the CEO of
AP1 (Applicant): the largest company of Mr. Mészáros and Mr. Vida sits in the management of companies
AP1 (Applicant): of Mr. Mészáros and owns one of the Hungarian commercial televisions under state influence.
AP1 (Applicant): We argue that this easily can explain the real reason behind the change of ownership structure in the sector.
AP1 (Applicant): Now there is one final point that I would like to mention and I see that my time is basically over.
AP1 (Applicant): The government keeps repeating to the fact that what happened here is simply a regulatory exercise.
AP1 (Applicant): Governments always have the power to regulate financial institutions, especially in light of the 2008-2009 financial crisis.
AP1 (Applicant): The government also mentioned in its pleadings now that what the powers provided to the integration institutions is basically nothing more than the powers each and every financial regulator has throughout Europe.
AP1 (Applicant): Now just to give one example to show that this argument is a complete misinterpretation of the situation, let me refer to the fact that at a certain stage in the integration procedure all the members of the integration were forced or obliged to submit all their data relating to all their clients to the integration institutions into a newly set up database.
AP1 (Applicant): This was not simply, first of all, this never happens in case of a normal financial regulator, but more importantly this database was also shared with each and every members of the integration, meaning that when our bank would have been obliged to upload all of its data to this database, each and every competitors of this bank and each and every other shareholders through their banks would have had the opportunity to see all their data relating to their clients.
AP1 (Applicant): Now there was also a reference in the government's argument relating to the regulatory regime in relation to the, I assume it must have been the CRR regulation, which provides that national authorities may waive the application of capital requirements and it also answered the question of Mr Dedov, this is indeed based on the Basel Accords, but this is not the Basel rules themselves, but this is the European implementation of these rules.
AP1 (Applicant): And it provides Article 10 of this regulation that national authorities may waive the application of the capital requirements set forth by the regulation if certain conditions are met.
AP1 (Applicant): We do not dispute that the savings cooperative sector in its current form falls under Article 10 of the CRR.
AP1 (Applicant): We argue however that this does not have any relevance regarding the rights of the applicants.
AP1 (Applicant): The reason for this is fairly straightforward.
AP1 (Applicant): The CRR does not empower the government to infringe the rights of the shareholders.
AP1 (Applicant): Just to give a few examples, it does not provide that the shareholders' right to vote shall or could be suspended or that the shareholder decision may require approval or consent.
AP1 (Applicant): The government's agent also referred to the fact that instruction rights, similar to the instruction right provided to the integration institutions, also exist under the CRR.
AP1 (Applicant): However, the government's agent fails to mention that this right relates to the institutions themselves, so the authority has the right to provide instructions to the institutions falling under its scope.
AP1 (Applicant): However, the CRR does not allow the regulatory authority to provide instructions that infringe or, anyhow, affect the rights of the specific shareholders of the organs or the organs of the company.
AP1 (Applicant): The CRR, to put it very simply, does not give the right to the state to intervene in shareholder rights.
AP1 (Applicant): There was also a very brief reference previously to the so-called BRRD rules by the government.
AP1 (Applicant): These are the recovery and resolution rules introduced by a European directive.
AP1 (Applicant): I do not really want to take your time discussing this in detail because we believe that this argument is completely groundless, as this directive provides state power in case of an unsound and failing institution, even if we were to accept, which we strongly deny, the fact that the savings cooperative needed help from the government.
AP1 (Applicant): It has never been proven and it has never been even argued by the government that this sector and each and every of its members was an unsound and failing sector and unsound and failing institutions.
AP1 (Applicant): To summarize my answers, let there be no mistake.
AP1 (Applicant): This is not a case about defining the powers of a government in case of economic crisis.
AP1 (Applicant): There was no economic crisis at all in Hungary at the time of the legislation.
AP1 (Applicant): The savings cooperative sector in particular was not in a crisis situation.
AP1 (Applicant): We argue that this is a case of whether a government is allowed to establish a new economic elite under the guise of an economic crisis.
GR1 (Government): First of all, I would like to react to the question of Judge Wennerstrom concerning how much national and how much EU law refers to the topic.
GR1 (Government): The choice of carrying out a reform was certainly a decision of the Hungarian Government of Parliament.
GR1 (Government): This decision was made not only to enhance the profitability of the cooperative credit institutions, but also to ensure their safe and prudent operations.
GR1 (Government): Further, the legislative reform had the purpose of enhancing the lending activities of these banks in the rural areas where these banks mostly operated and where financing was especially needed for small and medium-sized enterprises in the face of the recovery from the 2009 financial crisis.
GR1 (Government): Further, the Basel Accords actually raised capital adequacy ratio requirements for all banks.
GR1 (Government): Given the fact that saving cooperatives were relatively undercapitalized, the integration was also a means to ensure compliance with the Basel Accords.
GR1 (Government): Once the government and the parliament made this choice to integrate this sector, several aspects of the specific form of the integration followed from EU law, most importantly, regulation 575, 2013, article 10 of regulation 575 specifically provides inter alia that in case of a similar integration, the management of the central body must be empowered to issue instructions to the management of the affiliated institutions that there must be joint and several liability between the members and that solvency and liquidity of the central body and of all affiliated institutions are monitored as a whole.
GR1 (Government): In other words, the power of instructions by the central body, as well as sharing the risks between the members through joint and several liability were a comment of EU law.
GR1 (Government): This, again, necessitated specific measures that ensure that all members of the integration operate prudently.
GR1 (Government): The measures complained of by the applicants are exactly such measures.
GR1 (Government): EU law was also relevant as regards the amount of the contribution of the state to the integration.
