7.  The applicants are shareholders of two savings banks, namely Kinizsi Bank Zrt. (“Kinizsi Bank”) and Mohácsi Takarék Bank Zrt. (“Mohácsi Bank”), and of one savings cooperative, Pátria Takarékszövetkezet (“Pátria Cooperative”). A list of the applicants is set out in the appendix, which also indicates the financial institution in which they hold shares and any changes to their situation following the lodging of the application.
8.  At the time the application was lodged, the applicants held shares with an aggregate par value of 2,043,342,000 Hungarian forints (HUF), approximately 6,310,000 euros (EUR), representing 98.28% of the total registered capital of Kinizsi Bank and shares with an aggregate par value of HUF 1,833,300,000, approximately EUR 5,662,000, representing 87.65% of the total registered capital of Mohácsi Bank, and shares with an aggregate par value of HUF 8,100,000, approximately EUR 25,000, representing 5.61% of the total share capital of Pátria Cooperative.
9.  On 18 December 2014 and 15 April 2015 respectively two of the applicants, Ms László Jánosné Boris (no. 18) and Ms. Endréné Csoltkó (no. 28), the only shareholders of Pátria Cooperative amongst the applicants, withdrew their complaints before the Court. Therefore, the facts of the case below do not contain any further information relating specifically to Pátria Cooperative.
10.  Kinizsi Bank and Mohácsi Bank were established in 1958 and used to operate as savings cooperatives. Their clientele was mostly from the local community.
11.  In 1993 a voluntary and restricted integration took place involving 235 savings cooperatives, including the predecessors of Kinizsi Bank and Mohácsi Bank. The purpose of the integration was to enhance the cooperatives’ market position and financial security. With the active support of the Hungarian State and the PHARE Program of the European Union, they entered into an integration agreement. The key institutions of the integration were the National Association of Savings Cooperatives (Országos Takarékszövetkezeti Szövetség – “OTSZ”), the Savings Bank (Takarékbank Zrt.) and the National Fund for the Institutional Protection of Savings Cooperatives (Országos Takarékszövetkezeti Intézményvédelmi Alap – “OTIVA”), which was created as part of the integration. OTIVA, on the one hand, improved the security of deposits placed with the savings cooperatives by supplementing the National Deposit Insurance Fund (Országos Betétbiztosítási Alap – “OBA”), and, on the other hand, served to prevent crisis situations and improved the stability of savings cooperatives. Until changes were introduced by the Integration Act, the shareholding of the savings cooperatives and certain saving banks (together referred to as “cooperative credit institutions”) in the Savings Bank exceeded 60%.
12.  In 2006 and 2008 respectively Kinizsi Bank and Mohácsi Bank transformed into the companies limited by shares and received their licences for banking operations. They however remained members of OTIVA and part of the above-mentioned integration.
13.  According to Risk Report 2013/I issued by the Hungarian Financial Supervisory Authority (hereafter “the Supervisory Authority”) in June 2013, the cooperative credit institution sector remained profitable throughout the economic crisis. However, in 2011 and 2012 respectively the operating licences of two saving cooperatives were revoked by the Supervisory Authority, which resulted in the deposit holders obtaining indemnification from OBA.
14.  Following an audit carried out with respect to 121 cooperative credit institutions, further to the entry into force of the Integration Act (see paragraph 16 below), a certain number of them had their operating licences withdrawn. Furthermore, ninety-one cooperative credit institutions were obliged to commit reserves, in eight cases a serious crisis situation was established and some required a capital injection from the Integration Organisation (see paragraph 18 below).
15.  According to the Government, basing its findings on the data collected after the Integration Act came into force, considering the capital/loan ratio, thirty-nine cooperative credit institutions would not have been in a position to ensure profitable operations without the new measures. The above-mentioned audit also revealed that thirteen cooperative credit institutions had a capital adequacy ratio below 8%, five of which had a negative ratio value.
16.  On 13 July 2013 Act no. CXXXV of 2013 on the Integration of Cooperative Credit Institutions and the Amendment of Certain Laws Regarding Economic Matters (“the Integration Act”) entered into force. It was then amended in several aspects, including by Act no. CXCVI of 2013 on the Amendment of Certain Laws Regarding the Integration of Cooperative Credit Institutions (“the Integration (Amendment) Act”) with effect from 30 November 2013.
17.  The Integration Act concerned cooperative credit institutions, that is most savings cooperatives operating as a cooperative and the banks operating as companies limited by shares who on 1 January 2013 had been members of OTIVA. Its scope therefore extended to Kinizsi Bank and Mohácsi Bank. It made the cooperative credit institutions ipso jure members of the Integration Organisation and shareholders of the Savings Bank.
18.  The Integration Act abolished the integration of cooperatives organised on a voluntary basis, with voluntary membership, and terminated OTIVA. Instead, it introduced a mandatory integration headed by, inter alia, the Integration Organisation of Cooperative Credit Institutions (Szövetkezeti Hitelintézetek Integrációs Szervezete  “the Integration Organisation”), which had been newly created as a legal successor of OTIVA and other voluntary institutional protection funds, and the Savings Bank, which continued to be the central bank of the integration, now having more extensive powers. The Integration Act also created a financial risk pool, encompassing the whole of the cooperative credit institutions sector.
19.  The Savings Bank supervises the operations of the cooperative credit institutions and is authorised to issue instructions in order to ensure compliance with the law and the regulations issued by the Integration Organisation and the Savings Bank. Apart from the cooperative credit institutions, the Savings Bank and the Hungarian Development Bank (Magyar Fejlesztési Bank Zrt. – “the MFB”) became members of the Integration Organisation by virtue of law. Due to the changes in the ownership of the Savings Bank pursuant to the Integration Act (see in particular, sections 13 and 20, cited in paragraph 39 below) the shareholding of Kinizsi Bank and Mohácsi Bank in the Savings Bank changed. While the two banks previously possessed 0.15% and 2.27% respectively in the Savings Bank, they had a 0.12% and 1.83% stake respectively following the implementation of the Integration Act.
20.  The Integration Organisation’s assets are included in the consolidated own funds of the Savings Bank and the cooperative credit institutions. The solvency capital of the cooperative credit institutions is determined collectively, including the property of the Savings Bank and the Integration Organisation.
21.  Under section 17 of the Integration Act, the cooperative credit institutions which did not comply with the relevant requirements of the Integration Act were excluded from integration and their operating licences withdrawn. In such cases, and if they decided to exit, their shares in the Savings Bank could be bought by the MFB, who had a call option (section 20(10) of the Integration Act).
22.  In July 2013 banks could leave the integration if they were each able to provide an additional HUF 2 billion, approximately EUR 6 million, as for the creation of a new bank. Moreover, following the amendment of the Integration Act, the cooperative credit institutions were obliged to deposit an amount equivalent to the value of the share capital they had had at the time of the establishment of their membership in the Integration Organisation to a separate account at the Savings Bank for 730 days (sections 11(7) and (8), and 20/A(12) and (13) of the Integration Act; see also paragraph 43 below). At least one bank, to which the Integration Act applied, decided to exit the system and this decision was accepted by the Supervisory Authority.
23.  In 2012 the Hungarian State emerged as an indirect owner of the Savings Bank, when the MFB (see paragraph 19 above), which is owned by the State, purchased a stake in Deutsche Zentral-Genossenschaftsbank AG, representing 38.5% of the Savings Bank’s shares. Following the entry into force of the Integration Act, the Savings Bank’s capital was increased by HUF 654,986,000 to HUF 3,389,704,000 (approximately EUR 10 million) from the previous amount of HUF 2,735,038,000. Out of this capital increase, the State-owned Hungary Post (Magyar Posta) exercised its statutory subscription rights and acquired ordinary shares with an aggregate par value of HUF 654,666,000 (approximately EUR 2 million), almost 20% of the Savings Bank’s shares (see section 20 of the Integration Act, cited in paragraph 39 below).
24.  Apart from the capital increase, the State has directly paid HUF 136 billion, approximately EUR 420 million, to the Integration Organisation through the Joint Capital Coverage Fund of Cooperative Credit Institutions (hereinafter referred to as “the Fund”).
25.  It was envisaged that the State’s ownership in the integration would only be of a temporary nature. In 2014 its stake in the Savings Bank was sold, through a bidding process, to one company. According to the Government, the majority of the buyer company is owned by savings cooperatives and private individuals and, as a result of this transaction, the direct and indirect shareholding of cooperative credit institutions in the Savings Bank increased to 76.96%.
26.  Following the entry into force of the Integration Act, the cooperative credit institutions were obliged to approve a new memorandum of association conforming to the model established by the Integration Organisation. They continue to be bound by any amendments to the model introduced by the Integration Organisation (sections 17/H and 19(3) of the Integration Act, see also paragraph 46 below).
27.  For a resolution by the board of directors and supervisory board of the cooperative credit institutions to be valid, an invitation to the relevant meeting of the board of directors or supervisory board, together with all related material, must be simultaneously sent to the Savings Bank (section 15/A of the Integration Act). Minutes of the general meetings and meetings of the board of directors of the cooperative credit institutions must always be submitted to the Savings Bank, and minutes of the supervisory board meetings must be sent to the Savings Bank in certain cases. The cooperative credit institutions are also required to inform, inter alia, the Integration Organisation and the Savings Bank of any legal proceedings in which they are involved (section 15/C of the Integration Act).