GR1 (Government): It is not contested by the applicants that the Hungarian state paid as much as 136 billion forints to the integration.
GR1 (Government): According to the integration act, this amount was to be calculated on the basis of the value of the rights the state acquired through the integration.
GR1 (Government): This was not only necessary to avoid any eventual concerns as regards the interference with the rights of cooperative credit institutions, it was also a requirement of the European Union state aid law that the state is not contributing more to the integration than the value of the rights it acquired.
GR1 (Government): To the question how realistic was it to leave from the structure, the answer is the following.
GR1 (Government): The provisions to restrict leaving the integration were put in place in order to protect the rights of depositors and the rights of those banks and investors who remained.
GR1 (Government): In fact, several banks have decided to leave the integration and have, in fact, left the integration.
GR1 (Government): IRB Bank, DRB Bank, DDD Bank, and TTT Bank have left the integration before the end of 2013.
GR1 (Government): The joint and several liability scheme in the integration required by regulation 575, 2013, has entered into force gradually following audits by big four auditors, PWC, KPMG, and BDO.
GR1 (Government): The audits of the 121 banks took almost one year.
GR1 (Government): Before the banks acceded to the joint and several liability scheme, it was possible to exit the integration without depositing a significant amount of deposit, the amount equal to the regulatory capital.
GR1 (Government): If a bank was to exit the system following access to the system of joint and several liability, it was required in salary to set aside an amount equal to its regulatory capital for a period of two years following the exit.
GR1 (Government): This deposit was meant as an insurance as depositors and financial parties could make a claim on all other banks remaining in the integration for the obligations undertaken by the exiting entity for two more years.
GR1 (Government): Because of loopholes in the legislation, any participants were able to exit the integration if they decided to pursue their activities not as deposit-taking banks but other forms of financial institutions.
GR1 (Government): So in summary, four banks exited before joining the joint and several liability scheme, and among others, Kinezio Bank itself exited the integration in 2018 also without the need to deposit the amount of the regulatory capital for two years.
GR1 (Government): It has deposited nothing.
GR1 (Government): To the question of Judge Dadov, I would like to answer that, as stated before, the Basel Accords in Terraria raised the required capital adequacy ratios for all banks.
GR1 (Government): This could have posed a problem for a number of cooperative credit institutions.
GR1 (Government): Further, the purpose of the legislation was not only to ensure solvency but also to ensure a prudent operation and to contribute to the development of rural areas through enhanced lending activities in the countryside by the very banks that had the mission to the banks of the countryside.
GR1 (Government): Let me briefly react also some of the applicants' arguments concerning the legislative process and the methods of regulation.
GR1 (Government): The Integration Act provided for a process of integration with various measures taking effect at different stages.
GR1 (Government): A gradual entry into force, therefore the period of adaptation allowed by the law cannot be counted as simply the time elapsing between its adoption and the entry into force, but it is much more complicated and it was different in respect of different elements of the integration.
GR1 (Government): However, such elements of the regulation had to take effect very quickly in order to prevent the actors in the financial sector to undermine the purposes of the integration.
GR1 (Government): In the financial sector, one hasty transaction can potentially jeopardize the solvency of the bank.
GR1 (Government): Any management could decide to exploit irresponsibly the protection accorded by the joint liability introduced under the new regulation or take any action undermining the purposes of the Integration Act.
GR1 (Government): As an example, in the period between the adoption of the law and the entry into force, three cooperative credit institutions opted to transform into banks in order to escape from under the supervision introduced by the Integration Act.
GR1 (Government): Subsequently, these banks went bankrupt and several criminal proceedings followed, including for fraud and money laundering.
GR1 (Government): From the applicant's perspective, it was a gain because it was not the integration which had to bear the costs of these bankruptcies, but at the same time it was a loss for the depositors and eventually the state budget.
GR1 (Government): Therefore, the law had to ensure, including by the choice of the date of its entry into force, that its purposes cannot be undermined by the actors of the financial sector.
GR1 (Government): Contrary to the applicant's allegations, consultations had taken place between the government and the representatives of the financial sector concerned before the adoption of the Act.
GR1 (Government): In 2013, the government appointed a government commissioner who conducted an extensive consultation with saving cooperatives and also contracted audit firms to review the financial position of the saving cooperatives.
GR1 (Government): The audit firms found that the sector was not sufficiently capitalized and the risks were not properly assessed.
GR1 (Government): These documents contain sensitive business secrets, thus the audit firms would only consent to the publication of these audits if all parties agreed to sign a so-called reliance letter undertaking not to sue the firms for the finding of the audit.
GR1 (Government): As regards the applicant's comments on the purposes of the integration, the government note that the statements of the new management on the business policy of the bank, which had emerged from the integration, cannot be taken as a proof of the original intentions of the Integration Act, neither can later modifications of the integration process.
GR1 (Government): Integration was necessary both to improve banking services in the rural areas and to ensure a more effective supervision in the financial sector.
GR1 (Government): The necessity of a more effective supervision has also been acknowledged by the applicants.
GR1 (Government): Prior to the Integration Act, the great number of saving cooperatives made it impossible for the Hungarian National Bank to carry out effective supervision.
GR1 (Government): Following the entry into force of the Integration Act, this supervisory functions were delegated to the organs of the integration.
GR1 (Government): It was exactly the same cause for concern of the President of the Republic, who first sent the law back to the Parliament for consideration.
GR1 (Government): These concerns were eliminated by the amendment of the Act on the National Bank.
GR1 (Government): The applicants also claim that prior to the Integration Act of 2013, the integration proceeded voluntarily.
GR1 (Government): However, the integration organizations created in 1993 were only formally voluntarily.