28.  The shareholders of the cooperative credit institutions may take, inter alia, the following resolutions subject to consent/approval of the Savings Bank:
- the adoption of the annual financial report of the company (section 15(11) and 17/J(2) of the Integration Act);
- the issuing of bonds (section 17/K(1) of the Integration Act);
- decreases or increases of capital (ibid.);
- any payment to the shareholders under any legal title (e.g. dividends, reduction of capital) in connection with their status as shareholders (see section 17/Q(3) and (4) of the Integration Act, cited in paragraph 39 below);
- the conversion, merger or demerger of the company (section 17/S(3) of the Integration Act); and
- acquisition of own shares (section 17/Q(6) of the Integration Act).
29.  The consent of the Savings Bank is required for the appointment of executive officers of the cooperative credit institutions (section 15(12) of the Integration Act). The Savings Bank is authorised to suspend their mandate; it may appoint a managing official for an interim period if the cooperative credit institutions do not comply with the instructions or their operations are not in compliance with the law or regulations, or if they are in a so-called crisis situation (section 15(4), (7) and (12) of the Integration Act).
30.  The Integration Organisation is entitled to suspend the voting rights of the shareholders of the cooperative credit institution for one year if they threaten the reliable and secure operation of the cooperative credit institutions (see section 17/C(5), cited in paragraph 39 below).
31.  The Integration Organisation is authorised to define the level of the cooperative credit institutions’ solvency capital on an individual case‑by‑case (not consolidated) basis (section 17/C(1); if they do not reach the level defined, the Integration Organisation is authorised to increase the capital of the cooperative credit institutions, or take certain other measures (see section 17/C(2), cited in paragraph 39 below).
32.  As to the actual application of the measures provided for by the Integration Act, the Government submitted the following information:
(i)  There have been altogether 151 cases in which cooperative credit institutions sought the consent of the Integration Organisation for the appointment of board members; in ten cases the consent was refused, affecting seven cooperative credit institutions. These cases did not concern Kinizsi Bank or Mohácsi Bank.
(ii)  Executive officers of cooperative credit institutions were removed in nine cases; four of these affected cooperative credit institutions where the capital adequacy ratio was largely insufficient, which led to a capital injection by the Integration Organisation in three cases and a merger with another cooperative credit institution in the fourth case; in the remaining five cases, executive officers were removed for breaches of the relevant legislation. These cases did not concern Kinizsi Bank or Mohácsi Bank.
(iii)  In eight cases the Savings Bank refused to consent to the payment of dividends; the reasons were: (a) non-compliance with the relevant legislation (two cases, including Kinizsi Bank (see paragraph 35 below)), (b) the risk of not fulfilling the business plan (four cases), (c) the risk of not fulfilling the business plan but allowing for the payment of a limited amount of dividends (two cases, including Mohácsi Bank (see paragraph 35 below)).
(iv)  In three cases the increase in capital was provided by the Integration Organisation in order to achieve the 8% capital adequacy ratio; none of them concerned Kinizsi Bank or Mohácsi Bank.
(v)  The voting rights of shareholders of cooperative credit institutions have never been suspended by the Integration Organisation.
(vi)  In two cases, not concerning Kinizsi Bank and Mohácsi Bank, the Savings Bank refused to consent to the payment of the shares’ value in a cooperative credit institution for members who had exited the institution, finding that the payment would have jeopardised the fulfillment of the capital adequacy ratio requirements.
33.  Kinizsi Bank and Mohácsi Bank had to adopt a memorandum of association in line with the model provided by the Integration Organisation following the entry into force of the Integration Act. However, the shareholders of the two banks who disagreed with the resolution adopting the aforementioned memorandum challenged it in court. On 12 March 2015 the Pécs High Court found for the plaintiffs in the case brought by the Mohacsi Bank’s shareholders. The court held that the model memorandum of association issued by the Savings Bank and the Integration Organisation could not in any way deviate from the mandatory provisions of the Companies Act. On 30 March 2015 a similar judgment was given by the Veszprém High Court in a case brought by the shareholders of Kinizsi Bank. In both cases, the decision adopting the impugned memorandum at the general meetings of the bank was annulled.
34.  It would appear that the required solvency capital of Kinizsi Bank and Mohácsi Bank was at some point raised. However, both banks were able to comply with the new requirement.
35.  In the case of Kinizsi Bank, the Savings Bank refused to approve the annual report for 2014 as the bank had not provided data to the auditor to complete the financial audit. The applicants submitted that the required data had been submitted in due time. In the case of Mohácsi Bank, the Savings Bank approved the annual financial report for 2014 but prohibited the actual payment of dividends amounting to 25% (see paragraph 32 above).
36.  The Government averred that several further sets of proceedings were pending before Hungarian courts in which Kinizsi Bank or Mohácsi Bank or their shareholders had sought a remedy against certain decisions of the Savings Bank or the Integration Organisation.